The Republican Party's three-game winning streak in the White House and both houses of Congress this week added fuel to the "Trump deal", but at the same time strong US economic and inflation data continued to reshape market expectations for the speed and extent of the Federal Reserve's interest rate cuts.
On Friday, as economic data such as U.S. retail sales exceeded expectations, traders increased their bets that the Federal Reserve would suspend interest rate cuts in December, and the market generally showed a hawkish reaction. U.S. stocks fell collectively, with the S&P 500 index falling 2.08% for the week, the Nasdaq index fell 3.15%, the largest weekly drop in more than two months, and the Dow Jones Industrial Average fell 1.24%. As the list of Trump's cabinet members was released one after another, there were earthquakes of varying degrees in parts of Wall Street. For example, the nomination of Robert Kennedy Jr., a famous "anti-vaccine pioneer", as the Secretary of the U.S. Department of Health and Human Services has caused the stock prices of several vaccine manufacturers to fall for two consecutive days.
Thanks to the prospect of a more cautious rate cut by the Federal Reserve under Trump, the US dollar index rose for seven consecutive weeks, once standing above the 107 mark. US Treasury yields continued to rebound, with the benchmark 10-year Treasury yield rising above 4.5% at one point, hitting a new high since July. Gold recorded its biggest weekly drop in three years, hovering near a two-month low. Cryptocurrencies were jubilant, with Bitcoin hitting a new record high and remaining above $91,000. Trump's allies proposed selling gold reserves to buy 1 million Bitcoins.
Next week, the market focus will include speeches by central bank officials and data from the U.S., Eurozone and UK Purchasing Managers' Index (PMI) surveys. The following are the key points that the market will focus on in the new week (all in Beijing time):
Central Bank News: Expectations of Fed rate cuts continue to be frustrated, and the US dollar may continue to be supported
Fed:
At 1:25 on Friday, Goolsbee, the 2025 FOMC voting member and president of the Chicago Fed, participated in a Q&A session at a conference
In the latest round of comments on monetary policy, Fed Chairman Jerome Powell, somewhat unexpectedly, sent a less dovish signal, emphasizing that the current strong economic growth, resilient job market and inflation rate persistently above the 2% target mean the Fed can afford to be patient with rate cuts. This statement was confirmed by a series of economic data.
On Friday, the U.S. retail sales monthly rate for October was 0.4%, higher than the expected 0.3%, and the September increase was significantly revised up from 0.4% to 0.8%. In addition, the New York Fed manufacturing index far exceeded expectations and October data, the import price index unexpectedly rebounded, and the CPI and PPI inflation data earlier this week were also higher than expected. Nick Timiraos, a well-known financial journalist known as the "New Fed News Agency", wrote on Friday that the strong performance of the retail sales report may support the view that the U.S. economy is strong or does not need support in the form of interest rate cuts. Traders have cut their bets on the Fed's interest rate cut in 2025, reducing the probability of the Fed's interest rate cut in December to about 50%.
Other Fed officials also poured cold water on the market. Boston Fed President Collins said on Friday that she did not see much urgency in cutting rates, but did not rule out the possibility of another rate cut at the Fed's next meeting in December. Richmond Fed President Barkin quoted an earlier metaphor from Dallas Fed President Logan, comparing the rate cut process to "the captain slowing down as he approaches the port," emphasizing the need to proceed with caution. Chicago Fed President Goolsbee said he would continue to consider rate cuts with reference to the September dot plot, and should slow down when approaching the neutral interest rate. Although several Fed policymakers appear to be taking a wait-and-see attitude toward another rate cut in December, they also hinted that skipping the meeting would mean they would slow down their pace in rate cuts rather than stop cutting them altogether.
On the fiscal front, Trump's push for tax cuts, tariff hikes and a crackdown on immigration could also revive inflationary pressures in the U.S. economy, squeezing the Fed's room to cut interest rates. Although Fed officials have consistently stated that it is too early to judge what impact Trump's policies will have, investors have begun to price in this prospect. If more Fed policymakers emphasize the need to slow the pace of rate cuts, the dollar may continue to be supported.
Frances Cheung and Christopher Wong, FX analysts at OCBC Bank, said that if the argument of American exceptionalism gains more support, US Treasury yields and the dollar will remain high for a longer period of time. The US dollar index is bullish on the daily line, and the relative strength index has initial signs of slowing down in overbought conditions, so it may enter a short-term consolidation, with resistance at 107, 107.40 (2023 high), and support at 106.50, 105.60 (76.4% Fibonacci retracement) and 104.50/104.60 (21-day moving average, 61.8% Fibonacci retracement from 2023 high to 2024 low).
Other central banks:
At 12:45 on Monday, Bank of Japan Governor Kazuo Ueda will give a speech
At 8:30 on Tuesday, the Reserve Bank of Australia will release the minutes of its November monetary policy meeting.
