Articles

• US November core PCE +2.8% y/y vs +2.9% expected
• Canada retail sales for October 0.6% versus 0.7% expected
• Canada’s NDP says they will vote to defeat the Liberal government
• Fed’s Goolsbee: Nice to get inflation number that is better than expected
• Fed’s Williams: Inflation data since Sept has been ‘a touch higher’
• Fed’s Hammack: Rate cut was a ‘close call’ and she favored holding policy steady
• EU consumer confidence flesh for December -14.5 versus -13.7 last month
• University of Michigan consumer sentiment final 74.0 versus 74.0 preliminary
• Fed vice chair for supervision is worried that Trump will try to remove him – report
• Dallas Fed trimmed mean November PCE price index +1.8% vs +2.9%
• House speaker Johnson: We have a unified agreement among Republicans
• Canada October budget balance C$-1.49 billion vs previous C$-3.17 billion
• RBC card spending data shows softer Canadian spending ahead of today’s retail sales report
• Fed’s Daly: The recalibration phase is now over

Markets:

• S&P 500 up 1.1%
• WTI crude up 15-cents to $69.53
• US 10-year yields down 4.2 bps to 4.52%
• Gold up $30 to $2623
• JPY leads, USD lags

The mood shifted sharply on Friday as stocks looked set for another rout in the pre-market only to reverse higher. The FX market followed a similar pattern, though the moves were less-dramatic. That meant US dollar selling after the dollar hit some of the best levels of the year early in Asia.

Two things turned markets: The PCE report and progress on avoiding a government shutdown.

On Wednesday, the Fed comments indicated a big shift towards worries about inflation but the PCE report brought a dose of reality back to the debate as the numbers were lower than expected and not at levels so worrisome that the Fed would need to contemplate hiking.

Comments from Goolsbee and Williams underscored that, assuring markets that the path for rates is still lower and that the only real debate is the pace of cuts.

Some of the machinations around the debt ceiling debate also underscored a Trump/Musk recalibration around fiscal hawkishness. It’s not yet clear how it will shake down so keep a close eye over the weekend. The real thing to watch is how the new administration prioritizes fiscal consolidation relative to corporate tax cuts. The vast majority of the market thinks the top priority is the stock market but that could be a miscalculation.

In terms of market moves, USD/JPY fell hard on some verbal intervention from Tokyo and it continued to drift lower in the US as Treasury yields ticked lower.

The euro bounced impressively after touching 1.0344 while the Australian and Canadian dollars rebounded from the worst levels of the year. The pound touched below the November lows in Asia the bounced to 1.2600 before fading 25 pips below the figure.

I would expect the first reaction on Monday to center around the government shutdown response but we’re deep into the holiday season now so the temperature might fall.

Have a great weekend.

This article was written by Adam Button at www.forexlive.com.

• Prior was +2.9%

These are one-month annualized numbers so small changes led to swings like this. That said, the latest number is one-month running at a sub-2% pace, 11 more to go.

This article was written by Adam Button at www.forexlive.com.

• Johnson says there will be no government shutdown

Talk is cheap, let’s get the vote.

This article was written by Adam Button at www.forexlive.com.

Yesterday I spoke with Dale Pinkert from Forex Analytix about the state of broader markets and a few of the things that have me worried. Here is a summary:

• Stock Market Trends: Fiscal tightening, political dynamics, and investor sentiment. What will fiscal hawks influence in Congress?

• Fed talk: What does Wednesday’s FOMC decision really mean

• Currency Analysis: Insights into USD strength driven by Fed decisions, with speculation on the Dollar Index reaching 120 levels. A focus on euro vulnerabilities, as well as the impact of tariffs and war.

• Election Forecast in Canada: I talk about the high likelihood of a Conservative majority win in Canada’s winter election and what it means for the loonie.

• Automotive signs: Chinese dominance in the global automotive market and what it means

• Housing :The US housing market is more fragile than I thought amid higher rates and limited new construction.

• Energy and Commodities: $70 is the break-even point for shale production. Metals like gold and silver remain under pressure, despite seasonal strength but what’s next?

This article was written by Adam Button at www.forexlive.com.

The fear in markets is that Trump is going to be hitting everyone with tariffs. He’s a very tough guy to predict but I’m growing more optimistic.

1) The threats to Mexico and Canada are solvable

One of his first post-election tweets talked about 25% tariffs on Mexico and Canada but the important detail was he wanted action on fentanyl and border security. That’s an easy deal to make and Trump already highlighted improvement from Mexico.

2) Europe

The FT today reports that Trump wants NATO countries to spend 5% of GDP on defense. That’s some real war-time spending with many failing to hit the 2% NATO target. The report though says that he’s only really aiming for 3 or 3.5%. If that’s the trade for four-years free of tariffs then there is a deal to be made there, especially if those targets have long lead times.

3) China

This is the whale of the tariff war and he threatened to put on a 10% tariff due to fentanyl and I think that happens but at this point, a 10% tariff would be a relief.

