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.

Economic activity in the US was revised to the upside in the second estimate (preliminary) at 5.2% for Q3, up from the 4.9% advance estimate and up from the 5.0% market consensus. Much of the revision was derived from an increase in business investment. According to the Bureau of Economic Analysis (BEA), ‘the increase in real GDP reflected increases in consumer spending, private inventory investment, exports, state and local government spending, federal government spending, residential fixed investment, and non-residential fixed investment’. You may also recall that Q2 real GDP came in at 2.1%.

Fed officials were out and about yesterday. In an interview with CNBC, Richmond Fed President Thomas Barkin noted that a rate hike should not be off the table if inflation increases but also said, ‘If inflation comes down naturally and smoothly, awesome, you know, there’s no particular need to do anything with interest rates if inflation steps down’.

Atlanta Fed President Raphael Bostic also made a show and sang a slightly different tune, noting that he is confident that inflationary pressures will continue to subside alongside economic activity. Finally, Cleveland Fed President Loretta Mester commented that policy is in a good place to assess incoming economic data and sees clear progress in lower inflation.

Looking Ahead

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.

Looking ahead today at 10:00 am GMT, focus will shift to inflation numbers out of the euro area. Economists estimate continued improvement in eurozone inflation; the (current) median estimate for the headline year-over-year figure suggests inflation will slightly cool to 2.8%, down from 2.9% (estimate range is between 2.8% and 2.3%). The core reading for the same period is expected to cool to 4.0%, down from 4.2%. A softer-than-expected inflation print could see the euro (EUR) weighed.

Also on the radar today is the US core PCE price index for October and the personal income and spending measures at 1:30 pm GMT. Traders and investors looking to this report to help reaffirm the disinflationary trend in the US. On a month-over-month basis, the headline PCE price index is anticipated to be softer at 0.1%, down from 0.4% in September, with the headline year-over-year measure also expected to slow to just north of 3.0% in October, down from 3.4%. For the core PCE price index measure, the one most will be watching, month-over-month data for October is expected to marginally slow to 0.2%, down from 0.3%, with the year-over-year core PCE data forecasted to cool to 3.5% from 3.7% in September.

Markets

According to the US Dollar Index, the US dollar rallied against a basket of six major international currencies, marginally eking out a gain. The current movement shows the dollar up by +0.2%. Also in the FX space, cyclicals were somewhat mixed yesterday. Against the buck, the AUD and CAD were moderately lower, with the NZD higher (albeit considerably off best levels). Sterling was unmoved against its US counterpart, while the euro (EUR) was marginally softer.

US stocks pared gains seen earlier in the session to close mixed. The Dow Jones Industrial Average added 13 points (+0.04%) to 35,430, while the S&P 500 retreated 4 points (-0.1%) to 4,550, and the Nasdaq 100 was down 22 points (-0.1%) to 15,987.

Treasuries bull steepened, with the benchmark 10-year yield dropping south of 4.300%.

In the commodities space, WTI oil is outperforming, alongside spot gold (XAU/USD) which is fast approaching the all-time high at $2,075 an ounce. Chart pattern enthusiasts may also acknowledge that price movement on the daily timeframe of WTI oil recently completed an inverted head and shoulders pattern, a move allowing technical traders to plot a pattern profit objective at $83.42 (low/neckline value).

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G10 FX space as of 08:40 am GMT:

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Thanks for reading. Have a great day.

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