Daily Market Outlook - Thursday, Nov. 14

By Patrick Munnelly of Tickmill

Thursday, November 14, 2024 7:00 AM EST

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While longer-term U.S. government yields and the dollar increased on Thursday as investors assessed the monetary policy and inflation outlook in the United States, weak Chinese markets drove down broader Asian shares. Donald Trump's return to the White House and the optimism that his administration will be good for cryptocurrencies helped Bitcoin stabilize above $90,000 after it had surpassed that mark in the previous session. Although Trump's return to office muddled the outlook for monetary policy in 2025 and beyond, traders in the broader market responded to a U.S. inflation report that matched forecasts by raising bets on a Federal Reserve rate drop next month. It is anticipated that Trump's tax cuts and tariff increases will increase inflation and limit the Fed's ability to lower interest rates. Additionally, Edison Research predicted Wednesday that when the president-elect assumes office in January, the Republican Party will control both chambers of Congress, allowing him to essentially implement his program without interference. Longer-dated U.S. bond yields increased Thursday in Asia trade, reflecting this uncertainty. The benchmark 10-year Treasury yield reached its highest level since July 1 at 4.483%.

Domestic policy and trade speculation about Trump are unlikely in the Fed's December estimates. This will change with the initial policies. Since tariff increases and tax cuts take time to execute and affect the real economy, their impact will be recognized after 2025. This will allow the Fed to alter its reaction function. As a proxy for near-term rate expectations, the two-year yield fell. An 83% possibility of a 25 basis point Federal Reserve rate drop next month has increased from 59% a day earlier. Expectations of Fed cuts next year have dropped since Trump's election last week. The dollar and longer-term Treasury yields gained on Thursday despite rising expectations for a December Fed cut, which would normally hurt the currency.

Markets in Europe will be watching the publication of the third-quarter flash employment statistics and the second estimate for GDP growth from the eurozone. Although the bloc grew more quickly than anticipated in the third quarter, preliminary data released in October indicated that it was still fragile because household spending hardly increased and industry remained in recession. Following the release of the U.S. October producer prices report, which contributes to the Fed's preferred inflation index, Fed Chair Jerome Powell will give a speech in Dallas. However, considering the uncertainties surrounding Trump's policies once he assumes office, Powell's remarks for 2025 and beyond will be limited. Trump has already appointed a number of people to his cabinet and other senior administration roles, including those in charge of trade, immigration, economic policies, defense, intelligence, and diplomacy. According to sources, investor Scott Bessent and billionaire banker Howard Lutnick are vying for the top Treasury position.

Overnight Newswire Updates of Note

PBoC Sticks With Yuan Support In Face Of Resurgent Dollar
China’s Economy Forecast To Show Modest Pick-up After Stimulus
China Arms Itself For Potential Trade War With Donald Trump
Japan Planning $87B Extra Budget To Fund Stimulus Package
RBA: Trump Policy Impact Hinges On How Other Nations Respond
Australia Hiring Gains Slow; Unemployment Is Steady
Bets On December Rate Cut Rise After US CPI Data
Asia Shares Wobble; Long-End US Bond Yields Rise With Dollar
Fed Officials Fret Over How Far They Can Lower Interest Rates
US October Budget Deficit Jumps To $257B, Handing Hole To Trump
Chancellor To Consolidate UK Council Pensions Into Eight Megafunds
UN Nuclear Watchdog Chief Grossi Arrives In Iran For Talks
Cisco Reports Fourth Straight Quarter Of Declining Revenue

(Sourced from reliable financial news outlets)

FX Options Expiries For 10am New York Cut

(1BLN+ represents larger expiries, more magnetic when trading within daily ATR)

EUR/USD: 1.0390 (300M), 1.0500 (355M), 1.0550 (1.1BLN)
1.0560-70 (733M), 1.0575-85 (815M), 1.0590-00 (1.9BLN)
1.0625-35 (694M), 1.0650 (2.5BLN)
USD/JPY: 154.50 (884M), 155.00 (593M), 156.50 (597M)
EUR/JPY: 163.00 (200M)
USD/CHF: 0.8650-60 (700M). EUR/CHF: 0.9380 (294M), 0.9475 (507M)
GBP/USD: 1.2550 (295M), 1.2645-50 (550M), 1.2665-75 (538M)
1.2700-10 (475M), 1.2725 (367M), 1.2800 (285M)
EUR/GBP: 0.8305-10 (300M)
AUD/USD: 0.6460-65 (551M), 0.6500 (479M)M). AUD/NZD: 1.1000-15 (491M)
USD/CAD: 1.4000 (825M), 1.4050 (298M)

CFTC Data As Of 8/11/24

USD net spec G10 long -$0.31bn
EUR +1.04% in period; specs +26.7k contracts now -21.7k
JPY -1.19%; specs sell 19.4k contracts now -44.2k; US-JP rate divergence
GBP +0.2%; specs sell 21.3k contracts long cut to 45.1k
CAD -0.63%; specs sell 7.7k contracts; BoC rate well below Fed in 2025
AUD +1.14%; specs +3.5k contracts now +31k; RBA seen as more hawkish c.bank
BTC -4.37% in period; specs +412 contracts, now -1,457
Equity fund speculators trim S&P 500 CME net short position by 97,351 contracts to 194,685
Equity fund managers cut S&P 500 CME net long position by 52,438 contracts to 992,952
Speculators trim CBOT US 10-year Treasury futures net short position by 82,913 contracts to 818,270