A December Fed pause is coming – MUFG

One more cut before a Fed pause

MUFG Research discusses the Fed’s policy trajectory and expects a rate cut at the FOMC meeting later this month before a pause in December meeting.

“The US rate market is almost fully pricing in a 25 basis point rate cut later this month. More important for US dollar performance heading into year-end will be whether the Fed delivers another cut in December or sticks to plans for a rate pause. The WSJ has run an article on the topic in which they suggest that one issue facing the Fed is how to signal in their post-meeting statement later this month that the threshold for additional rate cuts would require stronger evidence of deterioration. The article highlights that one way the Fed has done this in the past is to highlight the accumulation of recent stimulus,” MUFG notes.

“With the dollar index precariously positioned at key support from the 200-day moving, a less dovish Fed policy statement would bring some welcome relief for US dollar from recent selling pressures,” MUFG adds.

Kudlow: If Phase 1 China talks go well, December tariffs could be taken off

Kudlow on Fox Business:

  • Things look pretty good as US and China trade talks continue
  • Human rights are an important part of negotiations
I take this as a small negative. Kudlow is outside of the core of negotiations but the threat of December tariffs is truly a two-way risk. It’s a tariff on consumer goods that would cause US prices to rise.
The big event this week is a ‘major’ speech Thursday from VP Pence on China. It’s the kind of thing that could convince China that the US isn’t acting in good faith.

European pre-market: Pound softer as Brexit drama continues to drag on

The pound is weaker to start the week but the setback is not as bad as feared

WCRS 21-10

When put into context of last week’s 2.5% rise in cable, the drop in the pound at the start of trading this week isn’t really that much.

The currency pair is down to ~1.29 currently as the pound is dealt a blow after Johnson’s Brexit motion was put off after UK lawmakers passed the Letwin amendment instead.
That has seen Brexit optimism suffer a bit of a dent but hopes of a deal haven’t quite hit the reset button yet amid more twists and turns set to follow.
Other major currencies are holding more steady so far today with risk sentiment also displaying little poise to go chasing in any one direction for now.
Looking ahead, it’s still all about Brexit and the pound as we move towards European trading so expect more headlines/rumours to follow over the coming hours.

China’s state planner says it is acceptable for the economy to grow a little slower, or faster

What is it the kids say? “It’s all good!”

Seems to be the message from the National Development and Reform Commission of the People’s Republic of China (NDRC) … i.e. the ‘state planner’
I guess the takeaway from this is to expect a lowering of the GDP target ahead. For this year its set at 6 to 6.5% …. an it looks like it’ll come in down the bottom of that range.
For next year, its reasonable to expect the target to be lower again. Not because because the NDRC tells us, but as the eco0nomy gets bigger the rate of growth will slow.
Anyway, arguments abound about how accurate the Chinese data is. Those won’t stop any time soon.

Fitch affirms UK credit rating but retains ratings watch for downgrade

Brexit still hangs in the balance

  • UK affirmed at AA
  • See 1.1% GDP this year with upside risks
  • Lower 2020 growth forecast to 1.2% from 1.5% on Brexit uncertainty and slower global growth
  • Full report
Fitch is warning about more spending even if Brexit is resolved. They say that austerity fatigue and Brexit preparations are set to reverse the path of expenditure restraint seen since 2010.
They also warn that a positive Brexit resolution is still uncertain but overall there is a more-positive spin in the report:
Recent data revisions suggest the UK economy has been more resilient to post-referendum Brexit uncertainty than previously thought. Sizeable revisions to business investment indicate firms started to reduce investment from mid-2017 rather than in 2015 as the previous vintage suggested. The overall level of business investment is 3.3% above end-2015 according to the new data. The household saving ratio was also revised up to 6.2% in 1Q19 from 4.4% under the previous vintage. Households appear to have been more cautious than previously believed. This suggests that the household sector is in a somewhat stronger position to withstand the impact of a potential economic shock.

CFTC Commitments of Traders: Pound shorts haven’t been squeezed…yet

Forex futures positioning data from the CFTC for the week ending October 15, 2019:

Forex futures positioning data from the CFTC for the week ending October 15, 2019:
  • EUR short 75K vs 75K short last week. Unchanged
  • GBP short 73K vs 73K short last week. Unchanged
  • JPY short 7K vs 11K long last week. Longs switch to shorts in an 18K drop
  • CHF short 13k vs 11k short last week. Shorts trimmed by 1K
  • AUD short 48k vs 46k short last week. Shorts increased by 2K
  • NZD short 40K vs 38K short last week. Shorts increased by 2K
  • CAD long 13K vs 5K long last week.  Longs trimmed by 1K
  • Prior week

The big moves in sterling came last week and I’m surprised there wasn’t any covering through Tuesday. That’s good news if you’re long GBP because it leaves lots of juice to squeeze.

A few big names weighed and tech struggled

On the day:
  • S&P 500 down 12 points to 2986 (-0.4%)
  • DJIA -0.9%
  • Nasdaq -0.8%
On the week:
  • S&P 500 +0.5%
  • DJIA -0.2%
  • Nasdaq +0.4%
A report saying that there are text messages showing Boeing executives worked to hide safety problems from the FAA sent shares of the industrial giant down 6.38% in the biggest slide since Feb 2016. Shares of J&J were also soft on a lawsuit.
The S&P 500 is consolidating ahead of the all-time high of 3027.
A few big names weighed and tech struggled

Today is the last chance for the Fed to manage expectations

The Federal Reserve blackout starts tomorrow

The Federal Reserve blackout starts tomorrow
The data calendar is is modest today but there are three Fed speakers on the agenda. The first two are predictable. Kaplan is a dove and we’re head from him already this week when he said he backed the two prior rate cuts but I’m more agnostic on next move. He speaks at 1300 GMT (9 am ET).
Then it’s onto George at 1405 GMT but she’s a reliable hawk so we’re unlikely to get anything market moving.
The big one comes at 1530 GMT (10:30 am ET) when Fed vice chair Clarida speaks in Boston. He’s speaking on the outlook and monetary policy; there will be released text and Q&A.
If the Fed wants to lower the current 81% chance of a cut priced into Fed funds, this is the last chance.