pessimistic

Commodities were tested after Fed Chair Powell triple downed on the Fed’s dot plots.  The dollar initially caught a bid but that was short-lived.  At the end of the forum, traders really didn’t learn anything new.   Oil Before the EIA report, crude prices were wavering after a larger than expected drop in inventories, countered fears that several banks will be sending the global economy into recession. Yesterday, the API report showed crude stocks declined by 2.4m bpd. Energy traders however turned bullish quickly the EIA energy report showed a 9.6 million bpd draw and robust demand signs everywhere.  US crude exports rose above the 5 million bpd level, jet demand rose to highest level since 2019, and the 4-week average gasoline demand surged to the best levels since December 2021.  The oil outlook was too pessimistic and this report reset the market.   Gold Gold remains in the house of pain, falling to a 3-month low as investors grapple with FOMO and as central banks send global bond yields higher. The peak of tightening cycles keeps getting pushed higher and that has been bad news for gold. Gold did not get any favors from Fed Chair Powell as the pushback of more tightening saw rate cut bets pushed deeper into next year.  The precious metal also got some hawkish signals from the ECB and BOE, while the BOJ noted that there are signs inflation will pick up next year and that the BOJ is ready to shift policy, potentially even as soon as this year. All eyes are on gold’s $1900 level, as a breach could trigger some technical selling.  Gold is above where it was trading before the ECB forum, so it might continue to stabilize here.  

Equity markets are cautiously higher in Europe while the US is poised to open relatively flat as we await appearances from the heads of the Fed, ECB, BoE and BoJ.   Fed Chair Jerome Powell, ECB President Christine Lagarde, BoE Governor Andrew Bailey, and BoJ Governor Kazuo Ueda are due to take part in a panel discussion at the ECB Forum on Central Banking around the opening bell in the US and their comments could set the tone for the rest of the day. Often in these situations, policymakers will stick to the script, preferring to leave big announcements for meetings and certain high-profile events. But with so many heads appearing at the same time, there’s every chance at least one says something that will either rattle or stimulate the markets. To make this event more intriguing, they’re all contending with very similar issues and yet their individual situations are quite different, which could make the discussion all the more interesting. The Fed is arguably closest to the end of its tightening cycle and will probably be the first to cut rates, the ECB appears to be making some progress but is also more pessimistic than many on how much more is needed, the BoE is in a mess, frankly, and the BoJ may simply watch as the whole thing passes it by.   It really is quite fascinating and it will be interesting to hear what each has to say about the current environment. Especially with the Fed and ECB until now adopting a more hawkish stance than most, the BoE coming across less hawkish but recently being forced to pivot back to larger hikes, and the BoJ pushing back against any hawkish expectation in the markets.   Is bitcoin going to take off from here? Bitcoin has steadied between $30,000 and $31,000 in recent days after surging on the back of encouraging ETF filings. The SEC lawsuits against Binance and Coinbase have not been forgotten but they’ve certainly drifted into the background and been overtaken by far more promising news flow. It would appear the cryptocurrency has good momentum once more and the community may well be wondering if this could be the kind of development that sees enthusiasm for cryptos surge again. It’s obviously been a fantastic year for bitcoin so far but the sell-off since mid-April was another reminder that it doesn’t come without major setbacks.  

Polish PMI dips in July on falling new orders Poland's manufacturing PMI fell to 43.5pts in July, down from 45.1pts in June, the lowest level since mid-2022, when the domestic economy struggled with the effects of rising energy prices, among other factors. The assessment of current production, orders, employment and purchases all worsened in July from the previous month.   The most significant thing to note from this data release is the deteriorating assessment of the acquisition of new orders (the worst ratings in eight months), especially for exports (the weakest performance since May 2020). This was followed by a decline in current production, the fastest since November 2022 and the fifteenth consecutive month of decline. We are most likely seeing the effects of economic weakness in the eurozone, especially in Germany (the industrial PMI there is below 40pts). Around 50% of Polish industry products go to foreign markets, and Germany is Poland's main trading partner. Planned employment decreased for the fourteenth month in a row. This can be seen in the CSO's employment data, where manufacturing accounts for much of the decline. In June, for example, the business sector lost about 5,000 full-time jobs, of which 3,000 were in manufacturing. Companies also reduced purchasing activity and sought to reduce inventories. In our view, this will translate into relatively weak imports. In addition to energy commodity prices, this should sustain Poland's trade surplus despite the weak export outlook.   Manufacturing PMI in Poland and Germany External demand affects the Polish industry   The bright spot is rapidly decreasing price pressure. The lack of demand has again pushed prices down. Input costs have fallen at the strongest rate since the survey began more than 25 years ago. This was helped by declines in raw material prices and/or the strengthening of the zloty. Selling prices also fell at the fastest pace ever. More than 27% of respondents reduced their prices during the month. While there are signs of stabilisation in domestic industrial production data, recent PMI reports suggest a cautious approach to expectations of a marked improvement in the sector's condition in the second half of the year. Manufacturing is seeing a marginal rebound in the US, Asia, and sluggishly in China, but not in Europe. We think the PMIs for Poland (and elsewhere) are much more pessimistic than real trends in activity (see graph), but other anecdotal evidence we collect has not provided positive signals so far.

Fed signals three rate cuts in 2024 ECB and BoE to announce decisions shortly Dow hits record highs after the Fed The most hotly anticipated central bank meeting of the year did not disappoint on Wednesday, with the Fed potentially delivering this year’s Santa rally. I don’t think many will have expected the Fed to go as far as it did in forecasting three rate cuts next year only three months after suggesting the tightening cycle is not over. But clearly, it’s not just investors that have been impressed with the data we’ve seen so far in the fourth quarter and now they’re getting more carried away than before. There’s been a lot of debate in recent weeks about whether investors are getting ahead of themselves, too optimistic about how quickly the Fed will cut rates but the message from the central bank is that is not the case. And in typical fashion, investors have now gone further, pricing in six rate cuts next year starting in March. That’s also forced investors to reassess whether they’re in fact too pessimistic with other central banks too, with the ECB now expected to cut rates by 150 basis points over the next 12 months and the BoE between 100 and 125 basis points. Both now have a lot to live up to today and Christine Lagarde, in particular, may not be thanking her US counterparts for whipping investors up into a frenzy right before their announcement and press conference. A repeat performance from the ECB could leave investors going into the end of the year in a much more festive mood.   New record highs in the Dow Markets got an early festive treat from the Fed, with the Dow hitting fresh record highs on the back of the Fed announcement almost two years after it last achieved that feat. US30 Daily Source – OANDA Now that it’s in uncharted territory, momentum indicators will be much more useful as we don’t have past levels to look to. And we are seeing some sign of exhaustion occurring in the MACD histogram, although not yet in the moving averages or stochastic.