MNI ASIA OPEN: Core PCE Confirms Likely Beat Of FOMC Forecast
MNI (LONDON) - EXECUTIVE SUMMARY
- Core PCE Inflation Confirms Likely Beat Of FOMC Forecast, Supercore Above Target
- Trump Poses Stagflation Risk For EZ -ECB's Schnabel
- Trump Nominates Gen. Kellogg As Special Envoy For Russia/Ukraine
- Tusk Proposes Navy Policing in Baltic Sea Amid Russia Threat
Core PCE Inflation confirms recent trend away from 2% target:
NEWS
US POLITICS (MNI): Trump Nominates Gen. Kellogg As Special Envoy For Russia/Ukraine
US President-elect Donald Trump has nominated retired General Keith Kellogg to serve as Assistant to the President and Special Envoy for Ukraine and Russia, a new position created by Trump to hasten the end of the war.
US POLITICS (MNI): Biden Admin To Request $24B For Ukraine & $114B For Disaster Relief In CR
Aidan Quigley at Roll Call reporting on X (here) that the Biden administration is calling for USD$24b in supplemental funding for Ukraine, along with significant funding for submarine procurement, veterans health care and other items in the "anomalies" to be included in an upcoming Continuing Resolution to extend Fiscal Year 2024 government funding into next year.
US (MNI): Chicago Business Barometer™ - Eased To 40.2 In November
The Chicago Business Barometer™, produced with MNI eased 1.4 points to 40.2 in November. This was the second consecutive monthly fall from 46.6 in September, leaving the index 2.7 points below the year-to-date average. Four of the five subcomponents fell in November (Production, Order Backlogs, Employment and Supplier Deliveries), with only New Orders rising.
US (BBG): New York, New Jersey Airports See ‘Busiest October of All Time’
Commercial airports in New York and New Jersey hit record passenger numbers in October, making it their “busiest October of all time” and putting them on track for a record year, the Port Authority of New York and New Jersey announced in a statement on Wednesday.
TARIFFS (MNI): American Voters Wary Of Higher Tariffs
Morning Consult has published an “initial assessment of how U.S. voters view tariffs,” finding that: “Trump’s longstanding support for tariffs coupled with executive powers that will facilitate their implementation make additional restrictions almost a foregone conclusion.”
TARIFFS (BBG): Canada Pledges Tighter Border After Feeling Wrath of Trump
President-elect Donald Trump has threatened tariffs of 25% on imports from Canada and Mexico until fentanyl and undocumented migrants stop flowing over US borders. Canada says it has a plan to boost border security — and points to US government data that show most of the problems come from Mexico.
The primary impact of Donald Trump’s presidency on the euro area will “probably” be on growth, with financial markets already anticipating a stronger dollar and a weaker euro area economy, European Central Bank Executive Board member Isabel Schnabel said in an interview with Bloomberg on Wednesday. She noted that while it is still difficult to fully assess the effect of tariffs, they could contribute to higher inflation. (see MNI SOURCES: ECB Heads For 25BP Cut; Risks From Trump, Germany )
NATO (BBG): Tusk Proposes Navy Policing in Baltic Sea Amid Russia Threat
Poland will propose a maritime policing program in the Baltic Sea similar to air-monitoring missions carried out by NATO members, Prime Minister Donald Tusk said. Tusk called the plan “a joint venture of countries located at the Baltic Sea, which have the same sense of threat posed by Russia” in comments in Warsaw on Wednesday before traveling to Sweden for a meeting of Baltic and Nordic leaders.
UK GREEN POLICY (BBG): UK Backs Down From EV Sales Mandate Carmakers Won’t Meet
The UK government vowed more support for the nation’s car industry and will consult with manufacturers about changing an electric-vehicle sales mandate they won’t meet this year. While the government remains committed to a 2030 phase-out of new cars powered solely by combustion engines, its sales quotas for zero-emission vehicles, or ZEVs, aren’t working as planned, Business and Trade Secretary Jonathan Reynolds said.
DATA - The main releases from a particularly heavy session ahead of the Thanksgiving holiday
US DATA: Core PCE Confirms Likely Beat Of FOMC Forecast, Supercore Above Target
- Core PCE inflation was broadly as expected in October at 0.27% M/M (cons 0.3, unrounded 0.28).
- It saw the 3-mth run rate accelerate to 2.8% annualized from 2.4 in Sep and 1.9 in Jul-Aug, whilst the six-month rate held steady at 2.3% annualized.
