Morning Report
November 14, 2024
“The dollar’s rally has been unstoppable this week, and the ‘Trump trade’ remains the dominant driver in the FX market even as top tier data rolls in. Another inflation report and a speech from Chair Powell are the key events to watch today.”
Tim Hallinan – Trading Director
USD
More than a week after Trump’s victory, we are yet to see a top in the dollar’s incredibly consistent grind higher. The market is steadily building a picture of the composition of Trump’s administration, with loyalists being installed in key positions, the House finally being called for the Republicans, and John Thune’s election as senate leader potentially putting a spanner in the works for Trump’s ability to pass through legislation, owing to his distaste for protectionism. The bullish momentum continued yesterday as it scaled fresh one-year peaks, undeterred by a CPI report that, at the margin, increased expectations for a December rate cut. Both the headline and core measures were bang in line with the survey estimates, at 2.6% and 3.3%. While the stagnation in core remains a concern, the uptick in the overall figure was largely a result of base effects, and shelter inflation continues to dominate the index, despite being a lagged indicator of current inflationary pressure as average rents are slow to catch up with the market.
The two main events today are a PPI inflation print, from which a number of components feed directly into PCE inflation, and a speech from Chair Powell. His interpretation of the inflation figures from this week will likely be the relevant factor here, given that he is likely to shy away again from commenting on the impact of Trump.
GBP
The bulldozing dollar has pushed sterling back into the lower end of the 1.25-1.30 range ahead of some key speeches in the UK today. Both the Chancellor and Governor Bailey talk at the Mansion House dinner, where Reeves is set to formally announce the consolidation of local council pensions into 8 ‘megafunds’, which she reckons will open up £80bn in investment. As for Bailey, not much has changed since his press conference last week, although he has a tendency to throw out small comments that move the market, most notably when he suggested rate cuts could become slightly more aggressive last month.
EUR
The euro’s post-election slump extended further yesterday despite yield differentials moving in its favour, suggesting that weakened risk sentiment has become a significant driver. Now in the low 1.05s, EUR/USD appears to be closing in on the 1.00-1.05 range well ahead of the schedule projected by the rewritten bank forecasts that have emerged this week. The only piece of data from the eurozone today is a second estimate of Q3 GDP, which initially trimmed pricing considerably for a 50bp rate cut in December when it landed twice as high as expected late in October. We also get the ECB meeting minutes this afternoon, where the key will be clues on policymaker appetite to accelerate the easing cycle further.
Markets
US equities ended marginally higher yesterday as expectations rose for a December rate cut following a reasonable CPI report. Treasury yields rose across the curve, however, and the Trump news continued to roll in with some further cabinet appointments. European stocks have not yet responded negatively to the assumed growth shocks from Trump’s trade policy, which have been the basis for a dovish repricing of the ECB curve. The DAX’s all-time highs, for example, appear to contrast heavily with the dampened sentiment around the German economy and politics.
Main Economic Events (All Times CET)
1:30am: Australian Employment Change
11:00am: Eurozone Q3 Growth 2nd Estimate
2:30pm: US PPI Inflation & Jobless Claims
9:00pm: Fed Chair Powell speaks
10:00pm: BoE Governor Bailey speaks
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