Markets quiet as US turkey cull begins

Wall Street mixed ahead of Thanksgiving

The New York session was a mixed one as markets digested the pre-Thanksgiving holiday data dump, and investors lightened bullish positioning over what will be a long weekend for many. Equities finished mixed, currencies and precious metals ranged, although oil prices spiked after the surprise draw in US Crude Inventories.

Wading through the plethora of US data releases, Initial Jobless Claims rose once again to 778,000. Personal Spending unexpectedly fell by 0.70% as government support programmes ran off, and Personal Expenditure rose by 0.50% propelled by, surprise surprise, health care costs. Durable Goods outperformed, rising by 1.30%, but the headline was flattered by a spike in defence orders. The overall picture contrasted with the PMI data from earlier this week, which vastly exceeded expectations, but is a survey of expectations. The data overnight suggested that the US recovery was slowing as government support programmes ran off, and that the massive spike in Covid-19 is infecting the real economy.

The FOMC minutes suggested that the board was not looking to increase QE in December but redeploy their bond-buying in different ways. I take that to mean most likely shifting to a yield curve control (YCC) stance and getting more involved in the long end of the curve, especially since the curve has steepened in the past two weeks. A few things have changed since the last FOMC meeting, notably the arrival of vaccine candidates. The Fed is more likely to be focused on the here and now though and will be looking at personal expenditure and jobless claims nervously. With fiscal stimulus problematic, December’s meeting will still be live, and I expect an increase in bond buying and a move to a YCC stance to cap rises in longer-dated yields. That may give some relief to beleaguered precious metal positioning.

All-in-all, the data was slightly negative but dramatically so. With Thanksgiving closing US markets today, and unofficially tomorrow, investors booked some recent gains before reaching for the cranberry sauce. The US holiday will mute activity in Asia today and tomorrow. Nevertheless, with bottomless amounts of cheap central bank cash, and vaccine candidates emerging, the great rotation trade, and asset price appreciation in general, is set to continue. Keep buying dips.

The calendar in Asia is light today as well with the Bank of Korea holding rates steady at 0.50% this morning, as expected. One potential flashpoint is Malaysia and politics. Two words that go together as smoothly as cranberry sauce. Parliament votes today on the 2021 federal budget. If the government is defeated, it will likely be regarded as effectively losing a vote of no-confidence. That will weigh on the ringgit and Malaysian equities, as political instability and the opaque nature of the government’s majority return to investors’ minds. Passing the budget will draw sighs of relief from currency and equity markets.

Overall, the FOMC minutes are probably not as dovish as many investors had hoped. Combined with a US holiday, meaning markets are vulnerable to headline risks on a quiet day, Asia is likely to follow America’s lead and book profits and take some risk off the table.

Friday and Monday give the world a double dose of mindless online consumption in the shape of Black Friday and Cyber Monday. The real-time sales data will be closely monitored in the US, with records expected to be broken. If that narrative doesn’t play out to expectations, equity markets may find themselves consolidating or edging lower for a few days longer.

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Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific, from 2016 to August 2022
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley was OANDA’s Senior Market Analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV and Channel News Asia as well as in leading print publications such as The New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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