JASPER’S MARKET SQUAWK 10-11-2023

<h2>Market Rally Ends on Hawkish Powell</h2>
<p>Powell signalled a hawkish tone yesterday, noting a potential slowdown in supply-side contributors to slowing inflation while emphasising the danger of overtightening. Markets reversed, with the dollar rising %, ending the S&amp;P 500’s winning streak, with Treasury losses and a shift in expectations for the Fed’s first, optimistic rate cut.</p>
<p><img decoding="async" loading="lazy" class="alignnone wp-image-26928 size-full" src="https://www.keytomarkets.com/blog/wp-content/uploads/2023/11/Template-Daily-2.png" alt="" width="1918" height="913" srcset="https://www.keytomarkets.com/blog/wp-content/uploads/2023/11/Template-Daily-2.png 1918w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/11/Template-Daily-2-300×143.png 300w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/11/Template-Daily-2-1024×487.png 1024w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/11/Template-Daily-2-768×366.png 768w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/11/Template-Daily-2-1536×731.png 1536w" sizes="(max-width: 1918px) 100vw, 1918px" /></p>
<p><strong>Chart: GBPUSD</strong></p>
<h2>Key Factors for Today</h2>
<ul>
<li>Market Rally Cut Short as Powell Takes Hawkish Stance</li>
<li>JP Speech Surprises Markets, Reduces Rate Cut Expectations</li>
<li>BOJ Kuroda Cautious on Exiting Loose Policy, USDJPY on the Rise</li>
<li>Mixed Remarks from ECB Members Lead to Eurodollar Slide</li>
<li>BOE’s Pill Reverses Rate Cut Stance, Backs Governor Bailey’s</li>
<li>China Faces Liquidity Concerns as NCD Issuance Skyrockets</li>
</ul>
<h2>Fed Chair Turns Hawkish Against Recent Cuts Optimism</h2>
<p>Jerome Powell’s speech at the IMF’s conference in Washington saw risk markets reversing earlier gains as the Fed Chair declared no end in sight to the central bank’s hiking campaign, citing uncertainty around supply-side improvements in fighting inflation. It comes on the heels of a series of disappointing bond auctions pointing to less tightening from financial conditions. Colleagues Thomas Barkin and Raphael Bostic corroborated by saying the economy hasn’t fully felt the effects of rate hikes yet. Meanwhile, the reverse repos fell below $1T for the first time in two years, driving US yields and the index higher. If bulls reclaim 106, the next resistance lies at 106.20; otherwise, support is settled at 105.53.</p>
<h2>Ueda Holds Back on Exiting Ultra-Losse Policy</h2>
<p>BOJ Governor Kazuo Ueda expressed caution against exiting ultra-loose monetary policy to prevent significant volatility in the bond market while acknowledging progress in achieving target inflation, citing rising wages and domestic demand-driven inflation. However, he emphasised there is “some distance to cover” before the bank can abandon its YCC policy. USDJPY delivered its 4th day of wins to 151.35, shy of the peak at 151.73 and left behind support at 150.69.</p>
<h2>ECB Members Deliver Mixed Remarks on Policy</h2>
<p>Following similar comments from Bundesbank President Joachim Nagel on Wednesday, ECB Vice President Luis de Guindos corroborated that it is premature to discuss rate cuts, citing ongoing risks to the inflation outlook. He pointed to potential risks from higher energy prices, a weakening euro, and rising unit labour costs, all affecting consumer inflation. On the other hand, chief economist Philip Lane warned against the return to a smaller balance sheet to encourage lending and provide a liquidity buffer for future shocks. The eurodollar was 0.40% down on a stronger dollar, losing 1.07 and opening up 1.0620.</p>
<h2>BOE’s Pill Reverses Stance on Cuts, Now Backing Bailey</h2>
<p>BOE Chief Economist Huw Pill reversed his prior stance against cutting rates as early as in August yesterday, backing (and following) Governor Bailey’s remarks on maintaining a restrictive policy. The central bank will likely continue implementing measures to reduce the money supply and keep rates higher to control inflation. The pound declined to no exception against higher US yields, marking a 4-day loss to 1.2220. Expected support can be seen around 1.2175, with resistance above 1.2262 at 87.</p>
<h2>China Liquidity Concerns Rise After Record NCD Issuance</h2>
<p>Chinese banks have doubled their issuance of negotiable certificates of deposit (NCDs) to $137 billion in a week alone (the biggest on record), suggesting concerns about a potential cash crunch in China. PBOC Governor Pan Gongsheng reassured markets that using tools in the bank’s arsenal aims to maintain ample liquidity, including a possible reduction in the reserve-requirement ratio (RRR) by the end of 2023. The Chinese Yuan is seen declining against the dollar in USD/CNH, with 7.30 marking a 1-week high and a potential 3-day streak. 7.28 and 7.31 are the next levels to watch.</p>
<h2>On The Docket</h2>
<ul>
<li>GB GDP Growth</li>
<li>Industrial Production</li>
<li>Manufacturing Production</li>
<li>ECB President Lagarde Speech</li>
<li>Fed Bostic Speech</li>
<li>Michigan Consumer Sentiment</li>
<li>New Yuan Loans</li>
</ul>
<h2>FX 1-Day Relative Performance (USD)</h2>
<ul>
<li>Aussie 0.04% lower, while Kiwi 0.08% up</li>
<li>Euro flatlined, whereas pound 0.05% higher</li>
<li>Loonie up 0.09%, Franc down 0.08%</li>
<li>Japanese yen slightly higher, at 0.02%</li>
<li>Gold 0.40% down, Silver 0.63% in negative</li>
<li>Crude and Brent up by 0.48% and 0.55%</li>
<li>Natural gas in the red zone, down 0.82%</li>
</ul>
<p>The post <a href="https://www.keytomarkets.com/blog/analysis/jaspers-market-squawk-10-11-2023-26924/">JASPER’S MARKET SQUAWK 10-11-2023</a> appeared first on <a href="https://www.keytomarkets.com/blog">Key To Markets Blog</a>.</p>