• Financial markets are digesting President-elect Trump’s Treasury Secretary pick; Bessent’s recent comments on the Fed are concerning; we believe the fundamental USD uptrend is intact regardless of the Treasury pick; global divergences are widening
  
• German IFO survey for November was soft; ECB officials continue to tilt dovish; BOE officials remain cautious; Israel is expected to keep rates steady at 4.5%
  
• New Zealand reported soft Q3 real retail sales; Singapore reported soft October CPI

The dollar has sold off after Bessent was picked as Treasury Secretary. We believe markets simply used the news as an excuse to take profits on long dollar positions, as the Trump Trade remains alive and well under Bessent (see below). Once this bout of profit-taking ends, the greenback should make new highs. DXY is trading lower for the first time since last Tuesday just below 107 after trading at a new cycle high just above 108 Friday. The euro is trading higher near $1.0475 after trading as low as $1.0335 Friday. USD/JPY is trading slightly lower near 154.50 while sterling is trading slightly higher near $1.2565 after trading as low as $1.2485 Friday. While we’ve already come a long way, we look for this dollar rally to continue after this correction. While the election results have turbo-charged this move, faithful readers will recall that we have been resolute in our belief that the strong U.S. fundamental story continues to favor higher UST yields and a higher dollar. The policies that Bessent is prioritizing will support this narrative, not derail it. Market pricing for the Fed has already adjusted, which is giving the dollar a huge lift.

AMERICAS

Financial markets are digesting President-elect Trump’s Treasury Secretary pick. The appointment of Scott Bessent, Trump’s early favorite, was announced Friday after markets closed. His experience in finance is impeccable; while currently running his own hedge fund, Bessent has worked at Soros Fund Management and Brown Brothers Harriman, among others. Following his nomination, Bessent said his policy priority will be to deliver on Trump's plans to cut taxes, enact tariffs, and cut spending. Bessent also said he will be “maintaining the status of the dollar as the world's reserve currency.” In past interviews, Bessent noted “the reserve currency can go up and down based on the market. I believe that if you have good economic policies, you’re naturally going to have a strong dollar.” We concur and are very relieved that Lighthizer’s plans to weaken the dollar have fallen by the wayside. Bessent has also advised Trump to pursue a “three arrow” economic policy: (i) cutting the budget deficit to -3% of GDP by 2028, (ii) achieving GDP growth of 3%, and (iii) producing an additional 3 mln bbl/day of oil or its equivalent.

However, Bessent’s recent comments on the Fed are concerning. In an October interview, Bessent called for the appointment of a shadow Fed Chair before Chair Powell’s term ends in May 2026. According to Bessent “you could do the earliest Fed nomination and create a shadow Fed Chair. And based on the concept of forward guidance, no one is really going to care what Jerome Powell has to say anymore.” In a follow-up interview, Bessent clarified that “if you believe forward guidance is good, why can’t you give forward guidance on who the Fed chair is going to be. You could do one of two things: The current Fed chair could be reappointed, so you’ve created a path there. Or the new Fed chair nominee would give forward guidance beyond the current Fed chair’s sell-by date.” While this is not as extreme as giving the president direct say over Fed policy, the idea is nonetheless concerning.

We believe the fundamental USD uptrend is intact regardless of the Treasury pick. First, the U.S. economy is in a sweet spot and outperforming other advanced economies. Second, the prospect for looser fiscal policy under a Trump administration will force the Fed to keep policy restrictive for longer. Third, expectations for a lower U.S. corporate tax rate and a wave of deregulation should boost foreign portfolio and FDI flows to the U.S. Fourth, the favorable U.S. productivity landscape will lead to low inflationary economic growth which translates to higher real interest rates. In other words, the Trump Trade remains alive and well under Bessent.

Indeed, global divergences are widening. Looking at the November composite PMIs, Australia fell below 50 to 49.4, Japan remained below 50 but improved slightly to 49.8, and the eurozone fell below 50 to 48.1. However, the biggest surprise came from the U.K. as its composite plunged to 49.9 and joined the ranks of the sub-50. On the other hand, the S&P Global composite PMI for the U.S. defied expectations and jumped to 55.3, the highest since April 2022. With a huge slug of fiscal stimulus expected next year, we believe the U.S. economy is likely to continue outperforming well into 2026.

Chicago Fed National Activity Index for October will be reported. Headline is expected at -0.20 vs. -0.28 in September. If so, the 3-month moving average would rise to -0.16 vs. -0.18 in September and move further away from the -0.7 threshold that typically signals recession.

