MNI ASIA OPEN - Waller Sees Fed As Well Positioned

NEWS

US (MNI): Continued Disinflation Would See Fed Cuts - Waller
Federal Reserve Governor Chris Waller on Tuesday said continued disinflation over several months could require the central bank to lower the fed funds rate to keep real rates constant.

US (MNI): Fed Well Positioned, Can’t Say For Sure If Done - Waller
The Federal Reserve has made significant progress in its fight against inflation as the economy’s blockbuster growth appears to moderate, though it’s still too soon to say whether policymakers have done enough, Fed Governor Chris Waller said Tuesday. “I am increasingly confident that policy is currently well positioned to slow the economy and get inflation back to 2%,” Waller said in prepared remarks to the American Enterprise Institute.

US (MNI): Bowman Remains Open To Further Fed Hikes
Federal Reserve Governor Miki Bowman remains willing to support raising the federal funds rate at a future meeting should data indicate progress on inflation has stalled or is insufficient to bring inflation down to 2% in a timely way.

ISRAEL/HAMAS (MNI): Official Says Israel Prepared To Extend Pause In Fighting For 9 Days
Barak Ravid at Axios has reported that, according to an Israeli official, "Israel is ready to extend the pause in fighting in Gaza for up to 9 days if Hamas commits to release 10 additional hostages every day."

GLOBAL (Reuters): IMF chief demands end to 'business as usual' ahead of COP28
Scenarios used by the financial system to assess climate risk need updating to account for growing economic uncertainty and setbacks to the green transition from the COVID-19 pandemic and Ukraine war, the International Monetary Fund said on Tuesday.

EU (MNI): Spain's EU Presidency Working On New Fiscal Rules Draft
The European Union’s rotating presidency is working on a new landing zone proposal for a reformed fiscal rules regime for the bloc following a messy meeting on Monday night of sherpas charged with preparing the ground for a political compromise ahead of a crunch Dec 8 meeting of finance ministers, officials told MNI.

MNI Eurozone Inflation Preview – November 2023
The November round of monthly flash Eurozone inflation data begins on Wednesday Nov 29 with Spain and Germany reporting, and the French, Italian, and Eurozone-wide figures printing on Thursday Nov 30. After seeing disinflationary progress over the past several reports, including October delivering the first Y/Y headline HICP print below 3% since August 2021, the ECB will be closely watching this month's price dynamics ahead of its December meeting.

EUROZONE (MNI): Inflation To Climb Above 3% Then Fall Back - Nagel
Eurozone headline inflation will return to a level above 3% with the ECB “still a considerable distance” away from its target level, Bundesbank president Joachim Nagel said in a speech Tuesday.

EUROZONE (MNI): Firms See More Tightening In Pipeline - ECB Survey
High labour, production, and interest costs are weighing on euro area firms, the latest ECB Survey on the Access to Finances of Enterprises (SAFE) reports. Tightening financing conditions meaning most expect access to bank funds to deteriorate further over the coming months, but less than 10% of companies encountered major difficulties in running their business and service their debts over the previous six months.

GERMANY (MNI): Trust, Income Role In Inflation Expectations - Buba
Lower-income German households relying on personal experience over data are more likely to increase their inflation expectations as a result of energy price rises than high-earners, well-informed observers and firms, a study published by the Bundesbank found.

GERMANY (MNI): Brussels Approves Germany’s First NGEU Request
The European Commission has approved Germany’s first EUR 4bn payment request for grants under its NGEU programme, with senior EU officials saying the payment had already been accounted for in Germany’s 2023 budget.

UK (MNI): BOE Haskel - No Scope For Rate Cuts Any Time Soon
Bank of England Monetary Policy Committee member Jonathan Haskel echoed Governor Andrew Bailey in pushing back against market pricing suggesting that the MPC could start to ease policy in the near future.

MNI RBNZ Preview - November 2023: Economy Developing Broadly As Expected
We expect the RBNZ to leave rates at 5.5%, where they have been since May, at its final meeting for 2023. Bloomberg consensus is unanimous at 5.5%. As a result, the focus will be on the accompanying updated forecasts, statement and press conference. In terms of projections, there are likely to be some near-term revisions with the medium-term little changed, which is the time horizon that the MPC focuses on. As the economy is evolving broadly as the RBNZ expected, the OCR forecast is likely to be little changed and headline CPI inflation still return to target in Q3 2024.