- The Y/Y rate was also as expected at 2.80% Y/Y (note that cons was 2.8 and not the 2.6 noted in our unrounded post), which as we noted in the preview leaves it on track for a sizeable overshoot of the median FOMC projection of 2.6% for Q4 (from the Sept SEP having revised down from 2.8% in the June SEP).
- Indeed, two 0.20% M/M readings ahead would indicatively leave core PCE at 2.9% Y/Y, on track with the (presumably) most hawkish members considering the FOMC range of 2.4-2.9% for Q4.
- Supercore PCE inflation printed a strong 0.36% M/M in Oct after a slightly upward revised 0.31% M/M in Nov (initial 0.30). We hadn’t seen many detailed estimates beforehand but TDS had looked for 0.39% M/M.
- That leaves it running at 3.5% annualized over three months, 2.9% over six months and 3.5% Y/Y. The three-month rate recently bottomed out at 2.2% in July whilst the six-month rate has stabilized at an average 2.8% for the past four months. Supercore averaged 2.2% Y/Y through 2010-19 and ended 2019 at 1.9% Y/Y so latest trends remain at a rate comfortably above historically norms.
US DATA: Marginally Softer Domestic Demand Contribution But Still Very Robust
The second release for real GDP growth saw growth almost completely unrevised at 2.83% annualized in Q3 vs 2.82% in the advan release. That's another solid reading after the 3.0% in Q2, but domestic demand continues to contribute by a greater extent than was the case in Q2.
- The component revisions saw private consumption a little softer than expected at 3.5% (initial and cons 3.7%) but that’s still a further acceleration from the 2.8% in Q2 for its fastest since 1Q23.
- This downward revision trimmed the consumption contribution by -0.09pps to a still heavy 2.37pp, with a partial offset from stronger than first thought non-residential investment.
- Changes in inventories provided the offsetting slightly larger boost but it doesn’t change the picture from a large sequential drag on the quarter from inventories after they swung higher back in Q2.
- Note the core PCE downward revision from 2.2% to 2.1% was heavily exaggerated by rounding, as it only shifted from 2.156% to 2.146% as of today (Q/Q annualized) after the 2.79% in Q2.
US DATA: Real GDI Reverts To Lagging GDP In Latest Data
- Reverting to the national accounts data, one of the more notable softer parts of the report was real Gross Domestic Income (GDI) growth increasing 2.2% annualized in Q3 (vs real GDP 2.8%) after a downward revised 2.0% in Q2 (initial 3.4% and vs real GDP 3.0%).
- Analysts likely give greater caution to the GDI numbers though, having printed far softer growth than GDP prior to comprehensive national account revisions back in September after which they converged notably towards prior GDP trends - something that multiple FOMC members subsequently noted.
- Looking through noisier quarterly rates though, both metrics show solid economic growth, with GDP at 2.7% Y/Y and GDI at 3.1% Y/Y in Q3.
US DATA: Healthy Initial Claims vs Continuing Trending Higher
The jobless claims data continued the recent trend where firms are cooling re-hiring rather than actively looking at layoffs.
- Initial jobless claims were broadly in line, dipping to 213k (sa, cons 215k) in the week to Nov 23 after an upward revised 215k (initial 213k).
- That small upward revision doesn’t alter an improvement for the then payrolls reference week, comparing favorably to the 242k and 222k in relevant Oct and Sept weeks.
- The four-week average inched to 217k (-1k) for its lowest since early May and broadly remaining at the 2019 average as layoffs remain at healthy levels.
- Continuing claims meanwhile surprisingly increased to 1907k (sa, cons 1892k) for the week to Nov 16 after a downward revised 1898k (initial 1908k), i.e. maintaining a fresh three-year high.
- This compares far less well to prior payrolls reference periods of 1888k and 1827k.
US DATA: Goods Supporting Still Strong Consumption Trend, Incomes Higher
- Personal incomes saw a surprisingly strong 0.6% M/M increase in Oct (cons 0.3) after an unrevised 0.3% M/M in Sept, which carried over into strong disposable income growth of 0.7% M/M after 0.3%.
- With nominal spending as expected at 0.4% M/M (cons 0.4) after an upward revised 0.65% (initial 0.53), it saw the savings ratio lift three tenths to 4.4% from downward revised 4.1% (initial 4.6).
- The savings ratio sees regular and sometimes large revisions [especially in the annual revisions two months again which saw BEA finding an extra $559bn in 2023 for national incomes] but the latest iteration shows a first monthly increase in the savings ratio since January. The decline from the recent high of 5.5% in Jan has acted as a tailwind to consumption since then.
