Markets
The diptych of today’s US payrolls and next Tuesday’s US November CPI are the ultimate input for the Fed policy decision next Wednesday. Even as central bankers in their toolbox switched forward guidance for data dependency, the new projections/dots still will be key when investors make up their mind on the Fed’s intentions in 2024. Markets are sure that a final additional hike guided in the September SEP is now without any ground. Key question is when Fed governors see the start of the easing cycle and what amount of easing they see as appropriate for end next year. In the September dots, the Fed saw the unemployment rate on average at 3.8% in Q4 this year. The November unemployment rate today was reported at 3.7% (from 3.9%). US job growth reaccelerated to 199k from 150k the previous month. However payrolls for the previous two months were downwardly revised by 35K. This brings the actual outcome close to consensus (185k). Job growth in the manufacturing sector turned again positive (+28k). Private services added 121k amongst others due to gains in education and health services (+99) and leisure and hospitality (40k). The government hired a net 49k of people. Employment in retail trade contracted (-38k). Average hourly earnings rose a strong 0.4% M/M holding the Y/Y measure at 4.0%. The participation rate rose from 62.7% to 62.8%. The data from the household survey was strong overall with the labour force and employment rising sharply. In all, the report can be considered a slightly better than expected. US yields already traded 2.5-4.5 bps higher in the run-up to the release and this was extended in nervous trade afterwards. US yields currently add between 10 bps (2-y) and 5.5 bps (30-y). Expectations on a first Fed rate hike in March eased from 70% to about 50%,but markets still see about 1.25% points of Fed rate cuts by the end of next year. So, the jury is still out whether today’s report will trigger a sustained correction on recent free-fall in yields. German yields also rose a few bps further after the payrolls gaining 6.5-8 bps in a daily perspective. Equity futures temporarily lost ground, but this was soon reversed. The Eurostoxx 50 (currently +0.9%) even set a new post-corona top. US equities open little changed, but also keep the 2023 top levels within reach. After the some hesitation, the dollar outperforms. DXY trades again north of 104. EUR/USD extends its downtrend (1.0735). USD/JPY also tries to leave recent lows (144.4), but momentum is less obvious as markets ponder the upcoming steps in BoJ policy. EUR/GBP again nears intraday peak levels near 0.8585 touched early today after BoE/TNS inflation expectations (next 12 months) eased from 3.6% to 3.3%.
News & Views
Hungarian November inflation flatlined on a monthly basis, allowing the Y/Y figure to decelerate from 9.9% to 7.9%. (vs at -0.1% m/m and 8% expected). Rising food prices (0.5% m/m) and clothing & footwear (1.2%) were offset by lower prices for motor fuel (3.6%) and electricity, gas & other fuels (1.2%). Ongoing disinflation allows the central bank to continue monetary easing. The base rate stands at 11.5%. Based on guidance offered by vice-governor Virag, the MNB wants to stick to a cutting pace of 75 bps per meeting. This should bring the policy rate to sub 11% end this year (meeting December 19). The Hungarian forint marginally strengthens to EUR/HUF 380.78 today but this had to do EU ministers having approved Hungarian access to $920 million in recovery aid. Its approval was already rumoured end November and doesn’t mean that the remaining € 30 billion European funds are for the taking as well. These remain blocked over graft and rule of law concerns. The resources today were non-conditional and aimed at reshaping the energy complex after Russia’s invasion triggered an energy crunch.
The UN’s FAO food price index averaged 120.4 points in November 2023, unchanged from its revised October level. Increases in the indices for vegetable oils, dairy products and sugar counterbalanced decreases in those of cereals and meat. Diving into the subindices, cereals fell on a sharp drop in maize and international wheat prices amid increased supply a.o. in Argentina. Meat was influenced by minor decreases in poultry, pig and bovine meats. Vegetable oils snapped a three month decline on higher palm and sunflower prices with imports purchases of both rising and seasonally lower output in the former reinforcing upward price pressures. High demand particularly lifted butter prices and skim milk powder in the dairy price index, offsetting the ongoing drop in cheese prices. Sugar, finally, rose amid heightened concerns over global export availabilities with two leading exporters, Thailand and India, seeing worsening production due to severe dry weather conditions (El Niño) and shipping delays from Brazil.
