US
USD is firmer near its 200-day moving average. US equity futures are treading water ahead of today’s Nvidia quarterly report. Nvidia’s earnings are viewed as a key barometer of the AI boom.
Treasury Secretary Scott Bessent expects President Donald Trump to announce his pick for the next Fed chair before Christmas. The five finalists are: Kevin Hassett (Director of the National Economic Council), Kevin Warsh (former Fed Governor), Fed Governor Christopher Waller, Fed Governor Michelle Bowman, and Rick Reider (fixed-income chief at BlackRock). All five have argued for looser policy settings.
When asked about his choice for the next Fed chair, President Donald Trump said “We may go the standard way. It's nice to, every once in a while, go politically correct…” The comments skews odds in favor of Waller and Bowman as recent Fed chairs (Jay Powell, Janet Yellen, and Ben Bernanke) were elevated from within the Board of Governors. Alan Greenspan and Paul Volker came from outside.
The latest US TIC data indicates continued strong foreign private sector demand for US long-term securities, notably equities. Net foreign purchases of long-term US securities increased by US$208.5bn in September vs. $181.2bn in August driven by near record high net buying of US stocks by private foreign investors.
On a 12-month cumulative basis, foreign investors trimmed their holdings of long-term US securities to $1511bn from a record high of $1549bn in August. We expect foreign appetite for US long-term securities (treasury bonds & notes, corporate bonds, equities, gov’t agency bonds) to dwindle over time. The Trump administration’s effort to narrow the US trade deficit means fewer dollars will flow overseas, reducing the need for those funds to be recycled back into US securities. That is a structural drag on USD.
The US August trade balance (1:30pm London, 8:30am New York) and the minutes of the FOMC October 28-29 meeting (7:00pm London, 2:00pm New York) are due today. The minutes should offer more details about the “growing chorus” of Fed officials supporting skipping a cut. Regardless, we are sticking to our view that the Fed will deliver a follow-up 25bps cut to 3.50%-3.75% in December (46% priced-in) because restrictive Fed policy can worsen the fragile employment backdrop.
US labor demand remains weak. The ADP weekly employment preliminary estimate showed private employers shed an average of -2,500 jobs a week for the four weeks ending November 1 vs. -14,250 for the four weeks through Oct 25 (revised down from an initial print of -11,250). Bottom line: we favor fading the latest USD bounce.
UK
GBP/USD is drifting lower. UK October CPI leaves room for the Bank of England (BOE) to resume easing at its next December 18 meeting. Headline CPI printed at 3.6% y/y vs. 3.8% in September (consensus: 3.5%, BOE forecast: 3.6%), core CPI inflation eased in line with consensus to 3.4% y/y vs. 3.5% in August, and the policy-relevant services CPI inflation cooled more than expected to a ten-month low at 4.5% y/y (consensus: 4.6%) vs. 4.7% in September.
The swaps market raised odds of a December rate cut to 88% from 80% yesterday. Over the next 12 months, the swaps curve implies 60bps of easing and the policy rate to bottom between 3.25%-3.50%. The expected fiscal drag from the UK budget (scheduled for November 26) opens the door for looser BOE policy settings. As such, we expect GBP to keep underperforming on the crosses.
JAPAN
USD/JPY is making fresh multi-month highs, underpinned in part by the sell-off in JGBs. Long-term JGBs yields are breaking higher on concerns over fiscal profligacy and worsening Japan-China diplomatic spat. Japan’s Prime Minister Takaichi is planning a fresh package of economic measures that is likely to exceed last year's ¥13.9 trillion (2.2% of GDP) supplementary budget.
In parallel, Chinese Foreign Ministry spokeswoman Mao Ning warned that China will take “serious countermeasures” if Tokyo refuses to retract Takaichi's remarks on Taiwan (source: Bloomberg).
AUSTRALIA
AUD/USD is trading heavy just above its 200-day moving average on broad USD strength. Australia’s Q3 wage growth backs the RBA’s on hold guidance. The wage price index (WPI) matched consensus at 0.8% q/q vs. 0.8% in Q2 and remained steady at 3.4% y/y for a second straight quarter. The breakdown shows public sector wage growth quickened driven by state government pay rises while private sector wage growth slowed.
Overall, annual wage growth is consistent with the RBA’s 2-3% inflation target given the bank estimates trend productivity growth of 0.9% over Q4. We remain constructive on AUD/USD. The RBA is on hold, the Fed has scope to deliver more easing, and global economic activity is resilient.
INDONESIA
Bank Indonesia (BI) delivered on expectations and left the policy rate at 4.75% for a second straight meeting. BI reiterated it still sees room for further interest rate reductions but is currently more focused on strengthening the effectiveness of monetary policy transmission that has been pursued so far (150bps of easing since September 2024), and maintaining the stability of the rupiah.
