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  • richard evans

Fed officials offer differing opinions, will Powell set us straight

Good morning

Welcome to December. I’ve been away for a couple of days and return this morning to a very thick frost indeed. Can’t complain, it is December after all, but it has been a long while since I have seen a frost like this and with temperatures looking like they will struggle to get beyond zero, my weekend looks like it will be a cold one giving most of the leaves are now off the trees and need dealing with. So much for Autumns golden gown, more like winters freezing blanket.

I’ve missed a bit in the currency world while I’ve been out. The US dollar weakened on dovish talk from some Fed officials, before turning on more hawkish talk from other Fed officials. Feds Waller had suggested rate cuts could be seen as early as Q1 2024, but Barkin later said he is sceptical of a quick return to 2% inflation and sees potential for another rate rise from the Fed. This goes to show the divergence of opinions with the central bank, we are seeing it other central banks as well, and is pretty normal when we are at something of a turning point.

A further rate rise from the Fed does seem unlikely at this stage but clearly not completely out of the question. With this difference of opinions, we look to Powell to see how he is likely to steer his ship. Powell speaks late this afternoon, twice in fact, which could offer a late flurry of volatility to take us into the weekend.

While the US dollar is off its lows for now, it is still at pretty low levels compared with the previous couple of months. GBPUSD is 1.2650 as I type, EURUSD 1.0900, compared to recent highs of 1.2730 and 1.1015. GBP has gained on EUR, with GBPEUR now up at 1.1610, some 200 points higher than levels from just over one week ago, generally on a greater chance of UK rate rises than EU rate rises, helped by comments from BoEs Greene who warned rates may not be as restrictive as previously thought. Lagarde speaks this morning, although it is unusual for her comments to impact the market to any great extent. Meanwhile the IMF have warned central banks they must not cut rates too quickly and/or too far, in order to avoid a 1970s style inflation crisis. UK inflation hit 25%, while US interest rates were above 20%. A bit before my time, but it has happened in my lifetime.

For those following Gold, my $2000 option expired on Tuesday. With spot above $2000 at expiry, $2027 to me more precise, and not having been above $2075 the strategy worked well enough, having paid out US$9/oz it made for an $18/oz profit at expiry. Buyers of the option may well have held the resulting long gold positions which would have increased profits further, the shiny metal is now up at $2043, US$10 or so from the recent highs.

Deliveries of the Tesla Cybertruck are beginning to take place. For those who don’t follow the car world, Musk is trying to break into US’s lucrative truck market with a rather unusual but visually eye-catching design. It will be a while before we see them here I presume, if ever. They are big vehicles and I’m not sure are well suited to UK roads. In true Musk style, Tesla raced a Cybertruck against a Porsche 911 in a straight sprint. The Cybertruck won, quite a feat for a truck, but all the more impressive given it was towing another 911 at the time. Electric vehicles have such terrific acceleration, however this cold weather does nothing for the batteries which can see range reduced a fair bit.

The uneasy truce between Israel and Hamas has ended but not before many hostages and prisoners were released from both sides. Israel claims Hamas broke the truce, firing rockets towards Israel and failing release all the hostages. Only around 100 were released, 140 or so are still being held. The almost immediate commencement of hostilities will make further peace talks all the more difficult.

So, to the weekend. I have the usual chores to catch up on which will be pretty cold as I mentioned above. Mind you with Spurs playing Man City I may be well advised to stay away from the TV on Sunday, Spurs have a reasonable record against City but with many injuries and suspensions I fear Spurs will suffer their fourth defeat in a row. They failed to win at all in November and are, if anything, weaker now than they were at the start of last month.

Whatever you have planned, enjoy it. Don’t put off that Christmas shopping for much longer, we have just three weeks or so until Christmas Day and we all know how quickly time is passing these days. I was rather hoping to have come home and found our Christmas tree up and decorated. Not so. Looks like that’s another job for the weekend!

- 09.00 EU manufacturing PMI

- 09.30 UK manufacturing PMI

- 10.00 ECBs Elderson speaks

- 11.30 ECBs Lagarde speaks

- 13.30 CAD employment

- 14.30 CAD S&P manufacturing PMI

- 15.00 Feds Goolsbee speaks

- 15.00 US manufacturing ISM

- 16.00 Feds Powell speaks

- 19.00 Feds Powell, Cook speak

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