Photo - Andreas Zanin
Andreas Zanin
Analysis, Market Analysis | December 1, 2023

JASPER’S MARKET SQUAWK 01-12-2023

Dollar Soars During EOM Session

Investors looked to safety in the dollar on Thursday at the end of November, with the yield curve steepening. It follows a series of slowing fundamentals and hawkish Fed speak.

Chart: USDCAD

Key Factors for Today

  • Investors Seek Safety in Dollar as November Ends
  • US Economic Slowdown Reinforced by Fresh Data
  • OPEC Disappoints with Production Cuts, Oil Prices Slip
  • Eurozone Inflation Dips, Puts Pressure on ECB
  • Canada Avoids Recession Despite Q3 Contraction
  • Asia’s Manufacturing Slows Amid Global Uncertainty

Fresh US Data Reinforce Economic Slowdown

US consumer spending increased by a moderate 0.2% in October, in line with expectations. But jobless claims rose to 218K from 209K, pointing to a cooling labour market. The Fed’s preferred inflation measure, PCE, fell 10bps versus forecasts in October, reinforcing expectations that the Fed is done hiking. However, US Treasury yields rose as November drew to a close, driven partly by Fed’s Mary Daly, who said she does not consider rate cuts next year at this stage. The DXY surprised to the upside with a notable 0.68% rise to 103.52 from 102.82, eying 104 next.

Oil Slips as OPEC’s Production Cuts Disappoint

WTI prices dropped as OPEC announced a shortfall of production cuts compared to prior expectations of 1M bpd. The cartel also said members will announce their own cuts individually, with communication uncertainty contributing to the sentiment. Notably, excluding Saudi Arabia and Russia cuts, the additional cuts will commence in January. WTI crude fell 2.85% to $75.50 a barrel, extending a slide from a reversal shy of $80 and exposing $73 next. The greenback’s strength was a contributor to the commodity’s fall.

Eurozone Inflation Dips, Adding Pressure on ECB

The Eurozone’s inflation fell for the third consecutive time in November, piling pressure on the ECB to reconsider its policy stance. The inflation rate slid to 2.4% from 2.9% in October, well below projections of 2.7%, putting markets and the ECB on a collision course. Meanwhile, and against Goldman Sachs’ Q2 rate cut forecast, Bundesbank’s Joachim Nagel persisted that it was too early to discuss rate cuts. In contrast, ECB’s Fabio Panetta has warned against the economic damage of high rates, which aligns with the contraction in France as the economy contracted by 0.1%. Eurodollar came under severe pressure, 0.77% lower by the close at $1.0885, opening the door to $1.08 unless bulls reclaim 1.0950.

Canada Dodges Recession Despite Q3 Contraction

Canada’s economy shrunk by 1.1% in Q3 but managed to avoid a technical recession as Q2 GDP data was revised to show an increase of 0.3%. The Canadian dollar traded 0.2% lower to the US dollar following the event, but USDCAD closed Thursday at 1.3560, just ahead of next week’s interest rate decision. It faces solid support at the 200-day WMA around $1.35, with a meaningful bounce above $1.36.

Asia’s Manufacturing Slows Amid Global Uncertainty

Asia’s manufacturing activity, particularly in export-heavy economies, faced a slowdown in November, fueled by economic fluctuations in Europe and US. China’s manufacturing sector also presented a mixed picture, with the Caixin Manufacturing PMI rising to 50.7 from 49.5 in October. This contrasts with the official survey indicating contraction, adding to the nuanced view of Asia’s landscape amid global fluctuations. Nikkei was seen trading 0.40% lower at the time of writing, with chances of 33400 breaking increasing.

On The Docket

  • GB Nationwide Housing Prices
  • Fed Barr Speech
  • EA HCOB Manufacturing PMI
  • IT GDP Growth Rate
  • S&P Global/COPS Manufacturing PMI
  • ECB Elderson Speech
  • ECB Enria Speech
  • ECB President Lagarde Speech
  • CA Employment Change
  • S&P Global Manufacturing PMI
  • ISM Manufacturing PMI
  • Fed Chair Powell Speech

FX 1-Day Relative Performance (USD)

  • Aussie muted, while Kiwi 0.04% up
  • Euro 0.24% up, Pound half that
  • Loonie up 0.08%, Frank at +0.08%
  • Japanese yen 0.04% in the red
  • Gold 0.13% up, Silver halfway there
  • Crude and Brent down 0.11% and 0.27%
  • Natural gas slightly in the red at -0.11%
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