- As for latest spending momentum, real personal spending disappointed slightly in Oct with 0.1% M/M (cons 0.2) after mixed revisions, with an upward revised 0.47% M/M (initial 0.36) in Sept after a downward revised 0.08% M/M (initial 0.16) in Aug. That Aug revision was behind the earlier surprise downward revision from 3.7% to 3.5% annualized for Q3.
- Trend consumption is still strong, rising 3.0% annualized on a 3m/3m basis to October.
- Goods consumption paused in October after a booming Sept (0.0% M/M after 1.1% M/M), as indicated by surprisingly soft retail sales data earlier in the month. Services consumption meanwhile saw a second consecutive month at a somewhat mellow 0.17% M/M.
- Goods consumption continues to drive recent trend growth, rising 4.0% annualized vs 2.6% for services on 3m/3m rates, something that be borne in mind when it comes to initial reactions to upcoming retail sales data.
US DATA: GDPNow Lifts To 2.7% After Week’s Front-Loaded Data
- The Atlanta Fed’s GDPNow has lifted its real GDP growth tracker for Q4 by a tenth to 2.7% annualized vs 2.6% on Nov 19, after today’s unrevised Q3 estimate of 2.8%.
- That’s down from 2.8% with yesterday’s intra-update estimate after new home sales (interestingly considered sales were much weaker than expected with signs of weather disruption) after today’s data included GDP, personal income and durable goods releases.
- Q4 tracking continues to point to solid final domestic demand but at a 2.8pp contribution it would see a pull back from the particularly strong 3.5pp in Q3.
- Net exports are currently seen as the main offsetting factor (considering GDP growth is seen at a similar pace between Q3 and Q4) with a boost of 0.3pp in Q4 after dragging -0.6pps in Q3.
MARKETS
US TSYS: Paring Gains Ahead Of Thanksgiving
- Treasuries have extended an easing from highs seen after a strong 7Y auction marked a third solid auction for the front-loaded week. It’s likely positioning ahead of Thanksgiving although WTI futures lifting off lows have added some impetus.
- TYH5 at 110-27+ (+11+) has seen a pick-up in volumes recently, moving away from post-auction highs of 111-01. The round 111-00 appears to have offered some light resistance, after which lies 111-03 (drawn from the 10Y yield at 4.2205%) before 111-14+ (50-day EMA).
- Gains are considered corrective though, with support seen at 109-20 (Nov 20/21 low).
- Cash yields are 4-6.5bp lower on the day, with declines led by 7s following the auction.
- The day’s data deluge was mixed but ultimately quite close to consensus. Still, it offered a reminder of core PCE inflation remaining on track to overshoot median FOMC projections for Q4 whilst supercore PCE inflation stabilizes at rates still uncomfortably above the 2% target.
- Fed Funds implied rates are little change since the data. Cumulative cuts from 4.58% effective: 16bp Dec, 22bp Jan, 35bp Mar and 52bp June.
- Market operating hours over Thanksgiving:
- Cash Tsys: Thursday Nov 28: closed, Friday Nov 29, shortened session closing at 14:00 NY/13:00 Chicago.
- Tsy futures: Thursday Nov 28: goes into pre-open (early close, no settlement) at 13:00 NY/12:00 Chicago, Friday Nov 29: Early close at 13:15 NY/12:15 Chicago
FOREX: USDJPY Hits Fresh One-Month Low as Greenback Slide Extends
- The USDJPY (-1.59%) selloff paused for breath in the immediate aftermath of the WMR fix, however, weakness then resumed and was exacerbated on a clear break of the 151.00 handle, to print a fresh one-month low at 150.46. Bearish sentiment has picked up after the pair closed below the 20-day EMA for the first time since Oct 01, gathering solid downside momentum as we traded below both the post-election lows and the 50-day EMA.
- Given how aggressive the move has been, we would highlight 150.19, the 38.2% retracement of the Sep 16 - Nov 15 and 149.09, the Oct 21 low as the next supports.
- In sympathy, the dollar index is down roughly 1%, trading below 106, with notable gains for the likes of EUR and GBP, despite the weakness for major equity indices.
- Minor technical levels in both EURUSD (+0.92%) and GBPUSD (+0.95%) are being tested, and resistances here can be found at the 20-day EMAs of 1.0624 and 1.2739 respectively.
NZD is the second best performer in G10, owing to the RBNZ statement that implied further cuts into 2025, but not as much as the market had priced pre the meeting. Waning risk sentiment has relatively weighed on the AUD however, prompting a sharp pullback for AUDNZD (-0.87%), which earlier in the week traded to fresh two-year highs.
