Futures Steady Ahead Of Last Fed Decision Of 2023

S&P 500 futures continued to grind to fresh 2023 highs, quickly approaching all-time highs ahead of the Federal Reserve’s last interest rate decision for 2023, after Tuesday’s cash close was at highest level since January 2022. As of 7:45am ET, S&P futures rose 0.12% while Nasdaq futures continued their relentless ascent, adding another 0.2% as investors looked ahead to the Federal Reserve’s interest-rate decision, bracing for any warnings from Chair Jerome Powell that market expectations of policy easing are overdone (our full FOMC preview is here). European stocks are also ahead, with the Stoxx 600 rising 0.2%. Asian stocks fell, with Chinese equities leading declines on disappointment over a lack of more stimulus from a key economic leadership meeting, while European stocks rose, with the Stoxx 600 rising 0.2%, and touching fresh 2023 highs. Sterling tumbled after UK GDP printed -0.3%, contracting more than the lowest consensus estimate while the Bloomberg Dollar Index rose 0.2%. oil prices are little changed, with WTI trading near $68.70. Spot gold rises 0.1%.Bitcoin traded just above $41,000. Today’s macro focus is on PPI and the Fed. The Fed is expected to make no changes to its policy, Powell is expected deliver a hawkish press conference, and for the dot plot decline by 50bps. For markets the keys will be the dot plot and whether Powell discusses a pathway for cuts.

In premarket trading, Tesla dropped 1.4% after announcing an "over the air" fix - which the media has dubbed a recall which it isn't - for more than 2 million vehicles to fix autopilot safety flaws. Here are some other notable premarket movers:

Coherent falls as much as 2.4% as Morgan Stanley cuts the recommendation on the semiconductor device company to equal-weight from overweight. The broker says recent stock performance largely captures the near-term upside opportunity from artificial intelligence and machine learning.
Hertz Global Holdings is down 4% after Oppenheimer cut the recommendation to perform from outperform and removed the price target, saying that the company will face several headwinds in 2024.
Microsoft jumps as much as 0.6% after Truist Securities initiated coverage on the tech giant with a buy rating, and assigned it a 3-year price target of $600. Target is 60% above Tuesday’s closing price.
Pfizer tumbles as much as 8.7% after the drugmaker gave an adjusted earnings forecast for 2024 that was below the average analyst estimate. The company also forecasted sales for the 2024 year that missed expectations.
Roblox rises as much as 1% after Wells Fargo initiated coverage on the stock with an overweight recommendation. The broker notes that the video-game company operates a growing audience platform with advertising upside.
Take-Two Interactive Software rises as much as 4.3% as Nasdaq said the Grand Theft Auto VI owner’s stock will be added to the Nasdaq-100 Index, with Seagen set to leave.
Vertex Pharmaceuticals rallies 7.5% after the firm announced positive results from a mid-stage study of an investigational non-opioid drug to treat painful diabetic peripheral neuropathy.
Xponential Fitness rises 6.5% after Stifel upgrades to buy from hold, saying it likes current risk/reward with the company’s valuation reflecting overly negative short-term sentiment rather than significant fundamental issues.

Today the market's focus will be on the conclusion of the Fed’s final policy meeting of 2023 later Wednesday. The central bank is widely expected to hold, but the latest US inflation data raised doubts about the likelihood of an aggressive pivot toward policy easing. Indeed, traders are most interest how hard Powell will push back on the record easing of financial conditions observed in November, which sent risk assets across the world soaring and yields tumbling (see our preview here).

"The market doesn’t agree with the Fed about inflation, so I expect some push back from Powell, but no game changer really,” said Francois Rimeu, a strategist at La Francaise Asset Management in Paris. “The train has been in motion for a month and a half and one better not stand in front of it,” he said, referring to the rally in markets on hopes of easing. Indeed, one look at the options market confirms that the market expects nothing but perfection: as spotgamma notes, today's 4,650 at-the-money straddle is currently just: $25.5 or 54bps, or barely any market response!

