Amidst all the geopolitics of the trade dispute, Italian budget and Brexit, the Fed’s monetary policy has taken a bit if a back seat role in recent times. However, Fed chair Jerome Powell gave markets a reminder yesterday that there is more to sentiment than geopolitics, in a speech that may now have changed the course of the dollar bull run. In recent FOMC meetings, the Fed has maintained a consistent hawkish line of its monetary tightening. However, this appeared to shift yesterday as an erstwhile hawkish Powell, hinted at an end in sight for Fed tightening. He said that Interest rates “remain just below the broad range of estimates that would be neutral for the economy”. This is a shift from what Powell said in October where he suggested they could still be “a long way” below neutral. He also suggested (as vice chair Clarida had on Tuesday) that the Fed should be data dependent. It will be interesting to see the FOMC minutes tonight as it seems that recent rhetoric has likely pivoted away from the hawkish messages of recent Fed meetings. Markets responded and continue to this morning. Treasury yields are falling, especially at the shorter end of the curve. The US dollar formed a bearish engulfing candlestick (bearish key one day reversal) to turn decisively lower. The biggest move was reserved for Wall Street which saw equities jump impressively. The “Powell put” perhaps? The question is whether this is a seismic shift in policy direction that will end the dollar bull run that has been so prominent since April. We may need to wait until the December FOMC meeting for confirmation, but traders may not wait that long.
Wall Street bounced strongly on the back of Powell’s dovish comments yesterday. The S&P 500 jumped 2.3% although futures are ticking a shade lower by -0.2%. Asian markets have been mixed this morning with the Nikkei +0.4% and the Shanghai Composite -1.3%. European futures are showing decent gains with FTSE 100 and DAX around half a percent higher. In forex, there is broad dollar weakening across the G4 majors, but there is a lack of direction on commodity currencies so far. In commodities, gold and silver have been supported from yesterday’s late rally, whilst oil is also finding a degree of support today.
The key economic data point for today comes with the Fed’s preferred inflation gauge, the core PCE but also the FOMC minutes for the October meeting. However, in the European morning, traders will be looking for the countries of the Eurozone which release inflation numbers, with German inflation especially in focus. German inflation is released state by state through the morning with the countrywide number at 1300GMT and is expected to tick a shade lower to 2.4% (from 2.5% in October). US core Personal Consumption Expenditure for October is at 1330GMT and is expected to be +0.2% on the month which would pull the annual data back to +1.9% (from +2.0% in September). US Weekly Jobless Claims at 1330GMT are expected to tick down a touch to 220,000 (from 224,000 las week). US Pending Home Sales are at 1500GMT which are taking on added importance after the miss on new homes yesterday, with pending sales expected to grow by +0.5% in October. The FOMC minutes for the October meeting are released at 1900GMT and will be looked at for any ack