US STOCKS: Nvidia Leads Magnificent Seven Drag On Equity Indices
- ESZ4 holds its earlier paring of losses, currently at 6017 (-0.4%) off a low of 6000.25 a little after midday ET.
- It reverses most of yesterday’s 0.5% gain despite a 5bp decline in 10Y real yields offering a slightly more conducive macro backdrop.
- An overnight high of 6047.00 approached the bull trigger of 6053.25 (Nov 11 high). Support meanwhile is seen at 5944.60 (20-day EMA).
- The day’s losses are dragged by some megacaps, notably Nvidia (-2.0%) but also with solid declines for Tesla (-1.5%), Meta (-1.1%), Microsoft (-0.9%) and Amazon (-0.6%).
- Declines are unsurprisingly therefore led by IT (-1.3%) and consumer discretionary (-0.55%) whilst real estate (+0.95%) enjoys lower yields with health care (+0.6%) in second.
- The Nasdaq 100 (-0.9%) underperforms, whilst Dow Jones (-0.2%) and Russell 2000 (+0.2%) outperform the S&P 500.
- Market operating hours over Thanksgiving:
- Cash equities: Thursday Nov 28: Closed, Friday Nov 29: early close at 13:00 NY/12:00 Chicago
- Equity futures: Thursday Nov 28: goes into pre-open (early close, no settlement) at 13:00 NY/12:00 Chicago, Friday Nov 29: Early close at 13:15 NY/12:15 Chicago
COMMODITIES: Crude Rangebound Following Ceasefire, Henry Hub Falls
- Crude front month has eased back to near rangebound today, as the market weighs a larger US stock draw against the Israel-Hezbollah ceasefire.
- WTI Jan 25 is 0.1% lower at $68.7/bbl.
- The ceasefire between Israel and Hezbollah will be monitored closely with both sides attacking in the hours before the truce was due to begin.
- With a bearish theme in WTI futures still intact, attention remains on $65.74 next, the Oct 1 low.
- Meanwhile, Henry Hub has lost ground today amid a largely expected, but below-average US storage withdrawal last week.
- US Natgas Jan 25 is down by 7.5% at $3.21/mmbtu.
- Spot gold has edged up by 0.1% today to $2,635/oz, keeping the yellow metal around 3% below Monday’s high.
- Monday’s move lower is - for now - considered corrective, despite it being a very sharp pullback. Resistance to watch is $2,721.4, Monday’s high, while key support to monitor is $2,536.9, the Nov 14 low.
- Silver is underperforming today, currently 1.3% lower at $30.0/oz. As a result, the gold-silver ratio has risen to its highest level since Sept 12.
- The corrective cycle in silver that started on Oct 23 remains in play, with focus on $28.446, a Fibonacci retracement.
Date | GMT/Local | Impact | Country | Event |
28/11/2024 | - | EU | European Central Bank Meeting | |
28/11/2024 | 0030/1130 | * | AU | Private New Capex and Expected Expenditure |
28/11/2024 | 0800/0900 | *** | ES | HICP (p) |
28/11/2024 | 0800/0900 | ** | SE | Economic Tendency Indicator |
28/11/2024 | 0900/1000 | ** | EU | M3 |
28/11/2024 | 0900/1000 | ** | IT | ISTAT Business Confidence |
28/11/2024 | 0900/1000 | ** | IT | ISTAT Consumer Confidence |
28/11/2024 | 0900/1000 | ** | IT | PPI |
28/11/2024 | 0900/1000 | *** | DE | North Rhine Westphalia CPI |
28/11/2024 | 0900/1000 | *** | DE | Bavaria CPI |
28/11/2024 | 1000/1100 | ** | EU | EZ Economic Sentiment Indicator |
28/11/2024 | 1000/1100 | * | EU | Consumer Confidence, Industrial Sentiment |
28/11/2024 | 1300/1400 | *** | DE | HICP (p) |
28/11/2024 | 1330/0830 | * | CA | Current account |
28/11/2024 | 1330/0830 | * | CA | Payroll employment |
28/11/2024 | 1700/1800 | EU | ECB's Lane speech at the 25th anniversary of Euro 50 Group at Banque de France | |
29/11/2024 | 2330/0830 | ** | JP | Tokyo CPI |
29/11/2024 | 2330/0830 | * | JP | Labor Force Survey |
29/11/2024 | 2350/0850 | * | JP | Retail Sales (p) |
29/11/2024 | 2350/0850 | ** | JP | Industrial Production |