At 13:10 on Thursday, the 2024 Paris European Financial Markets Association International Finance Forum was held, and Kazuo Ueda, Governor of the Bank of Japan, delivered a speech
At 16:30 on Thursday, the Governor of the Reserve Bank of Australia, Bullock, will deliver a speech
ECB President Lagarde speaks at the European Banking Conference at 16:30 on Friday
Bank of Japan Governor Kazuo Ueda will give a speech and hold a news conference in Nagoya on Monday. It will be his first opportunity to speak directly on monetary policy since Trump won the U.S. presidential election on November 5 and Japan's third-quarter GDP data showed unexpectedly resilient consumption. Markets will be watching closely for clues on whether the Bank of Japan is likely to raise interest rates next month.
As of Friday, swap markets were pricing in a 53% chance of a Bank of Japan rate hike in December after the country's economic growth data showed consumption continued to recover. Both surveys and swap markets are pricing in a more than 80% chance of a rate hike by the Bank of Japan's January meeting. Rising household spending, fueled by rising wages, is seen as an important factor supporting continued rate hikes. A weak yen is another key factor that could prompt the Bank of Japan to act. The government has already spent more than $100 billion this year defending the yen and may want to avoid more direct intervention if it can.
Some analysts said Ueda could be giving hawkish hints if the Bank of Japan wants to prepare the market for the possibility of a rate hike at its December meeting. As long as wages and service prices keep growing at their current pace, the Bank of Japan may see enough to justify adjusting its monetary support, said Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities. A weak yen also brings new inflation risks, which increases the likelihood of a December rate hike.
In addition to the yen, the euro is also a non-US currency that has seen a very noticeable decline against the backdrop of a stronger dollar, as Trump's tariff policy could hit the eurozone's economic growth prospects. Since the end of the US election last week, market pricing has risen to 25% for the European Central Bank to cut interest rates by 50 basis points in December. It is reported that a trader is using interest rate futures options to bet that the European Central Bank will cut the deposit facility rate by 75 basis points in December, or cut interest rates by 50 basis points and show a tendency to continue cutting interest rates in January. If the deal is successful, he will receive 6.25 million euros (about 47.75 million yuan), 10 times the initial investment.
According to media reports, insiders are convinced that the ECB will cut interest rates by 25 basis points in December and is inclined to cut interest rates again in January. ECB Vice President Guindos said on Thursday that the eurozone's October CPI data has undoubtedly encouraged policymakers and the ECB will cut interest rates further. He admitted that economic growth in the region is still not ideal and Trump's trade protectionism will eventually bring supply shocks and limit economic growth. The market will pay close attention to the speech of ECB President Lagarde next week to pay attention to the possibility of an extraordinary interest rate cut in December.
For the Australian dollar, traders will scrutinize the minutes of the Reserve Bank of Australia's November monetary policy meeting on Tuesday for clues on when to start the rate-cutting cycle. As 2024 approaches its final stage, the Australian interest rate market is pricing in only a 10% chance of a rate cut by the RBA before the end of the year, with the first 25 basis point cut not expected until August 2025. If the minutes show that RBA policymakers are determined to keep interest rates high for a long time, the Australian dollar could find some support in monetary policy.
Important data: European and American PMI data are coming, is it too early for gold to bottom out?
At 18:00 on Tuesday, the final annual CPI value of the euro area in October and the initial monthly CPI value of the euro area in October
At 21:30 on Tuesday, Canada's October CPI monthly rate
At 21:30 on Tuesday, the total number of new housing starts in the United States in October and the total number of building permits in the United States in October
At 9:00 on Wednesday, China's one-year loan market quotation rate until November 20
At 15:00 on Wednesday, the UK October CPI monthly rate and the UK October Retail Price Index monthly rate
At 23:30 on Wednesday, EIA crude oil inventories in the United States for the week ending November 11
To be determined on Wednesday, a new round of price adjustment window for domestic refined oil will begin
At 21:00 on Thursday, the number of initial jobless claims in the United States for the week ending November 16 and the Philadelphia Fed Manufacturing Index for November
At 23:00 on Thursday, the annualized total number of existing home sales in the United States in October and the monthly rate of the Conference Board's leading indicator in the United States in October
Thursday 8:01, UK November Gfk Consumer Confidence Index
At 7:30 on Friday, Japan's October core CPI annual rate
At 15:00 on Friday, the UK's October seasonally adjusted retail sales monthly rate
At 16:15 on Friday, the final value of France's November manufacturing PMI and the final value of France's November service PMI
At 16:30 on Friday, Germany's November manufacturing PMI preliminary value and Germany's November service PMI final value
At 17:00 on Friday, the final value of the euro area's November manufacturing PMI and the final value of the euro area's November services PMI
At 17:30 on Friday, the final value of the UK manufacturing PMI in November and the final value of the UK service PMI in November
At 22:45 on Friday, the final value of the US S&P Global Manufacturing PMI and the final value of the US S&P Global Services PMI for November
At 23:00 on Friday, the initial value of the US one-year inflation rate forecast for November and the initial value of the US University of Michigan Consumer Confidence Index for November
Next week's economic calendar is light again, with a series of real estate data from the United States. Other highlights include the Philadelphia Fed manufacturing index on Thursday. Market participants are watching whether economic activity in the Philadelphia area has increased as sharply as in nearby New York State. S&P Global's Purchasing Managers' (PMI) survey and the University of Michigan consumer survey are also worth paying attention to. If the data once again confirms the resilience of the US economy, gold prices may be more depressed against the backdrop of further cooling of expectations for a Fed rate cut.