With the Fed expected to keep its target rate range steady for the third straight meeting at 5.25% to 5.5%, traders will carefully scrutinize any signals from Powell on the path for policy and the update to its quarterly forecasts. How the Fed frames its outlook for rate policy ending next year and 2025 via its “dot plot” could inject some uncertainty into a market, given that it has run ahead of the central bank’s current forecast.

“It’s unlikely the Fed will pivot to the extent that it aligns with the very optimistic expectation currently priced into the markets,” said Craig Erlam, senior market analyst at Oanda. “That isn’t to say they won’t get there over the next few months.”

Meanwhile, the S&P 500 closed at the highest since January 2022 on Tuesday after rallying about 10% since the last Fed meeting on Nov. 1 - the biggest intermeeting gain since 2009 - while Treasury yields have tumbled on speculation of more than a full percentage point of rate cuts next year. Markets have slightly trimmed their bets on easing, still projecting four, starting in May.

Europe’s Stoxx 600 index edged higher, rising 0.2% to fresh 2023 highs, with Inditex SA climbing after the Zara owner forecast a stronger gross margin. The pound fell and UK bonds rose as data showed the economy shrank more than expected in October, figures that prompted traders to ramp up bets on Bank of England interest-rate cuts next year. And here is something remarkable: Europe went from 2023 lows to 2023 highs in just over a month.

Here are some of the biggest European movers today:

BASF rises as much as 4.2% as the German chemicals company gets a double-upgrade from UBS, seeing the sector improving in 2024; UBS also upgrades Arkema, which rises as much as 5.8%
Entain shares rise as much as 7.5% after CEO Jette Nygaard-Andersen announced her immediate resignation from the gambling giant. Investec sees “an initial victory for activist shareholders”
Better Collective rises as much as 8.1% after Jefferies initiated coverage of the Swedish digital sports media firm with a buy recommendation, seeing Ebitda estimates triple by 2027
Paragon Banking Group rises as much as 3.4% after RBC raised stock to outperform, expecting the shares to rise 49% in 2024 on softening of Basel 3.1 regulation and IRB accreditation
Volution Group rises as much as 6.3% after the ventilation product maker said it will deliver annual earnings ahead of current expectations. Jefferies said the update is “impressive”
Pagero gains as much as 70% to SEK35.70 and trades just below Vertex public tender offer to acquire information technology solutions company for SEK36 cash per share
Porsche rises as much as 1.3% while Ferrari falls as much as 2% as HSBC says the latter looks stretched, while the former is attractive in that its “upcoming refresh” has been ignored
Repsol and Shell shares decline after BNP Paribas Exane downgrades in note to investors. Shell cut after stock outperformance, Repsol on weakening refining
Nel shares fall as much as 12% after the Norwegian hydrogen technology firm said its customer HyCC had cancelled a 40 MW order, negatively impacting its backlog by €12 million
B&M European Value Retail drops as much as 8.8% after announcing a share placing at a discount, with JPMorgan saying the stock could come under “significant pressure”
Energean falls as much as 3.4% after Kerogen Investments No 38 sold shares in the oil and gas company at a discount to the last closing price, according to a regulatory filing
Storebrand falls as much as 4.7%, the largest drop since May, after the insurer and asset manager announced new targets. Jefferies said the new targets came in shy of the consensus

Earlier in the session, Asian stocks fell with Chinese equities leading declines on disappointment over a lack of more stimulus from a key economic leadership meeting. The MSCI Asia Pacific Index dipped 0.2%, with Tencent and Alibaba among the biggest contributors.

A gauge of Chinese stocks listed in Hong Kong lost more than 1% after top leaders vowed to make industrial policy their top economic priority next year, a letdown for investors hoping to see more forceful moves to boost consumption and growth. Shares also dropped on the mainland.
Australia's ASX 200 was led by strength in healthcare after Sigma shares surged by over 70% shortly after the return from a trading halt and the recent announcement of a merger with Chemist Warehouse, while the energy sector lagged after yesterday’s continued slide in oil prices.
Japan's Nikkei 225 was underpinned by an encouraging Tankan survey which mostly beat expectations and showed sentiment amongst Japan’s large manufacturers and non-manufacturers was at the highest since March 2020 and November 1991, respectively.

