Powell Spooks

Ian Reynolds December 22, 2024

Risk assets were shot to pieces on Thursday when a sombre FOMC Chair Jerome Powell reversed the last few meetings rhetoric and surprised everyone by saying that inflation is going back up but we're cutting rates still. You can see the video of the entire press statement below.

So inflation up to 2.5% then to the target 2.0%. Isn't that transitory ? Traders when they read that must have been laughing themselves silly.

And then Core PCE numbers come in lower than expected!

And the markets spoke;

S&P 500 -2.9%
Dow Jones Industrial Average - 2.6%
Nasdaq composite - 3.6%.

If it was bad for stocks it was even worse for bonds as the 10 year rate ended at 4.55 %. That's a one per cent rise in 2 months.

US 10 Year Government Bond Yield Daily

The USD surged and weak currencies and emerging market currencies plunged. A strong dollar is a wrecking ball for everyone including the US. Is it time to revisit The Plaza Accord? [Wikipedia]

DXY US Dollar Futures Monthly

At the same time that US rates have gone up 1% in 2 months, Chinese rates have collapsed well below 2% across the entire curve and swiss rates are practically zero.

Breaking

US House votes through last-gasp bill to keep government open [AFR]

SNB Is Edging Toward Zero Rate in Tussle With Franc Speculators [Bloomberg]

Massive Interest Burden Haunts $29 Trillion of Emerging Debt [Bloomberg]

Germany headed for early elections after Olaf Scholz loses confidence vote

Donald Trump tells EU to buy US oil and gas or face tariffs [FT]

Why does the US still control every penny of Iraqi oil revenues? [The Cradle]

Concern grows over mysterious drone sightings along US east coast [FT]

In Focus

Europe

EU Wages Q3 2024

EU CPI November 2024

France, Germany PPI

France, Germany PPI November 2024

With a new government coming in France and Germany, and no government in Spain until 2027, Europe has become uninvestible. And PPI turning up is definitely worrying

Moody's Ratings downgrades the long-term deposit, senior unsecured debt and issuer ratings of seven French banks; outlook changed to stable [Moody's]

"The Timing Is Absolutely Terrible": German Government Collapses Just One Week After French Implosion [Zerohedge]

Europe Has Choice of Doing Hard Work or Facing Next to No Growth [Bloomberg]

Pimco, Fidelity See Risk of More ECB Cuts Than Market Expects [Bloomberg]

ECB expects more rate cuts as inflation fears abate [Reuters]

German Chancellor Scholz Faces Confidence Vote: What to Expect [Bloomberg]

US

The Federal Reserve’s hawkish pivot is toxic for stocks [AFR]

US Retail Sales November 2024

US GDP Q3 2024

US Core PCE Price Index November 2024

The reverse repo program, which has been recently draining all the excess US dollars created by the US Government, is nearly zero.

rrp-1

Reverse Repo

Japan

Japan National CPI November 2024

The Bank of Japan held rates steady and USD / YEN surged back to 157.00. Is the Bank of Japan going to have to join Brazil, India and China in actively defending their currencies?

USD / YEN Daily

Bank of Japan Statement on Monetary Policy [BoJ]

BOJ Stands Pat as Ueda Bides Time Until Next Rate Hike [Bloomberg]

Foxconn throws curveball in Nissan-Honda merger talks [AFR]

Danger for Yen Emerges With Speculation BOJ May Stand Pat Longer [Bloomberg]

China

Following the Central Economic Work Meeting, last week, latest from National Bureau of Statistics shows continuing weakness. Here's a hit piece from WSJ:

Prices Won’t Stop Falling in China, and Beijing Is Grasping for Solutions [Wall St Journal].

China Retail Sales November 2024