US dollar continues to slide

Dollar at the lows of the day

The US dollar is under broad pressure as the post-NFP slide in the dollar continues. At the moment, the euro, pound, yen, kiwi and Aussie are all at session highs against the dollar.
There is increasing optimism about the post-covid period as therapeutics and vaccination continue to improve. News last week of Pfizer’s anti-viral pill is an underrated positive development. Cases are also falling in most of the world. One exception is Germany, which is dealing with an unwelcome acceleration:
covid weekly cases
There’s an element of a relief rally here as well as the euro was battered by the ECB but is trying to reject new 16-month lows.

Fed’s Clarida: Benchmarks for rate hikes could be met by end of 2022

Clarida remains dovish

Clarida remains dovish
  • Fed still ‘a ways away’ from considering lift off from current near-zero level
  • Policy path outlined in Sept dot plot would be ‘consistent’ with Fed’s framework if current inflation and jobs forecast is met
  • Repeat of 2021 inflation next year would not be a policy success
  • Sees full return of pre-pandemic employment levels by end 2022, unemployment rate at 3.8% with participation rising
He’s not ducking any of the big questions here.

Fed’s Bullard: Expect more than 4% GDP growth in 2022. Sees 2 rate hikes

Comments from Bullard on Fox Business:

Comments from Bullard on Fox Business:
  • Expect supply chain disruptions to extend through 2022
  • We have quite a bit of inflation
  • We’ve done a lot to move policy in a hawkish direction
  • If we had to, we could end taper somewhat sooner than June
  • If inflation is more persistent, we may have to take a little sooner action
  • Bullard is a voter next year
I might have expect Bullard to be more hawkish but he’s not pushing here.

Eurozone November Sentix investor confidence 18.3 vs 15.5 expected

Latest data released by Sentix – 8 November 2021

  • Prior 16.9

Euro area investor morale climbed for the first time since July as investors appear to expect that supply bottlenecks and higher prices to hold back the economy temporarily.

The current conditions index fell from 26.3 in October to 23.5 in November though, its lowest figure since June but the expectations index moved up from 8.0 to 13.3.

Sentix notes that:

“Supply bottlenecks and high inflation are causing problems for companies and are having a certain braking effect. However, investors only expect a temporary burden and are therefore somewhat more confident about the next six months.”

Fed shows it is patient, but flexible

Happy to bide time

The Fed met this week and tapered as expected to the tune of $15 billion per month.The slight shift was that the Fed was going to be ‘flexible’ around the timing for the end of asset purchases. This was a nod to the rising inflation pressures seen around the world and the Fed assuring markets it would act if necessary to curb rising inflation. However, in the press conference, the Fed stressed that they would be ‘patient’ before hiking rates.

The key points

  • The Fed gave a further nod to inflation concerns by 1) changing the statement to read that inflation was ‘expected’ to be transitory & 2) that Jerome Powell did not mention the word ‘transitory’ in the press conference.
  • Jerome Powell dodged the question ‘is a 2022 hike appropriate as you would expect, however he did recognise that maximum employment could be reached by the middle of next year. So, that is possibly more hawkish.
  • Jerome Powell does not think that the Fed is behind the curve, needs to see more progress on jobs. He considers jobs back to ‘pre-Delta’ path as ‘good progress’.
  • The Fed took a step back from transitory in the statement as it means ‘different things to different people’. Now I think the meaning is fairly clear, so this can only really be about time frames. A 2 year blip may be considered transitory over a 25 year sample etc.
  • The Fed wants the market to know that the Fed ‘have the tools’ to combat high inflation if it becomes permanent.

The takeaway

Similar to the RBA the Fed have been hawkish in deed, and dovish in action. They have been hawkish  by tapering flexibly and communicating that the Fed will communicate to markets if they have to alter the pace of tapering. However, with a dovish stance of ‘patience’ on hiking rates. It is arguable that the Fed has kept open the opportunity to hike rates in the middle of June 2022. However, like with the RBA, two important metrics going forward for the Fed are going to be inflation and employment. The Fed has stressed patience on both jobs and inflation for now. However, significant moves in either of these two metrics will result in the Fed thinking again. Be prepared.

The sharp move lower in bond yields post the FOMC as markets price out aggressive rate hikes means gold could find some decent upside, so worth looking out for.

Happy to bide time


BREAKING :The Suez Canal is hiking rates for 2022

Transiting the canal is about to get more expensive for ships.

  • tolls are rising by 6% in 2022
  • canal authorities are looking to take advantage of booming global freight movement, ship traffic across the globe is forecast to rise 7% in 2022
  • dry bulk and liquefied petroleum gas carriers saw their rates up 5% in 2020
  • LNG and cruise ships are exempt from the rise in 2022
The canal is the fastest shipping route between Asia and Europe, when container ships don’t mess up that is! Remember this?
Transiting the canal is about to get more expensive for ships.
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