In the video above, I focus on the technicals that are driving the three major currency pairs – The EURUSD, USDJPY, and the GBPUSD. The markets are reacting to the chances of US government shutdown and the hangover from the Fed BOE and BOJ rate decisions.
For the US stocks, it is not the Fed today, but the US government who is responsible for a sharp fall in stocks in preopening trading. The House voted on a spending proposal plan that would have averted a government shutdown, but that vote failed overwhelmingly.
IN summary:
- House Republicans’ attempt to avert a government shutdown failed in a Thursday vote, with 174 votes in favor and 235 against, falling short of the required two-thirds majority and even a simple majority. The proposal, endorsed by President-elect Donald Trump, sought to fund the government for three months, provide over $100 billion in disaster relief and farmer aid, and suspend the borrowing limit for two years, while stripping provisions on China investments, 9/11 healthcare funds, and pharmacy-benefit manager rules. Opposition included 38 GOP fiscal hard-liners and most Democrats, marking a setback for Trump and House Speaker Mike Johnson. If no agreement is reached by midnight Saturday, a partial government shutdown will begin, affecting hundreds of thousands of federal workers.
The original plan proposed by both parties of the House, was rejected by Elon Musk on X and led to the scrapping and the new proposal.
Although the sky is falling, the process will begin over again, and the hope is that although there may be a shutdown, there will likely be an agreement at some point. What is clear is that the newly re-elected President Trump (along with Elon Musk) will be cracking the whip to let all parties know who is in charge. That means domestically and internationally.
The US stocks have moved sharply lower with the futures currently (7:44 AM ET) implying:
- The Dow industrial average down -265 points. The index barely snapped the 10 day down streak yesterday with a gain of
- The S&P index futures are implying a decline of -58points
- The NASDAQ futures are implying a sharp fall of -330 points
US yields are moving lower with the:
- 2 year at 4.278% or -4.1 bps
- 5 year at 4.380%, -4.8 bps
- 10 year at 4.542%, -2.8 bps
- 30 year at 4.735%, -0.7 bps.
Meanwhile, back to the Fed, SF Pres. Mary Daly who has been a sounding board for Fed’s Powell in the past, just completed commments on business news saying:
- That the monetary policy decisions are based on data, not influenced by the incoming administration. She described the current policy stance as well-positioned to manage upcoming challenges and noted that inflation has been progressing more slowly than expected, creating a “bumpy path.” Daly highlighted that the Fed has moved beyond the recalibration phase after the recent 100bps rate cuts, which she deemed appropriate. While expecting rate cuts in 2025, the exact number will depend on incoming data. She expressed confidence in the labor market, citing solid economic conditions where firms can find workers, and the Fed aims to avoid breaking that stability. Daly acknowledged uncertainty around the neutral interest rate and inflation projections but stated that the Fed is working toward a soft landing. She does not anticipate a rate hike in 2024 but emphasized it remains an option if necessary, as the Fed continuously evaluates its tools to maintain economic balance.
Looking at other global monetary policy news ECB’s Chief Economist Philip Lane stated that the European Central Bank only needs to maintain a restrictive monetary policy stance if inflation momentum exceeds 2%. However, he noted that current indications suggest inflation momentum is trending closer to the 2% target, reducing the need for stringent measures.
The Japan finance minister Kato fired a shot across the bow with regard to potential JPY intervention after its sharp fall by expressing concern over its recent one-sided and sharp movements.While refraining from commenting on specific foreign exchange levels, he emphasized the importance of currencies moving in a stable manner that reflects economic fundamentals. Kato stated that the government would take appropriate action against excessive or speculative-driven moves, highlighting the sharp weakening of the yen this week as a significant concern.
The USD is mostly lower but the GBP, CAD, AUD and NZD are all modestly moved with changes of 0.12% or less:
. IN other markets:
- Gold is higher by $9.62 or 0.35% at $2603
- Silver is down -$0.13 or -0.44% at $28.87
- Bitcoin is sharply lower at $93,625
Today the US PCE data for the month of November will be released:
- PCE MoM 0.2% est vs 0.3% last month
- PCE YoY 2.5% est vs 2.3% last month
- PCE Core MoM 0.2% est vs 0.3% last month
- PCE Core YoY 2.9% est vs 2.8% last month
Personal income (est 0.4%) and consumption (estimate 0.5%) will also be released.
IN Canada retail sales are expected at 0.7% for the month of October.
US University of Michigan revised (Final) is expected at 74.1 versus 74.0 in the preliminary and higher than the 71.8 last month.