More tellingly, Jim Cramer interviewed Trump and the NYSE last week and this comment was largely missed:

Well, we’re going to be having a lot of talks with China. We have a good
relationship with China. I have a surprising relationship. Now, when
the COVID came in, I sort of cut it off. That was a step too far. That
was, as they say, a bridge too far. But we’ve been talking and
discussing with President Xi, some things, and others, other world
leaders, and I think we’re going to do very well all around and we are,
we’ve been abused as a country.

He wasn’t specifically asked about tariffs here but he doesn’t sound like a guy who wants to go wild on tariffs.

This article was written by Adam Button at www.forexlive.com.

According to Punchbowl:

• Republican leadership has a slide-up that has an agreement on the debt limit
• The agreement says that the House Republicans will raise the debt limit by $1.5 trillion in the first reconciliation package, alongside a promise to cut $2.5 trillion in net mandatory spending in the reconciliation process.

Meanwhile House Majority Leader Scalise is saying:

• There is a plan against US there today, and if not they will do it tomorrow

House Speaker Johnson says: has spoken to the present electronic about new funding plan

Finally, the White House says

• Republicans need to stick with bipartisan deal to keep the government open
• There is still time to avoid a government shutdown

This article was written by Greg Michalowski at www.forexlive.com.

Currently the NATO target is 2% of GDP and 9 of the 32 members don’t even hit that.

According to the FT, Trump’s team has told European officials that he will demand that NATO states spending 5% of GDP on defense and also that he plans to continuing supplying aid to Ukraine.

The report plays down the demand and says he would settle for 3.5% or 3% in order to avoid tariffs.

I don’t think anyone has any idea what’s going to happen in Ukraine in the year ahead but many of the Trump tariff threats aren’t looking so bad. This isn’t such a tough deal for Europe to make, provided it ends the tariff threat for four years.

This article was written by Adam Button at www.forexlive.com.

CNN’s Sahil Kapur reports on a new plan to vote on three separate bills in Congress:

• Clean continuing resolution
• Disaster relief
• Agriculture/farmer aid

The key here is what’s in the continuing resolution and how long it will prevent a government shutdown for?

Whatever the details, the market is spiking higher today with the S&P 500 now up 1.8%.

There is a separate report that the House GOP conference will have a meeting at 12:30 pm ET.

This article was written by Adam Button at www.forexlive.com.

It was looking like a brutal day for European stocks but there has been a major turn in markets following the better PCE report and dip-buying ahead of a potential US government deal/

Closing changes on the day:

• Stoxx 600 -0.8%
• German DAX -0.3%
• France CAC -0.1%
• UK FTSE 100 -0.2%
• Spain IBEX +0.4%
• Italy’s FTSE MIB -0.1%

On the week:

• Stoxx 600 -2.7%
• German DAX -2.4%
• France CAC -1.7%
• UK FTSE 100 -2.4%
• Spain IBEX -2.4%
• Italy’s FTSE MIB -3.25%

This article was written by Adam Button at www.forexlive.com.

The major US indices have continued their runs to the upside as the fears of a government shutdown fades, and comforting words from Fed Goolsbee (he is a dove).

Looking at the major indices:

• Dow industrial average is not 512 points or 1.21% and 42856.45.
• S&P index is up 68.52 points or 1.17% and 5935.56.
• NASDAQ index is up 224 points or 1.16% at 19595.93.

At intraday session lows:

• Dow was down -195.95 points
• S&P was down -34.78 points.
• NASDAQ index is down -204.39 points.

US yields remain lower with the tenure down -6.0 basis points. The two year is down a more modest -2.6 basis points.

For the trading week, yields are still higher with the 10-year yield still up 10.9 basis points. The 2-year is up 5.0 basis points.

The high watermark for the week was up 19.3 basis points for the 10 year yield and 12.0 basis points for the two year yield.

This article was written by Greg Michalowski at www.forexlive.com.

Congressional Republicans are in a real jam.

They need to either make a deal with Democrats (or at least a few dozen of them) to pass a bi-partisan continuing resolution and defy Trump; or they need to follow Trump’s instructions, shut down the government and hope the Democrats (and some members of their own party) cave.

It looks like they’re going to try and make another bipartisan deal as House minority leader Jeffries says the lines of communication have been reopened. If there is another deal, we will have to see how Trump (and Elon) reacts.

This article was written by Adam Button at www.forexlive.com.

The NDP has been the propping up the minority Liberal government since the 2021 election. It was a formal alliance for most of that time but lately it’s be one-off partnership.

Now, with the Liberals in disarray, the NDP says it’s cutting bait.

NDP leader Jagmeet Singh says his party will vote to defeat the Liberal government.

That means that barring some miracle turn from other parties, we will be having an election before the one scheduled for October.

Now there are some moving parts here because parliament is on a six-week break and Justin Trudeau may quit and then the Liberals could try to delay by holding a leadership conference. All told, that could take until June.

We may know more very shortly what Trudeau’s plans are as a cabinet shuffle is expected at 11:30 am ET.

This article was written by Adam Button at www.forexlive.com.