Growth remains robust. We get another revision to Q3 GDP data Wednesday but this is old news as markets look ahead to Q4 and beyond. The Atlanta Fed GDPNow model is tracking Q4 growth at 2.6% SAAR and will be updated Wednesday after the data. Elsewhere, the New York Fed Nowcast model is tracking Q4 growth at 1.9% SAAR and will be updated Friday. Its initial estimate for Q1 will come at the end of November.

Regional Fed surveys for November will continue rolling out. Dallas Fed manufacturing survey will be reported and is expected at -2.4 vs. -3.0 in October. Philly Fed non-manufacturing, Richmond Fed manufacturing and services, and Dallas Fed services surveys will all be reported tomorrow. Chicago PMI will be reported Wednesday and is expected at 45.0 vs. 41.6 in October.

EUROPE/MIDDLE EAST/AFRICA

German IFO survey for November was soft. Headline came in at 85.7 vs. 86.0 expected and 86.5 in October, with current assessment falling nearly a point and a half to 84.3 and expectations falling a tick to 87.2. IFO President Fuest noted that “The German economy is floundering. Companies were somewhat skeptical again about the coming months.” Risks to the German data remain skewed to the downside after the German composite PMI plunged to a 9-month low of 47.3 in October. GfK consumer confidence for December will be reported Wednesday. Germany remains the weak link in the eurozone.

European Central Bank officials continue to tilt dovish. Chief Economist Lane said, “Monetary policy shouldn’t remain restrictive for too long. Otherwise, the economy won’t grow sufficiently and inflation will fall, I believe, below target.” GC member Kazaks said, “Of course there will be a discussion, but my conviction is that looking at what’s happening at the moment in the European economy, there has to follow another rate cut already in December.” The market sees nearly 40% odds of a jumbo 50 bp cut at the December 12 meeting. Looking ahead, the swaps market is pricing in 150 bp of total easing over the next 12 months that would see the policy rate bottom at 1.75%. Centeno, Lane, Nagel, and Makhlouf speak Monday.

Bank of England officials remain cautious. MPC member Lombardelli said “I view the probabilities of downside and upside risks to inflation as broadly balanced. But at this point I am more worried about the possible consequences if the upside materialized, as this could require a more costly monetary policy response.” On the other hand, uber-dovish MPC member Dhingra noted that “The PPI tends to lead the CPI and up until now, the good news is that it has been dipping down.” She added that “there’s somewhat of a slight slowdown that we’re starting to see in services PPI.” The swaps market now sees the terminal rate at 3.75% vs. 4.0% before the weak November PMI reading.

Bank of Israel is expected to keep rates steady at 4.5%. At the last meeting October 9, the bank left rates steady at 4.5%. It was a hawkish hold as Governor Yaron said “The current interest rate level is sufficiently restrictive. However, we are data dependent and if [inflation] rises more than expected we may definitely raise interest rates.” Furthermore, the bank’s research department saw the policy rate at 4.5% in Q3 2025 vs. 4.25% in Q2 2025 at the July 8 meeting. The swaps market is pricing in steady rates over the next three months followed by some odds of a 25 bp cut over the subsequent three months, which we view as unlikely.

ASIA

New Zealand reported soft Q3 real retail sales data. Retail sales ex-inflation fell -0.1% vs. -0.5% expected and -1.2% in Q2. Ongoing weakness in consumption reflects high interest rates, a softening housing market, and the weakening labor market. Tax cuts, which took effect July 31, may have offered some support to retail sales activity, but the economy is clearly slowing. The RBNZ is widely expected to slash rates 50bps to 4.25% Wednesday. The swap market is pricing-in 25% probability of a 75bps cut.

Singapore reported soft October CPI data. Headline came in at 1.4% y/y vs. 1.8% expected and 2.0% in September, while core came in at 2.1% y/y vs. 2.5% expected and 2.8% in September. Headline was the lowest since March 2021 and core was the lowest since December 2021. While the MAS does not have an explicit inflation target, low price pressures will allow it to loosen policy at its January meeting if the growth outlook deteriorates. At the last meeting October 14, the MAS kept policy unchanged but set up an eventual shift when it noted that “The risks to Singapore’s inflation outlook are more balanced compared to three months ago” and added that “there is significant uncertainty around the economic outlook, reflecting continuing risks in the external environment.”