All eyes on the FOMC

• All eyes are on the US today, with the November FOMC meeting eagerly awaited. Expectations are high that the rate-setting committee will announce the start of its tapering of asset purchases, but the benchmark for hiking rates is much higher. We hold to the view that inflation will moderate next year and that any move higher for the Fed funds rate will likely not come until 2023.
• The final print for the Eurozone’s Markit manufacturing PMI was revised down from the initial reading in yesterday’s release, from 58.5 to 58.3. While still resolutely above the neutral 50.0 level, this was the fourth consecutive slowdown from June’s high of 63.4. This is a similar trend to that we have seen in other recent PMI results from China to the UK and US, where supply chain issues have constrained economic activity despite high levels of demand.
• There has been a positive PMI surprise from China this morning, however, as the Caixin services PMI survey beat expectations, coming in at 53.8 compared to projections of 53.1 and September’s reading of 53.4. Easing Covid-19 outbreaks were chiefly responsible for the improvement, although respondents did note rising price pressures.
• Following on from its announcement yesterday that 10 government bodies would be listed in the coming months, it has been revealed that utilities company DEWA will be one of those. The Dubai bourse saw strong gains of 4.0% yesterday.
• Regional PMI survey results are published this morning; we will be writing these up in a separate note.

Today’s Economic Data and Events

11:00 Turkey CPI inflation, % y/y October. Forecast: 20.4%

16:15 US ADP employment change, October. Forecast: 400,000

18:00 US factory orders, % m/m, September. Forecast: 0.1%.

22:00 US FOMC rate decision (upper bound %). Forecast: 0.25%

Fixed Income

• US Treasuries rallied in the run-up to the end of the FOMC meeting later today. We expect the Federal Reserve will announce that it will start to wind down its asset purchases at today’s meeting with an end date of around mid 2022 for when it will stop all buying. Yields on the 2yr UST fell sharply, down almost 5bps to 0.4499% while the 10yr dropped by around 1bps to 1.5488%.
• The drop in yields at the front of the curve was largely mirrored in European markets with 2yr bund yields down by 6bps to -0.6740% and the same tenured gilt yields down almost 3bp to 0.658%.
• Emerging market bonds took some relief overnight and generally moved higher. Yields on Indian 10yr government bonds fell almost 3bps to 6.361% while South African yields fell 2bps to 10.155%. Turkish yields fell 49bps to 18.855% in the run up to inflation data out later today.

FX

• Currency moves were relatively limited in the lead-up to the FOMC later today. EURUSD drifted lower over the course of the day, down by 0.2% to 1.1579 while GBPUSD also shifted lower for a third day running, off by 0.4% to 1.3612. USDJPY was relatively unchanged on the close.
• There was more action in commodity currency markets, however, with decline across the board. USDCAD rose 0.34% to 1.2411 while both AUD and NZD dropped more than 1% each to 0.7429 and 0.7111 respectively. The RBA’s dovish tone at its monetary policy decision yesterday has helped to sink AUD even as the bank ended its yield curve control.

Equities

• US equity markets continued to push higher into record territory yesterday. The NASDAQ added 0.3% while the S&P 500 and the Dow Jones both closed a further 0.4% higher. Stocks are being boosted by robust earnings results.
• There was a similarly bullish tone in Europe earlier in the day, where the European composite STOXX 600 added 0.1% to its own new record close. France’s CAC hit a record high with a gain of 0.5%, while Germany’s DAX added 0.9% but remained off its own previous high close. By contrast the FTSE 100 lost -0.2%, with some banks and energy providers weighing on the index.
• Within the region, the DFM received a sizeable boost from the announcement that some major government entities would be listed; it closed 4.0% higher, while the ADX added 0.7% and the Tadawul 0.3%.

Commodities

• Oil prices showed little real momentum in either direction as markets await the outcome of this week’s OPEC+ meeting. Brent futures closed largely unchanged at USD 84.72/b but have fallen much more this morning, down by 1.6%, while WTI slipped around 0.2% to USD 83.91/b and have declined by more than 1.8% in early trade today.
• US president Joe Biden directly blamed OPEC+ countries for causing high oil and gas prices, speaking at the COP 26 summit. Biden also said that “we’ll see what happens on that score sooner than later”, implying there may be some diplomatic pressure on the OPEC+ countries to accelerate their pace of production increases.

Click here to download charts and tables