Jerome Powell strikes a cautious tone

Fed Chair Jerome Powell was speaking at an IMF conference overnight, where he pushed back against the prospect of a near-term pivot in policy, cautioning that if ‘it becomes appropriate to tighten policy further' then the FOMC would 'not hesitate to do so’ . He stressed that the rate setting committee would remain guided by the data ahead of the next FOMC meeting on December 13, with more inflation prints and jobs numbers set to be released ahead of the decision. The weekly initial jobless claims number overnight was broadly in line with expectations at 217,000, and was down only modestly from the previous week’s 220,000, but the NFP report for October surprised to the downside and we hold to the view that the Fed’s hiking cycle is now complete, even if rate cuts are not yet on the horizon. Fed officials are increasingly acknowledging the risk of overtightening, as Powell did last night. Powell also said that the Fed would be reassessing its monetary policy framework next year, and would ‘consider the degree to which the structural features of the economy that led to low interest rates in the pre-pandemic era will persist.’

Saudi Arabia’s Ministry of Investment has announced that it has overhauled its methodology for calculating FDI flows into the country, using individual financial statements rather than estimates of accumulated flows in order to generate a more accurate picture. On the back of this, the kingdom is now reporting an inflow of SAR 122bn (USD 33bn) in 2022, as compared with the previous estimate of around SAR 30bn. According to the new figures, FDI has doubled since 2015, with the Vision 2030 strategic plan encouraging greater inward investment into a range of developing sectors.

Today’s key economic data and events

• 11:00 UK GDP, Q3, % q/q. Forecast: -0.1%
• 19:00 US University of Michigan sentiment index, November. Forecast: 63.8

Fixed Income

• Jerome Powell’s comments yesterday sent bond yields higher once more, with the longer end most affected. In the US, the 10yr yield climbed 13bps to 4.6241%, while the 2yr closed up 9bps to 5.0202%.
• In the UK, gilts continued to be buffeted by comments from Bank of England chief economist Huw Pill and governor Andrew Bailey. The 10yr gilt yield closed 3bps lower at 4.250%, while the 2yr was broadly unchanged at 4.618%.

FX

• The dollar index closed up for a fourth straight session yesterday, bolstered by Jerome Powell’s push back against the prospect of imminent rate cuts. The DXY closed up 0.3% to 105.910, with gains against all its major peers.
• GBP closed down 0.5% to 1.2223, while EUR dropped 0.4% to 1.0668, reversing the previous day’s gains. Commodity currencies were all under pressure, with AUD dropping 0.6% to 0.6367.

Equities

• Equity markets were mixed in Asia yesterday, with the Hang Seng falling 0.3% on the back of recent weak Chinese data, while the Nikkei added 1.5% as it continued to benefit from the weaker yen.
• In the US, equity markets snapped their winning streak after Powell’s comments, with the S&P 500 closing down 0.8% after eight consecutive days of gains. The Dow Jones lost 0.7% and the NASDAQ 0.9%.
• Locally, the ADX dropped 0.2% while the DFM closed 0.9% lower on the day. Saudi Arabia’s Tadawul closed down 0.8%.

Commodities

• Oil prices picked up modestly yesterday, but this did little to reverse the fall over the preceding week. Brent futures closed up 0.6% to USD 80.0/b and is clinging on above the 80 level this morning, while WTI added 0.5% to USD 75.7/b.
• Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman, assigned the drop in oil prices since the end of September to speculators, saying that demand is “not weak” and that the drop is “all a ploy.” The minister also said the market as confusing export and production numbers as far as they align with OPEC+ production plans.