In FX, the pound slid 0.4% after UK GDP data showed the economy shrank more than expected in October, figures that prompted traders to boost bets on up to 100bps of Bank of England interest-rate cuts next year. The Bloomberg dollar index rose 0.2%; the USDJPY rose 0.1%.

In rates, treasuries edged higher, leaving yields richer by 2bp-3bp across the curve at the start of US session that includes Fed rate decision at 2pm New York time. 10-year yields were around 4.18%, down 2bps on the day with gilts outperforming by 6bps; sharp bull-steepening of gilt curve sets tone for Treasuries ahead of Fed rate decision. Market positioning appears to be long in the front-end of the curve, suggesting that a bear-flattening reaction to Wednesday’s Fed communications is the pain trade. Gilts led gains for most developed sovereign bond markets, sending UK 2-year yields to lowest level since June, as money markets priced in 100bps of Bank of England rate cuts after UK GDP printed below the lowest estimate. UK 10-year yields fell 7bps while the pound drops 0.4%. US economic calendar includes November producer prices.

In commodities, oil prices were little changed, with WTI trading near $68.70; despite today's stability, oil continues to get hammered and is on track for its 8th consecutive red week which would be the longest since 2015. Spot gold rises 0.1%.

To the day ahead now, and the main highlight will be the Federal Reserve’s policy decision and Chair Powell’s subsequent press conference. Otherwise, we’ll get UK GDP for October, Euro Area industrial production for October, and US PPI for November.

Market Snapshot

S&P 500 futures up 0.1% to 4,652.25
STOXX Europe 600 up 0.2% to 473.66
MXAP down 0.3% to 161.12
MXAPJ down 0.5% to 499.89
Nikkei up 0.3% to 32,926.35
Topix little changed at 2,354.92
Hang Seng Index down 0.9% to 16,228.75
Shanghai Composite down 1.2% to 2,968.76
Sensex little changed at 69,517.47
Australia S&P/ASX 200 up 0.3% to 7,257.79
Kospi down 1.0% to 2,510.66
German 10Y yield little changed at 2.20%
Euro little changed at $1.0788
Brent Futures down 0.4% to $72.96/bbl
Gold spot up 0.1% to $1,981.77
U.S. Dollar Index little changed at 103.93

Top Overnight News

China’s top leaders including President Xi Jinping vowed to make industrial policy their top economic priority next year, a letdown for investors hoping to see more forceful stimulus to boost growth. BBG
A top Chinese housing official pledged to avoid a cascade of debt defaults by property developers, among the strongest commitments yet to cushion an escalating real estate liquidity crisis. BBG
Argentina’s new libertarian government will devalue the peso by about half, slash public spending and reduce energy and transport subsidies as it battles to contain an economic crisis and spiraling inflation. FT
Britain's economy shrank in October, official data showed on Wednesday, raising the risk of a recession and testing the Bank of England's resolve to stick to its tough anti-inflation line against cutting interest rates from their 15-year high. GDP fell by 0.3% from September, the Office for National Statistics said, adding that exceptionally wet weather might have impacted the data. RTRS
The COP28 climate talks in Dubai ended in a historic deal that committed the world to a transition away from all fossil fuels for the first time. The president of this year’s UN-sponsored summit, the UAE’s Sultan Al Jaber, brokered an agreement that was strong enough for the US and European Union on the need to dramatically curb fossil fuel use while keeping Saudi Arabia and other oil producers on board. BBG
Washington expects the most intensive phase of Israel’s war on Hamas in southern Gaza to be scaled back and become more targeted as soon as early January, US officials said. FT
Guyana will defend itself “by all and any means” as fears mount that neighboring Venezuela’s strongman president Nicolás Maduro will try to annex part of its territory, its vice-president has said. FT
We expect the FOMC’s median projection to show two cuts next year, as it did in September, and to show the same 125bp of cuts in 2025 and another 100bp of cuts in 2026. Some participants might pencil in more cuts than before in response to the inflation news, but others might hold back to avoid encouraging the market to price too many cuts too soon. GIR
Tesla filed a recall of more than 2 million vehicles to fix autopilot issues after the NHTSA determined its driver-assistance system doesn’t do enough to prevent misuse. Shares down 2% premarket. BBG

