Morning Brew November 3 2022

Good Morning

A rather hawkish Powell weighed on risk sentiment, pushing equities lower and the USD higher. Chapeaux to our strats team who called it perfectly in the morning podcast.

Initially Powell had sounded rather dovish but two comments reversed that sentiment: ULTIMATE LEVEL OF RATES WILL BE HIGHER THAN PREVIOUSLY EXPECTED and FED'S POWELL: HISTORICAL RECORD CAUTIONS STRONGLY AGAINST PREMATURELY LOOSENING

As Steen Jakobsen points out, there are two conditions under which the Fed would pause it`s hikes:

•  significant lower inflation or
• Significant slow down in economic activity recent trend

- both are not the case – to the contrary.                     

The Fed had hiked rates by 75 basis points as expected but the outlook for the next year shifted somewhat, yesterday peak rates were expected at 5% in May, now it is 5.1%  in May / June. US 10 Years rose to 4.10 and the USD Index exceeded 112 again.

EURUSD fell to 0.9815, GBPUSD 1.1395, USDJPY rose to 147.50, Gold and Silver are trading 1634 and 19.25.

Rate sensitive stocks were the biggest losers with the Dow down 1.55%, the S&P 500 2.50% and the  Nasdaq 3.36%, Tesla gave up 5.6%, Apple 3.7% and Alphabet 86.7%.

Employment will continue to be in focus, todays initial Jobless claims and tomorrows Nonfarm Payroll. Continuing claims are expected at 1.4 mio and the Nonfarm tomorrow at 200k.

Also in focus will be the Bank of England (13:00)  and the Norwegian Central Bank (10:00)  today, clearly expected to deliver a hike by 75 bps, the largest since 1989. The Bank of England is in a terrible place with Inflation at a 40 year high and the economy in recession.

Headlines:

Oil rallied for several reasons – firstly OPEC rose its forecasts for world oil demand in the medium to longer term, saying that $12.1 trillion of investment is needed to meet this demand  and an EIA report showed US gasoline inventories fell to the lowest since 2014.

Maersk, the world’s largest owner of container ships, said it expects global container demand to decline by up to 4% this year from an earlier estimate of  +/- 1%. It also warned that next year could be worse.

Wheat loses as Russia to resume grain deal participation

Economic data:

Thursday: UK PMI and Rate decision, EU Unemployment, US PMI,

Friday; EU PMI, US Nonfarm Payrolls

Earnings:

Thursday: ConocoPhillips  Cigna Corp, Amgen, Paypal, Starbucks, EOG, DBS,