Our thoughts and prays remain will all the innocent in all conflicted regions.
Moody’s on Friday lowered is outlook on US Govts credit ratings to “negative” from “stable”. In a statement it said that “large scale fiscal deficits and a decline in debt affordability” were the main reasons. This follows Fitch’s move earlier this year after months of political brinkmanship surrounded the lifting of the US debt ceiling. The problem is not going away, and new US Republican House Speaker Mike Johnson is in dialogue looking at several stopgap measures to allow Biden to sign in appropriation bills in order to keep the Government open for business. Noting that $33,600,000,000,000 in debt or 129% of debt to GDP is simply unsustainable for the world’s leading economy. To bring this into perspective between 1940 and up until 2022, debt averaged 65.2% of GDP. It has nearly doubled in two years. Although, Biden has reigned in some debt ($1 trillion) according to the Republican speaker more needs to be done. However, some are sceptical that anything will be done due to the political calendar in 2024. Moody’s downgrade may exacerbate financial concerns as we head onto the 17th November deadline when the original stop gap measure expires. This measure was instigated by Kevin McCarthy, whom has the title of being the first speaker of the House of Representative to ever be successfully removed by the House. As we head into the deadline this week, we can expect to see some volatility as Republican Mike Johnson seeks a resolution of some sort to avoid a government shutdown. The market is being primed for another “stop gap” measure rather than a working solution. But perhaps this time around investors will become more wary, like before it is all about the same problem but what is going to be done. It will be a fight but who will take it on as the US debt just cannot keep growing. Now it seems more about not just paying it back but more about how it will be serviced. With US 10year Treasuries closing stable down for 5% at 4.65% on Friday its costly for all.
In July 2020 the 10yr note was trading at 0.3485%, it is currently 4.65%. US Fed Governor Powell in his latest statement late last week noted that the Fed will not hesitate to tighten more if needed and that he is not confident that the Fed has done enough to bring inflation down to 2%. On the same day University of Michigan consumer sentiment fell to 60.4 in November, the lowest in six months, significantly below forecasts of 63.7 and with the five-year inflation expectations reaching the highest level since March 2011 the outlook is bearish. It will be a fine line for the Fed in being prudent or full hardy when it next acts on interest rates. A tough decision given that Oil and energy inflation are on a precipice given the conflict in the Middle East between Israel and Hamas.
So far, the conflict has done little to ignite a run on the price of oil. Expectations that tensions could spill over to other Arab/Muslim states remain a concern for all. Hopefully the scenarios outlined by the World Bank do not come to fruition however, as tensions continue to mount the region remains a tinder box. News over the weekend from the Iran’s Foreign Minister Hossein Amir-Abdollahian suggested that the growing numbers of civilian casualties in the Gaza will inevitably lead to an expansion of the Hamas - Israeli war. WTI is currently trading at US… after the Sept 27 high of … and so we expect a bounce the longer the conflict remains unresolved.
Apart from the negative Michigan Consumer Confidence numbers and Powel’s hawkish comments last week’s economic calendar showed Chinas inflation rate dropped to -0.2% yoy and monthly rate edged lower to -0.1%. The PPI although negative at -2.6% was fractional better than the consensus. Deflation remains a real concern and the market will be looking for more stimulus measures from the PBOC. In Australia, the RBA lifted rates by 0.25% to 4.35% after 4 months of no action. This was expected. This brought borrowing costs to their highest level since 2011. According to the RBA CPI inflation is now projected to be around 3-1/2% by the end of 2024 which is at the top of the RBA’s target range.
Major inflation data in US on Wednesday are tipped to show that inflation is under control. The last MoM rate was +0.4% and consensus is +0.1%. The YoY rate is forecast for 3.3% from a previous read of 3.7%. Although the numbers are expected to be contained, the past spike in oil a subsequently effects on energy inflation still need to filter through the economy as such we expect the date to be out of range and if anything, to be slightly higher than expected. On the same day we get a look into the Chinese economy with Industrial Production (IP), Retail Sales and Unemployment. Whilst Retails Sales are looking strong IP tipped to be lower. Then on Thursday and Friday we have a plethora of data from the US so expect some volatility.
On our positions, we have taken advantage of the correction, closed the cheeky … again with US Budget crise re-emerging as a key stumbling block for traders.
AUD/USD … and AUD/CHF … positions have had a good lift, and we are close to becoming back in profit. We continue to like these trades and feel that we have a major low in place.
Trade Focus:
Oil: …
Technical Analysis:
From a technical perspective the futures have traded from US… to US... Momentum indicators are on their lows and looking to turn. If we get a daily close above US… then expect more gains. If going long at these levels stops need to be placed in at below the low of the previous day.
Support …
Resistance …
Momentum …