CHINA (MNI): PBOC To Keep Monetary Policy Accommodative
MNI (Beijing) - The People’s Bank of China will keep monetary policy accommodative to support the economy, as focus shifts to improving economic structure and forming new growth drivers, said PBOC Governor Pan Gongsheng in a keynote speech at the HKMA-BIS High-Level Conference on Tuesday, according to a statement on the central bank website.

JAPAN (MNI): BOJ’s JGB Unrealised Loss Rises To JPY10.5 Trln
The Bank of Japan posted JPY10.5 trillion of unrealised losses from its Japanese government bond portfolio for the April-September period Tuesday, up from JPY157.1 billion at the end of March.

US DATA

Conf Board Labor Differential Slips Further Via Revisions, Points To Higher U/E Rate

• The Conference Board consumer confidence index was higher than expected in November at 102.0 (cons 101.0) for an improvement after a downward revised 99.1 (initial 102.6).
• Within the survey, the labor market differential was near unchanged in November but from a downward revised October leaving it at 23.9.
• It's the lowest since Apr'21 and comes with the highest measure of "jobs hard to get" since Mar'21. * Recall the step down from the low 30s to 27 in Aug-Sep came with the surprise move higher in the unemployment rate to 3.8% in August, which has since drifted to 3.9% in October.
• There appears to be a structural break in the relationship with the unemployment rate post-pandemic but for what it's worth, the level of the labor market differential would historically have been closer to an u/e rate between 4-4.25%.

• Today's Richmond Fed mfg index surprisingly fell to -5 (cons +1) in November after +3, back to its lowest since August after the largest monthly fall in eighteen months.
• It completes the regional Fed manufacturing surveys for this month, a majority of which have improved from October (Empire from -4.6 to +9.1, Philly from -9 to -5.9, Kansas from -8 to -2) although Dallas was little changed (-19.2 to -19.9).
• Indeed, the unweighted average of the five has increased from -7.6 to -4.7 for its highest reading since Jul 2022.
• Combined with the S&P Global PMI only dipping slightly from 50.0 to 49.4 in its preliminary Nov release, these manufacturing surveys imply upside bias to the ISM survey after its surprise 2.3pt drop to 46.7 back in October. The MNI Chicago PMI on Thursday will be watched for further clues ahead of ISM on Friday.

US TSYS: Treasuries See Large Rally As Waller Brings Up Potential Cut Timing

• Cash Treasuries have seen a quick further bid to fresh session highs across 2-5Y tenors, but it appeared to lack a headline driver and has since been retraced.
• It still leaves a significant rally on the day though, with 2-3Y tenors 10bp richer, having more than reversed limited cheapening impulse from the largest tail for a 7Y Tsy auction since Nov 2022 at 2.1bps (both 5Y and 10Y yields are both 1-2bps lower than pre-auction).
• TYZ3 has recently touched the joint session high of 109-17 to further push above the bull trigger at 109-08+ (Nov 17/22 high) and open 109-20 (Sep 19 high).
• The day’s main driving force has been Governor Waller leaning dovish by touting potential cut timings. Specifically, in Q&A: "If you see this [lower] inflation continuing for several more months, I don't know how long that might be—3 months? 4 months? 5 months?—you could then start lowering the policy rate because inflation's lower."
• Governor Bowman (voter) reiterating that she continues to expect the need for a further hike had little sway. Similarly, latest unscheduled BIS text remarks from NY Fed’s Williams (voter) saying “the recent news about the long-run anchoring of inflation expectations in the US is mostly reassuring” weren’t particularly surprising.
• Tomorrow sees the second Q3 GDP release including core PCE before Fedspeak from Cleveland Fed’s Mester (’24 voter) on financial stability and the Fed’s Beige Book.

