Markets:
- S&P 500 up 1.1%
- WTI crude up 15-cents to $69.53
- US 10-year yields down 4.2 bps to 4.52%
- Gold up $30 to $2623
- JPY leads, USD lags
The mood shifted sharply on Friday as stocks looked set for another rout in the pre-market only to reverse higher. The FX market followed a similar pattern, though the moves were less-dramatic. That meant US dollar selling after the dollar hit some of the best levels of the year early in Asia.
Two things turned markets: The PCE report and progress on avoiding a government shutdown.
On Wednesday, the Fed comments indicated a big shift towards worries about inflation but the PCE report brought a dose of reality back to the debate as the numbers were lower than expected and not at levels so worrisome that the Fed would need to contemplate hiking.
Comments from Goolsbee and Williams underscored that, assuring markets that the path for rates is still lower and that the only real debate is the pace of cuts.
Some of the machinations around the debt ceiling debate also underscored a Trump/Musk recalibration around fiscal hawkishness. It’s not yet clear how it will shake down so keep a close eye over the weekend. The real thing to watch is how the new administration prioritizes fiscal consolidation relative to corporate tax cuts. The vast majority of the market thinks the top priority is the stock market but that could be a miscalculation.
In terms of market moves, USD/JPY fell hard on some verbal intervention from Tokyo and it continued to drift lower in the US as Treasury yields ticked lower.
The euro bounced impressively after touching 1.0344 while the Australian and Canadian dollars rebounded from the worst levels of the year. The pound touched below the November lows in Asia the bounced to 1.2600 before fading 25 pips below the figure.
I would expect the first reaction on Monday to center around the government shutdown response but we’re deep into the holiday season now so the temperature might fall.
Have a great weekend.