Barbara Rockefeller
Rockefeller Treasury Services, Inc.
The GDP numbers yesterday deliver implied PCE inflation. Consumption rose to 3.7% from 2.8%, so PCE likely fell a mere 0.1% to 2.1% and core to 2.6%. Together with the ADP rise in jobs, this is not likely to inspire the Fed to cut rates.
We also get the Q3 employment cost index, likely up 0.9% (the same as Q2) and the slowest since 2021. So the Fed could have a hard time naming the labor market as the primary focus that justifies rate cuts. But never mind, we need to wait for nonfarm payrolls tomorrow.
We continue to expect the Fed will cut only once of the two meetings before year-end.
Tidbit: Growth matters, and cumulative growth matters, too. See the comparison of eurozone vs. US GDP quarterly growth. Charts from Trading Economics.
The US has well over 2% annualized from 2022, while the eurozone never made it to 1%.
Forecast
The switcheroo in technical trading signals indicates a correction but it’s incomplete/not confirmed by multiple indicators. The only one that has any real moxie is sterling. It’s highly likely that this is a momentary blip in the grand scheme of things, although it could grow momentum if Trump loses the election, now only 5 days away and the final count perhaps 10 days away. We advise against taking a flyer on a move so un-anchored in anything except position adjustment by big players.
Political Tidbit: Nobody trusts polls any more except the ones that favor pre-existing views, aka confirmation bias. A CNN poll yesterday shows Harris leading Trump in Michigan, 48% to 43%, and in Wisconsin by 51% to 45%. There is the tiniest suggestion that this story inspired the dip in yields…
The cable news channels preaching to the choir are currently focusing on the rising repulsiveness of Trump, including his rally comedian insulting Puerto Rico and Trump saying he doesn’t know the guy--not an apology.
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Editors’ Picks
EUR/USD treads water just above 1.0400 post-US data
Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
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