The FP Markets Research Team produces First Light News during the early hours of the European session, a daily Market Briefing that helps ensure traders and investors are up to date in the macro space for the day ahead.

Good morning.

US jobless claims and PCE data came in largely as economists forecasted on Thursday. Unemployment filings were 218,000 for the week ending 25 November, while continued claims rose to 1.927 million (above the estimated range high of 1.92 million), an 86,000 increase from the previous print of 1.841 million.

The Personal Income and Outlays release for October revealed that personal income increased by 0.2% from September to October, down from 0.4%, with spending also up by 0.2%, down from 0.7% the month prior. Headline PCE was flat on the month, bringing the year-on-year measure to 3.0%, down from 3.4%, the lowest since the pandemic. The core measure, which excludes food and energy, was 0.2%, slightly down from 0.3% the month prior, which pushed the core year-on-year figure to 3.5% from 3.7%. The PCE data demonstrates that inflationary pressures continue to subside in the US economy. In addition to a softening jobs market, the latest round of inflation numbers increases the odds of the Fed cutting sooner than expected, with some desks noting that the ‘Fed pivot’ is nearing. As of writing, around 113 bps of cuts have been priced into the market for 2024, with the first 25bp cut fully priced in for May’s policy meeting.

Fed officials were also out and about again on Thursday.

In an interview with Germany’s Börsen-Zeitung newspaper, which, to be clear, was run earlier this month but released yesterday, Federal Reserve Bank of San Francisco President Mary Daly commented that she is not thinking about rate cuts at this point and is too soon to say if policy tightening is at its end. Daly did note, however, that policy is in a ‘very good place’ and is not forecasting a recession.

The Bretton Woods Committee conference in New York saw Federal Reserve Bank of New York President John Williams note that rates are at or near their peak and emphasised that policy is ‘quite restrictive’ and expects to maintain a restrictive stance for some time. Regarding further policy tightening, Williams communicated that should inflation increase, the Fed could hike rates again.

Looking Ahead

Overnight, the Caixin/S&P Global manufacturing purchasing managers’ index (PMI) rose to 50.7 in November, up from 49.5 in October. Although marking its fastest expansion in 3 months, the release saw the AUD/USD only mildly bid, with price action reclaiming pre-announcement levels after touching a high of $0.6630. You will recall that the official PMIs from China took a hit on Thursday; the Research Team noted the following (italics):

Overnight, manufacturing activity took a hit for a second month in a row in November, according to the manufacturing PMI which came in lower than Bloomberg’s median estimate (49.8) at 49.4 (the prior reading was 49.5 for October). Regarding the services sector, the non-manufacturing PMI also dipped to 50.2 in November, down from 50.6 in October and lower than Bloomberg’s median estimate of 50.9. Both releases emphasise a weakening economy that is losing momentum as we enter 2024.

Today welcomes employment numbers out of Canada at 1:30 pm GMT. Employment change for November is expected to slow to 15,000 from 17,500 in October (the estimate range falls between 25,000 and -5,000). The unemployment rate is expected to tick higher to 5.8%, up from 5.7%, with an estimate high of 5.9% and a low of 5.7%.

Another key event today, of course, is the US ISM manufacturing print for November at 3:00 pm GMT, with the median estimate calling for an increase in manufacturing activity to 47.6, up from 46.7 in October.

Markets

The US dollar advanced on Thursday despite soft PCE numbers; according to the Dollar Index, the buck rallied +0.7% and is testing the underside of its 200-day SMA. Europe’s shared currency was underwater yesterday (-0.8%), weighed on dollar strength and easing inflationary pressures—euro area inflation (flash estimate) cooled to 2.4% on a year-on-year basis, with the core measure also cooling to 3.6% for the same period.

For major US equity indices, the Dow Jones Industrial Average jumped 520 points (+1.5%) to 35,950, the highest close year to date. The S&P 500 rose 17 points (+0.4%) to 4,567, while the Nasdaq 100 slid 39 points (-0.3%) to 15,947. In the commodities space, WTI oil underperformed in recent trading, pencilling in a bearish outside day; spot gold (XAU/USD) holds gains as of current writing and is still fast approaching the all-time high at $2,075 an ounce.

In the crypto market, BTC/USD is still nibbling away at the upper edge of an ascending triangle pattern on the daily timeframe. The Research Team noted this in the recent Pattern Pulse release (italics):

Buyers and sellers have been busy chalking up a clear-cut ascending triangle formation between $37,999 and $34,758. Sharing chart space with the pattern’s upper boundary is the resistance between $38,523 and $37,624. With price now testing the mettle of the pattern’s upper border (and said resistance zone) and understanding that the price of BTC/USD has been trending north since November last year, a breakout to the upside here could see price action target the pattern’s profit objective at $41,223.

(Trading View)

G10 FX space as of 09:10 am GMT:

(Trading View)

Thanks for reading. Have a great day.

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