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks traded mixed with participants cautious heading into the FOMC announcement. ASX 200 was led by strength in healthcare after Sigma shares surged by over 70% shortly after the return from a trading halt and the recent announcement of a merger with Chemist Warehouse, while the energy sector lagged after yesterday’s continued slide in oil prices. Nikkei 225 was underpinned by an encouraging Tankan survey which mostly beat expectations and showed sentiment amongst Japan’s large manufacturers and non-manufacturers was at the highest since March 2020 and November 1991, respectively. Hang Seng and Shanghai Comp were pressured despite the detailing of China’s policy focus for next year and support pledges, as the statement from the Central Economic Work Conference refrained from any major stimulus announcements.

Top Asian News

China senior party official said China should set fiscal deficit and special local government bonds at appropriate levels in 2024. The official added that the key is to optimise the structure of fiscal expenditure, as well as improve the efficiency of fiscal fund utilisation and policy effectiveness, according to Reuters.
Australian government's Mid-Year Economic and Fiscal Outlook sees 2023/24 budget deficit at AUD 1.1bln vs 13.9bln forecast in May, while it sees a budget deficit of AUD 18.8bln in 2024/25 and a deficit of AUD 35.1bln in 2025/26. Furthermore, it forecasts GDP growth at 1.75% in 2023/24, 2.25% in 2024/25 and 2.50% in 2025/26.
New Zealand passed the law to return the RBNZ to a single inflation mandate, as expected.
Japanese PM Kishida says the government and the BoJ are in agreement on the goal of achieving economic growth accompanied by wage gains, as well as the need for sustained stable achievement of price target

European equities, Eurostoxx50 (+0.2%) are trading on a firmer footing; though the IBEX 35 underperforms (U/C) amid losses in Repsol (-2.1%). European sectors are mixed with a slight positive bias, though the breadth of the market to the upside is fairly narrow; Chemicals is the clear outperformer, propped up by gains in BASF (+3.4%) and Arkema (+3.6%); Energy lags due to broader losses in crude prices. US equity futures are trading in the green, posting gains similar to their European counterparts, NQ (+0.2%), as attention turns to US PPI and the much-awaited Fed Policy Announcement.

Top European News

German government has reportedly come to an agreement over the dispute for the 2024 budget, via Reuters citing government sources; German coalition officials to deliver a briefing at 11:00GMT/06:00EST, on the 2024 budget. Furthermore, the Germany government has agreed, at least initially, to not declare an emergency situation which would suspend the debt brake for 2024, according to government sources cited by Reuters
German economy to contract 0.5% in 2024 due to budget crisis, via IW Economic Institute
IFW Institute German Forecasts - GDP: 2023 -0.3% (prev. -0.5%), 2024 +0.9% (prev. +1.3%). 2025 +1.2% (prev. +1.5%); Inflation: 2023 5.9%, 2024 2.3%, 2025 1.8%
ECB's Villeroy said inflation's path to 2.4% from 10.6% is impressive while he also commented that Europe needs a plan to deepen its financial and economic unity if it is to emerge from crises affecting its democracy and society.
HSBC sees S&P 500 2024 year-end price target of 5,000, says a soft-landing scenario could pave the way for further upside
Goldman Sachs (GS) cuts UK's 2023 GDP growth forecast to 0.5% (prev. 0.6%); cuts 2024 forecast to 0.6% (prev. 0.7%)
JP Morgan lowers its 2023 UK GDP forecast to 0.5% from 0.6% with 2024 cut to 0.2% from 0.4%
UK PM Sunak has seen off a Conservative rebellion over his flagship Rwanda bill but still faces a battle to get it through Parliament, according to the BBC.