David Morrison, senior market analyst at Trade Nation, believes that although gold's recent technical situation has improved, it is too early to say it has bottomed out.
Alex Kuptsikevich, senior market analyst at FxPro, said that gold prices could still fall further in the short term. He pointed out that the continued pressure on gold prices since the end of October was due to investors taking profits. Gold prices fell nearly 5% this week alone, the biggest weekly drop in nearly three years, and fell more than $250 from their all-time highs. Nevertheless, the recent rebound in gold prices since October last year means that even if gold prices fall to $2,400 (200-day moving average), it will only be a correction. In his view, at the current rate of decline, gold prices may reach this level before the end of the year.
For the eurozone, the PMI data is crucial. Economic growth is now in focus given the struggles of Germany, the region's manufacturing powerhouse, and the fading effect of the Olympic Games in France. If the PMI data is weak, the euro may face renewed selling pressure.
In the UK, the Bank of England voted overwhelmingly last week to cut interest rates again, thanks to the fact that the headline CPI has slowed to its target level from 4% at the beginning of the year. But household energy bills rose by about 10% in early October, meaning that headline inflation may exceed 2% again, but this was expected by the Bank of England and is not expected to change market expectations that the Bank of England will pause rate cuts in December. Retail sales data released on Friday will also be important, and Investec said it would provide an initial hint as to whether the strength of retail spending in the third quarter continued into the fourth quarter. Previously, the UK's GDP cooled more than expected in the third quarter.
The key data from Japan will also be inflation, with both headline and core CPI expected to cool in October. This was already foreshadowed by Tokyo CPI data for October, which is usually a leading indicator of national price trends. However, Japan's wholesale inflation rate has accelerated to 3.4% in October, the fastest year-on-year growth in more than a year, as the weak yen has led to higher import costs, increasing the risk of companies passing on cost increases to consumers in the future, which could set the stage for the Bank of Japan to further normalize policy. Separately, Japan's consumer spending remained broadly stable in the third quarter, and wage growth also remained on track. So far, market expectations for a December rate hike by the Bank of Japan are almost evenly split. Any persistence in inflation reflected in the upcoming data may favor more hawkish rate bets.
Company earnings: US stocks give up post-election gains, Nvidia earnings may point to new direction
After the rally driven by the U.S. election stalled, U.S. stock investors turned their attention to technology stocks and artificial intelligence trading. Nvidia will release its earnings report next Wednesday, which will also be its first earnings report after being included in the Dow Jones Industrial Average.
Nvidia shares have risen nearly 800% over the past two years, propelling the semiconductor company to become the world's most valuable company, giving it outsize influence over market benchmarks such as the S&P 500. The company is on track to post revenue of $33 billion and net income of $18.4 billion in the third quarter, both up more than 80% year-over-year, according to LSEG. Market participants will be looking for assurances from Nvidia CEO Jensen Huang that the strong growth momentum remains intact.
Despite the increasingly high bar for Nvidia to beat earnings, Wall Street is still betting big on upside for its stock. Ahead of Nvidia's latest earnings report, several top analysts raised their price targets. HSBC's Frank Lee was the most aggressive, raising his price target from $145 to $200, implying a 36.78% upside to the stock based on the company's growing data center business. Susquehanna's Christopher Rolland raised his price target to $180, citing strong demand for Nvidia's H100 and H200 chips. Oppenheimer's Rich Schafer raised his target to $175. Meanwhile, Raymond James' Srini Pajjuri cut his price target to $170, noting that any dip in Nvidia's stock should be viewed as a buying opportunity. Wedbush's Matt Bryson also raised his price target to $160 based on more favorable revenue expectations.
Overall, with Wall Street price targets ranging from $160 to $200, Nvidia remains a key leader in the AI-driven semiconductor market. However, analysts warn that investors should also keep a close eye on its high price-to-earnings ratio and broader market volatility.
Investors will continue to focus on Trump's transition plan, including his choices for key cabinet positions, and some of his initial appointees have led to weakness in sectors such as pharmaceuticals and defense stocks. Stocks also fell on Thursday after Powell said the Fed was in no rush to cut interest rates, so the direction of monetary policy may once again become the dominant factor in the market. U.S. stocks have erased half of their gains since the election.
Article forwarded from: Jinshi Data
