- US president Joe Biden has renominated Jerome Powell to serve as chair of the Federal Reserve, ending weeks of uncertainty over whether the president would change central bank chiefs amid elevated inflation in the aftermath of the Covid-19 pandemic. President Biden has also nominated Lael Brainerd to serve as vice chair. The nominations will still need to be confirmed by the Senate but are likely to be approved given that Republicans have been vocal in their support of Powell while leading Democrats are also in favour.
- The consistency in Fed leadership is likely to be welcomed by the markets but won’t do much to make the outlook for rates any clearer. The Fed is carrying out its taper of asset purchases, with pressure from some policymakers to accelerate the pace, and markets are still expecting to see rates move up as early as mid-2022, once tapering ends. Powell has stressed the importance of seeing improvements in the labour force but how long Fed leadership will be prepared to wait to watch for an uptick in the participation rate, for instance, risks keeping inflation and inflation expectations high.
- UAE inflation slowed to 0.1% m/m in September from 0.4% m/m in August. Higher food prices were largely offset by a -0.1% m/m decline in housing costs and a -0.4% drop in transport costs in September. On an annual basis, inflation accelerated to 1.2% y/y from 0.5% in August. In Dubai, consumer prices for October rose 0.7% m/m as most components of the index reflected higher prices. The exceptions were housing & utilities, which saw prices decline -0.3% m/m and miscellaneous goods & services. Nevertheless, the monthly inflation in Dubai was the highest since early 2018. On an annual basis, Dubai’s CPI declined -0.6% y/y, compared with -1.5% y/y in September. We expect annual inflation to continue to accelerate off the low annual base, and as demand continues to recover post pandemic.
- Consumer confidence in Turkey fell sharply in November with the index hitting 71.1, down from 76.8 a month earlier and well below levels of more than 90 seen in prior years. The depreciation of the lira along with elevated international commodity prices will be affecting consumers acutely in Turkey.
Today’s Economic Data and Events
12:15 FR Nov composite PMI: forecast 53.9
12:30 GE Nov composite PMI: forecast 51
13:00 UK Nov composite PMI: forecast 57.5
18:45 US Nov composite PMI
- US Treasuries sank sharply on the news that Jerome Powell is to be renominated as chair of the Federal Reserve in the expectation that he will likely bring the Fed’s views closer to the markets in terms of normalizing policy to deal with elevated inflation. Yields on the 2yr UST jumped more than 7bps to close at 0.5842% while the 10yr UST yield saw a move of almost 8bps to 1.6236%.
- European benchmark bonds also sold off overnight with bund and gilt yields rising. The 10yr bund yield added 4bps to -0.303% while the 10yr gilt yield rose 5bps to 0.932%.
- The dollar gained strongly again overnight, benefitting from the expected continuity in the tone of monetary policy from the US. The DXY index gained 0.54% and closed at 96.548. The stark divergence in policy with still accommodative stances from the ECB and BoJ will help to keep downward pressure on both EUR and JPY: EURUSD fell 0.47% overnight to 1.1237 while USDJPY added almost 0.8% to 114.88.
- Losses against the dollar were widespread, however. GBPUSD fell 0.4% to close at 1.3397 while commodity currencies were consistently weaker: USDCAD rose 0.47% to 1.270, AUD fell 0.14% to 0.7255 and NZD dropped by almost 0.7% to 0.6958, falling even ahead of an expected rate hike by the RBNZ tomorrow.
- Equity markets fell sharply on the close after rising earlier in response to the renomination of Jerome Powell. The S&P closed down 0.3% while the NASDAQ fell 1.26%, seemingly pricing in more aggressive rate hikes. European markets were more mixed with the FTSE adding 0.44% while the broader EuroStoxx index fell 0.4%.
- Local markets sold off heavily for the most part overnight with the DFM down 2.6% after several days of strong gains while the Tadawul fell 2.7%. The Abu Dhabi exchange was the notable outlier although it had gains of just 0.1%.
- Oil prices whipsawed between gains and losses overnight but in the end managed to increase. Brent futures rose by 1% to close at USD 79.70/b while WTI added 0.9% to settle at USD 76.75/b. OPEC+ has seemingly threatened to “adjust” its production plans if countries like the US, China and India coordinate a release of crude oil inventories. OPEC+ could choose to slow down the pace of production increases—currently at 400k b/d per month—or halt them altogether.
- The expectation of earlier rate hikes helped to sink gold overnight with prices down more than 2.2% to USD 1,805/troy oz.
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