A positive start to the session for the broader Dollar and index with some assistance from a weaker GBP and as the clock ticks down to the FOMC policy announcement.
Sterling is among the G10 laggards following the dismal GDP data on the eve of the BoE, although the data will likely not have any influence on tomorrow’s decision, where expectations are for the MPC to stand pat.
The NZD lags in the G10 bunch following the larger NZ current account deficit reported overnight coupled with reports that New Zealand passed the law to return the RBNZ to a single inflation mandate
PBoC set USD/CNY mid-point at 7.1126 vs exp. 7.1717 (prev. 7.1163).
Argentina's Economy Minister Caputo said that they will move forward with eliminating taxation on exports and will reduce energy and transport subsidies, while he announced FX rate will weaken to 800 pesos per dollar. Argentina's Economy Ministry also stated the Central Bank will announce measures related to monetary policy, interest rate and debt on Wednesday.

Fixed Income

USTs are essentially unchanged heading into the FOMC announcement with yields incrementally lower across the curve.
Bunds are a touch firmer, holding towards the midpoint of 135.07-135.41 parameters and as such within Tuesday’s 134.80-135.60 bounds; awaiting clarity on the 2024 German budget.
Once again, Gilts buck the trend having gapped higher from Tuesday’s 98.73 close to a 99.02 open before extending in short order to the current 99.48 session high, driven by soft October growth data.
UK sells GBP 2bln 3.75% 2053 Gilt: b/c 2.70 (prev. 2.34x), average yield 4.43% (prev. 4.664%) & tail 0.5bps (prev. 1.5bps)
Italy sells EUR 6bln vs exp. EUR 5-6bln 3.85% 2026 & 4.00% 2030 BTP; EUR 3bln 3.85% 2026: b/c 1.56x (prev. 1.54x) & gross yield 3.24% (prev. 3.75%); EUR 3bln 4.00% 2030: b/c 1.54x (prev. 1.50x) & average yield 3.63% (prev. 4.21%)

Commodities

WTI Jan and Brent (U/C) Feb futures are essentially flat after being softer at the beginning of the session, futures initially trundled lower in APAC hours with little by way of fresh fundamentals in the European session to shift sentiment for the complex.
Spot gold remains flat ahead of today’s risk events, with the yellow metal contained to a USD 1,972.78-82.59/oz parameter.
Base metals are mostly softer as the Dollar remains firm and risk remains cautious in the run-up to the FOMC decision.
COP28 draft text was published which didn't include the words 'phase out' but called on parties to accelerate efforts towards a phase-down of unabated coal power, according to Reuters.
Chilean copper miner Antofagasta (ANTO LN) and workers at the Centinela mine extend talks to allow workers to vote on a new contract offer, according to the union cited by Reuters.
Azerbaijan oil output at 27.6mln tons between Jan-Nov (vs 25.3mln between Jan-Oct), according to the Energy Ministry cited by Reuters
Gulf Keystone Petroleum says there remains no official timeline for reopening of Iraq-Turkey pipeline
OPEC to issue monthly oil market report at 12:23GMT (07:23 EST)

Geopolitics: Israel/Middle East

UN General Assembly voted overwhelmingly to adopt a resolution demanding an immediate humanitarian ceasefire in Gaza, the immediate and unconditional release of all hostages and ensuring humanitarian access, in which the resolution passed by a majority vote of 153 in favour vs 10 against and 23 abstentions.
Israeli PM Netanyahu said he would block the Biden administration’s post-war plan to have the Palestinian Authority take over Gaza, according to WSJ. It was separately reported that US President Biden said the government in Israel is making it very difficult for the world and that PM Netanyahu has to change his government.
Houthi officials commented via social media platform X that vessels navigating through the Red Sea should not turn off radios and must respond to Houthi orders, while vessels navigating through the Red Sea were advised not to travel towards "occupied Palestine".
A source noted via social media platform X that there were reports of casualties following an Israeli airstrike in southern Lebanon.
UK Maritime Organisation has received report of an incident in the vicinity of Bad El Mandeb, Yemen. Authorities are investigating. Report issued at 05:30GMT, incident time 03:45GMT; subsequently another report of an incident approximately 90mn South of AL DUQM (off the coast of Oman); Authorities are investigating
"The Houthis targeted a Marshall Islands-flagged oil tanker coming from India and heading towards the Suez Canal with an armed crew on it", according to Al Jazeera citing AP

