Market Strategist
Summary: The holiday-shortened week is likely to see a continuation of Fed speakers pushing back on expectations of a Fed pivot. There is some risk that the message from the FOMC minutes, due on Wednesday, on the downshift in the rate hike trajectory could be interpreted in a dovish manner. But Fed members will likely continue to bring the focus on strength of the labor market and terminal rate pricing.
Last week, we saw the Fed members pushing back generally against the oversized reaction of the markets to the softer US CPI print and the resulting lower pricing of the terminal rate. This helped the US dollar to make a mild recovery, and the trend could likely continue as easing of financial conditions over the last two weeks makes Fed members more alert. We have updated our Fedspeak Monitor with the latest commentaries from the key Fed members, as these remain key to monitor before we start to expect a Fed pivot.
While the usual hawk Bullard continued to bring the focus on higher terminal rate pricing, Collins also added to the hawkish rhetoric by keeping a 75bps rate hike on the table for December. Waller, however, started the week on a hawkish note but was later quoted saying he is “more comfortable” with a 50bps rate hike this month. The uber-dovish Brainard however was more balanced as she took comfort from the recent inflation data, but still hinted that duration of peak hold would depend on flow of data.
This week brings the FOMC minutes from the November 2 meeting, which may be at a risk of being interpreted dovish as the message on downshifting to a smaller pace of rate hikes will likely be key. Chair Powell managed to deliver that with a hawkish press conference, but just a read of the minutes may not be sufficient for that tone to strike again. We have more Fed speakers coming on the wires as well this week, including Daly, Mester, George and then Bullard again just before the week is shortened by the Thanksgiving holiday.
AI: The good, the bad, and the bubble
While a deep recession may not be iminent thanks to central bank policy, interest rates will have to stay high for longer, and this will be accompanied by volatility risk from the unwinding of bubbles, especially within AI.
Steen Jakobsen,
Chief Investment Officer
The emergence of advanced AI systems is by far the most surprising event this year, turning everything upside down, while risks and benefits are debated. AI will also become an arms race between the US and China.
Peter Garnry,
Head of Equity Strategy
As China navigates global fragmentation, its cycle of technology application, productivity enhancement, and growth is threatened by US breakthroughs in generative AI, limited computing power, and geopolitical tensions.
Redmond Wong,
Market Strategist
Japan’s expertise in semiconductors and robotic integration could be the foundation of AI dominance. Combining two of this year's themes, Japanese equities and artificial intelligence, brings a wave of opportunities.
Charu Chanana,
Market Strategist
The AI fever has turned the technology into a darling, pushing crypto further into no-man’s-land. There are striking similarities between AI and crypto, and if these are to come full circle, AI won't be spared for bubbles.
Mads Eberhardt,
Cryptocurrency Analyst
Stocks related to artificial intelligence (AI) have appeared on investors' radars. Expectations are high, but it may be necessary to consider how to get exposure to AI in a diversified way.
Hans Oudshoorn,
Trainer Academy
The USD is on its back foot as markets celebrate an eventual Fed rate peak and steady long US yields. The stakes are even higher for the Japanese yen if longer major sovereign yield curves have to price in economic acceleration.
John J. Hardy,
Head of FX Strategy
While commodities, broadly speaking, have faced some tough months, a partial reversal during June could signal that the asset class is getting back on its feet with energy holding up and precious metals with upside potential.
Ole S. Hansen,
Head of Commodity Strategy
As inflation remains high central banks face hard decisions about whether they should keep hiking interest rates or stop. Meanwhile, the rise of AI creates bubble-like conditions that only make the decision harder.
Althea Spinozzi,
Senior Fixed Income Strategist
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