FX: USD Index Continues Slide As Fed’s Waller Floats Hypothetical Cuts

• Markets pounced on some dovish leaning Fed comments from Governor Waller on Tuesday which raised market pricing for rate cuts across 2024. This prompted a pullback in both front-end Tsy yields and the USD Index - which briefly printed the lowest level since mid-August. A moderate recovery following the 7-yr auction still sees the DXY down 0.3% on the session, as we approach the APAC crossover.
• Outperformance was notable for the Japanese yen, which was the key beneficiary of the lower US yields. USDJPY printed as low as 147.33 on Tuesday, an impressive 234 pips off yesterday’s highs. The move narrows the gap substantially to last week’s low of 147.15. For bears, a clearance of this level, the Nov 21 low, would cancel a reversal chart pattern and instead open 146.48, trendline support drawn from Mar 24.
• The broad greenback weakness continues to boost the likes of AUD, which posted a near four-month high at 0.6666 against the dollar, having topped resistance at 0.6632 and 0.6656 earlier in today’s session. These breaches reinforce the overall bullish theme and signal scope for a continuation higher near-term towards 0.6687, the 2.0% 10-dma envelope and 0.6723, the Aug 1 high.
• In similar vein, GBPUSD topped the $1.2700 handle, making new multi-month highs. This extends the winning streak of higher highs and higher lows to four consecutive sessions, bolstering the potential for a move to 1.2746, the Aug 30 high.
• Australia CPI is due overnight before the November RBNZ policy rate decision. In Europe, focus will turn to Eurozone inflation releases before markets receive the second iteration of US third quarter GDP.

US STOCKS: S&P Holding Narrow Range With Cross Currents Underneath

• A sizeable rally in Treasuries has provided little macro tailwind for stocks today, despite it being driven in real yield terms (10Y nominal -4.3bps, real -6.4bp) in a change from yesterday’s lower inflation breakeven led move.
• ESZ3 at 4560.75 (unch) is within the day’s narrow range. Trend conditions remain bullish with resistance seen at 4580.5 (Nov 22 high), which it came close to earlier with a fleeting high of 4577.25, after which lies key resistance at 4597.50 (Sep 1 high).
• E-minis see the S&P near in line with Nasdaq 100 (0.05%), underperforming the Dow (+0.2%) and outperforming the Russell 2000 (-0.3%).
• In cash space, SPX is led by consumer discretionary (+0.5%, helped by Tesla +3.8%) and real estate (+0.5%) again with lower rates, closely follow by utilities (+0.5%) and consumer staples (+0.4%). Healthcare (-0.4%) is a clear lagger followed by tech/industrials (-0.05%), with tech suffering from Nvidia -1.2% after Micron has slipped -2.9% for its worst decline in two months after higher operating expenses.

COMMODITIES: Crude Futures/Precious Metals Surge Amid Weaker USD Backdrop

• Crude oil prices have rallied sharply on Tuesday, despite easing from their intraday highs in late trade. Price action was unable to breach last Friday’s highs, residing just above the $77 mark for WTI. Crude is rebounding amid the ongoing weakness for the US dollar and is also finding support from uncertainty over the upcoming OPEC+ meeting and potential further supply cuts, coupled with lower output from Kazakhstan as storms impact CPC loadings.
• OPEC+ talks on oil policy are difficult, making a further delay or a rollover possible according to four OPEC+ sources cited by Reuters.
• For Natural Gas, Henry Hub plummeted once again near US close and is trading just above its intraday low of $2.683/MMBtu. It is set for its lowest closing level since late September. Record domestic production is adding to healthy storage and an expected drop in demand next week due to a warning weather forecast.
• In precious metals, some dovish leaning Fed comments and the associated weaker greenback has prompted a strong 1.4% rally for both spot gold and silver.
• Spot gold extends its impressive run to trade at the highest level since May and significantly narrow the ga with the year’s highs at $2,063. Analysts appear to remain bullish on the yellow metal with strategists at Bank of America, stating they believe gold could finish 2024 at $2,400 per ounce, if earlier Fed rate cuts were to manifest.
• Mining weekly reported that in their recently published Metals and Mining Outlook for 2024, the BofA analysts said that while the war in the Middle East has boosted gold in the near term, “the yellow metal ultimately remains a trade on rates, so once the Fed announces a decisive end to the hiking cycle in 2Q, new buyers should come into the market.”