Other

US President Biden said Russian President Putin has failed to subjugate Ukraine and is banking on the US failing to deliver for Ukraine, while Biden added that he will not walk away from Ukraine and neither will the American people. Biden also stated that his team is trying to find bipartisan compromise on immigration and he confirmed USD 200mln in additional military aid to Ukraine. Furthermore, Biden said National Security Adviser Sullivan will visit Israel and Defense Secretary Austin will also travel to the Middle East, while he responded assertions are being made that there are no hostages in tunnels when asked about reports of Israel flooding Hamas tunnels.
Ukrainian President Zelensky said the idea of giving up territory to end the war is insane and stated who controls the skies controls the war's duration, while it was also reported that Zelensky told US senators that Ukraine is considering the conscription of men over the age of 40.

US Event Calendar

07:00: Dec. MBA Mortgage Applications, prior 2.8%
08:30: Nov. PPI Final Demand MoM, est. 0%, prior -0.5%
- Nov. PPI Final Demand YoY, est. 1.0%, prior 1.3%
- Nov. PPI Ex Food and Energy MoM, est. 0.2%, prior 0%
- Nov. PPI Ex Food and Energy YoY, est. 2.2%, prior 2.4%
14:00: Dec. FOMC Rate Decision

DB's Jim Reid concludes the overnight wrap

The eagle-eyed amongst you will notice that Henry has been on lead EMR duties for 3 of the last 4 days before and after the weekend. Well it’s felt like a lost several days for me as I’ve been as ill as I’ve been for a long time. I’ve still been working but in a near zombie state and not up for early morning starts. The long and short of it is that I still can’t hear due to infections in both ears but at least I’m starting to feel better outside of that. My family are fed up screaming at me to make themselves heard and my wife is fed up of having the subtitles on so we can still watch TV.

Thankfully I haven’t missed too much market drama and the last 24 hours have proved to be quieter than they might had been as the US CPI numbers didn't rock any boats. The baton will be passed to the Fed tonight for their FOMC meeting. With no surprises in the data, markets have done well on the whole over the last 24 hours, with the S&P 500 (+0.46%) at a fresh 20-month high, whilst the VIX index of volatility fell to a post-pandemic low of just 12.07pts. US Treasuries did sell off after the CPI but still managed to rally on the day. Chinese equities are weaker this morning though as China's annual economic work conference continued with no silver bullet stimulus packages .

Let's go through in more detail now. In terms of that inflation data, headline US CPI came in at +0.1% in November (vs. unch. expected), taking the year-on-year reading down a tenth to +3.1%. But even as lower gasoline prices helped push down the headline reading, core CPI was a tenth stronger (as expected) at +0.3%, which left the year-on-year reading for core CPI unchanged at +4.0%. That’s still too fast for the Fed to be comfortable, and even if you look at the past 3 months as a whole, core CPI was still running at +3.4% on an annualised basis. So the Fed are going to need some weaker prints before they can be confident inflation is durably at target. The bulls will look at the fact that rents and OER are still elevated as a reason for optimism as the forward looking indicators suggest these should be heading notably lower. However, so far rental disinflation has disappointed relative to these indicators, as noted by our US economists in their reaction piece here. So whether rents catch-down could be the most important global macro variable in the next few months.

With the CPI generally a bit stronger than expected, that built on the narrative from the jobs report on Friday, and investors moved to dial back the chance of near-term rate cuts again. For instance, the chance of a cut as soon as March was down to 43%, the lowest in two weeks having peaked at 76% on December 5. In turn, sovereign bond yields saw a decent turnaround following the release, with yields on 10yr Treasuries ending the day down -3.2bps at 4.20%, having been as low as 4.14% just before the CPI came out. Similarly, there was a sharp reversal at the front-end, but with the 2yr yield ending the day up +2.2bps at 4.73%. Overnight, 10yr yields are down half a basis point.

At the long-end, the post-CPI bond sell-off saw a partial reversal after a well-digested 30yr Treasury auction at 1pm EST. T he auction saw bonds issued just below (-0.3bps) the pre-sale yield with a solid share of indirect bids (68.5% vs 64.4% average over the last 4 auctions). The 10yr yield had been trading flat on the day just before the auction, but 10yr and 30yr yields rallied by 3-4bps immediately after.

So now the CPI and auctions are out of the way, the stage is clear for the Fed’s latest policy decision today, where they’re widely expected to leave rates unchanged for a third consecutive meeting. As a result, the focus is likely to be on the latest dot plot for where they see rates moving over the next couple of years. Our US economists think it will only show 50bps of cuts in 2024, which would be a direct challenge to market expectations, since futures are currently pricing in 109bps of cuts by the December 2024 meeting. Apart from that, the focus will be on what Chair Powell says in the press conference, particularly if there’s any potential timeline for reducing rates. However, our economists believe that Powell will stop short of declaring the tightening cycle as over, likely restating that “We are prepared to tighten policy further if it becomes appropriate to do so.” See their full preview here.

With all that to look forward to, risk assets posted steady gains yesterday, with the S&P 500 (+0.46%) rising to a new 20-month high. The gains were fairly broad, but led by tech stocks with the NASDAQ (+0.70%) and Magnificent Seven (+0.86%) outperforming. The equity rise came as the VIX index (-0.6pts) fell to a post-pandemic low of 12.1pts, whilst Bloomberg’s index of US financial conditions reached its most accommodative level since the Fed began hiking rates last year. So there’s plenty of optimism going into the decision tonight.

By contrast in Europe, there was more of a small risk-off picture, with the S TOXX 600 (-0.21%) coming off its 22-month high from the previous session. There was also a sharper move lower for sovereign bond yields, with those on 10yr bunds (-4.4bps), OATs (-5.3bps) and BTPs (-6.1bps) all falling back. That was most pronounced for UK gilts (-11.1bps), which followed the release of UK labour market data, which showed that growth in average weekly earnings (excluding bonuses) was down to +7.3% over the three months to October (vs. +7.4% expected), which is the lowest it’s been in 6 months. Moreover, the number of vacancies continued to decline, falling to 949k in the three months to November, which is the lowest in over two years.

In the commodities space, oil prices fell to their lowest in five months, with a higher estimate of US oil production this year and a jump in shipments of Russian crude adding to oversupply concerns. Brent crude was down -3.67% to $73.24/bbl and WTI down -3.80% to $68.61/bbl. Oil is currently on track to record its eighth weekly decline in a row, which would be the longest down streak since 2015 .

Asian stock markets are mostly lower this morning led by China after no new firm policy measures were announced at the annual economic work conference. See our economist’s interpretation here. As a result the CSI (-0.92%), Hang Seng (-0.74%) and Shanghai Composite (-0.48%) are on the weaker side and joined by the KOSPI (-0.61%). The Nikkei (+0.11%) is just holding onto gains and S&P 500 (+0.15%) and NASDAQ 100 (+0.18%) futures are also ticking higher.

Early morning data showed that business confidence at large manufacturers in Japan improved in the three months to December for a third straight quarter, coming in at 12.0 (v/s +10.0 expected) compared to the prior reading of +9.0. At the same time, the large Non-Manufacturing Outlook for Q4 came in at 24.0 (v/s +25.0 expected) versus 21.0 previously.

In emerging market news overnight, Argentina announced a 54% devaluation of its official exchange rate to 800 pesos per US dollar. The move comes two days after libertarian Javier Milei was sworn in as President amid a package of measures that also includes major spending cuts. This brings the total devaluation of the peso to 78% year-to-date, and moves it closer to the unofficial blue dollar exchange rate which has been at about 1000 recently .

Looking at yesterday’s other data, the NFIB’s small business optimism index from the US fell to 90.6 in November (vs. 90.7 expected). Interestingly, the net percentage expecting credit conditions to ease was down to -11%, which is the lowest since December 2012. Elsewhere, the German ZEW survey picked up relative to November, with the expectations component at a 9-month high of 12.8 (vs. 9.5 expected), and the current situation ticked up to a 4-month high of -77.1 (vs. -76.0 expected). This tends to be correlated to the DAX so given the recent all time high on the index that would help explain the move even with the recent concern about German growth in 2024.

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