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Hello everyone, today XM Forex will bring you "[XM Foreign Exchange Market www.xmasseuse.commentary]: Fed bond purchases, peaking of Japanese funds, British fiscal concerns, liquidity is more pressing issue than interest rate". Hope this helps you! The original content is as follows:
Last Friday, as investors increased their bets on the Federal Reserve cutting interest rates in December, and the US holidays made liquidity scarce, the US dollar was quoted at 99.44 so far.
Trump
Revoked all documents signed by former US President Biden through automatic signature devices.
Don’t read too much into the U.S. move to close Venezuelan airspace. This does not mean that air strikes are imminent; Trump confirmed that he had a phone call with Venezuelan President Maduro; US fighter jets circled near the Venezuelan coast, and Venezuela launched military exercises to deal with the "blocked airspace."
I know who I am electing to be chairman of the Federal Reserve, and I will announce it soon.
Call again to the Supreme Court and ask it to make a correct judgment on the tariff issue.
Immigration from “third world countries” will be permanently suspended.
Progress of Russia-Ukraine peace talks:
1. The new round of talks between the United States and Ukraine ended. Rubio said they were fruitful but emphasized that there is still work to be done.
2. Zelensky announced the reorganization of the presidential office; Ukrainian President Zelensky’s chief of staff Yermak announced his resignation.
3. Press Secretary of the Russian President: The process of resolving the Russia-Ukraine issue is accelerating.
Market news: Negotiations for the UK to join the EU’s flagship defense fund ended in failure.
Japan’s defense spending exceeds 11 trillionJPY.
Hassett, director of the White House National Economic Council: If nominated to serve as chairman of the Federal Reserve, "I will be very happy to serve."
The United States has suspended the issuance of visas to individuals holding Afghan passports.
ING: A December interest rate cut is not a certainty, be careful the Fed steals this much-anticipated "Christmas gift"
Financial markets are currently pricing in a December interest rate cut by the Federal Reserve with at least 90% certainty. It's not that we disagree with these expectations, we do, but it all looks far more uncertain than investors give it credit for. Taking the Federal Reserve as an example, 10 days ago, the market priced a rate cut in December with only a 35% probability. The change in market thinking came as some influential Fed officials, including Fed Williams, expressed support for a December rate cut. And September's non-farm payrolls report has also been interpreted as slightly dovish, as the rising unemployment rate is currently considered to have more impact on the Fed than the stronger-than-expected non-farm payrolls data. But the Fed may be unlikely to make a decision that surprises markets, because despite divisions within the Fed, the case for continuing to cut interest rates remains strong.
We have now confirmed that there will be no new official employment data or inflation data released before the December Fed policy meeting. Other upcoming data are likely to reinforce market expectations for a rate cut by the Federal Reserve - the ISM manufacturing index is expected to remain in contraction territory, while the ISM services index is expected to move closer to neutral levels. In addition, weak core CPI and PPI reports indicate that the actual impact of tariff measures on inflation is far less than expected, a trend that will also be reflected in the September core PCE index released this week. Although some hawkish officials within the Fed remain vigilant, the longer it takes for tariff policies to be transmitted to prices, the more ample the time window will be to hedge against inflation due to falling energy costs, slower wage growth, and weaker housing rental growth. We believe this provides policy space for the Fed to respond to the risk of continued weakness in the job market, and is expected to make at least two more interest rate cuts in 2026. In this context, it is recommended to also pay attention to the upcoming ADP private sector employment data. We forecast zero job growth, but there is a risk of actual employment falling based on weekly data performance.
Mizuho Bank: The 22 billion buffer space buys time for the British Chancellor of the Exchequer, but we still need to be wary of the term premium risk of "back-loaded" consolidation
The market has fully digested the impact of the autumn budget. Although Chancellor Reeves has avoided the worst-case scenario, concerns still remain. Review the details of the entire budget:
1. The fiscal buffer space announced by the Chancellor was approximately 22 billion pounds, slightly higher than expected. This surprised the market and triggered the first round of rebound in the pound interest rate market (yields fell).
2. The measures she announced are basically consistent with the headlines and leaks in the past few months, so there are no surprises. The only hiccup is the budget.Documents from the Office of Responsibility (OBR) were leaked ahead of time. In addition, no measures were introduced that might push up inflation.
3. The government bond issuance plan for the 2025-26 fiscal year has been increased by 4.6 billion pounds, which is at the lower end of the market's expected range. In addition, the share of issuance of long-dated Treasuries and inflation-linked Treasuries was cut, while the share of medium-term Treasuries increased.
This adjustment in the issuance structure triggered a significant "bull market flattening" of the pound interest rate curve. British bonds also strengthened at the asset swap spread level, and were mainly driven by the long end. On the back of these positive news, we also see borrowing increasing throughout the forecast period, and central government www.xmasseuse.com cash requirements rising in 2030-31 www.xmasseuse.compared with 2029-30. This makes people question whether the data at the end of the forecast period and this kind of "back-loaded" fiscal consolidation plan are truly credible.
The market has not yet paid too much attention to this dark side, but in our view, it implies that the political and fiscal term premium may return at any time (although thanks to the reduction in issuance, the 30-year Treasury bond may be relatively less affected). At least now, the chancellor has a bigger buffer against any unwelcome rise in Treasury yields.
UBS: The budget will have limited impact on the economy, and the bullish view on the pound remains unchanged
Finance Minister Reeves's second budget still continues the tone of raising taxes and expanding fiscal spending. While expectations for a productivity downturn came true, the data elsewhere were better, especially with tax revenue higher than previously forecast. So the fiscal gap the chancellor needs to fill turns out to be smaller than feared. Still, the budget moves ahead with massive tax hikes to support additional spending. At the same time, the government's buffer space for fiscal targets at the end of the forecast period has also been significantly expanded, from 9.9 billion pounds to 22 billion pounds, equivalent to 0.6% of GDP. The mix of tax and spending achieved by budget measures has little impact on economic growth itself. More important is a series of measures aimed at reducing household costs, most of which are regulatory reforms, which will lead to lower inflation. The Bank of England is likely to view this impact as temporary, and we still think the Bank of England will cut interest rates in December.
Before the chancellor's speech, there was significant market volatility as investors digested the impact of the early leakage of the UK Office for Budget Responsibility report. The final effect of the budget is that British government bond issuance in the next few years is lower than expected, and the fiscal buffer is larger than the market's previous judgment, causing British government bond yields to fall slightly, while expectations of further interest rate cuts have also strengthened this trend. The pound, which has been fluctuating recently due to budget rumors, edged higher on the day. We continue to expect sterling to gradually strengthen against the backdrop of a weaker dollar in the www.xmasseuse.coming months.
www.xmasseuse.comBC: If Hassett is elected as Fed chairman, interest rates may drop to...
Bank of America analysts said that if Kevin Hassett is nominated as the next Fed chairman, he mayTrying to get interest rates down to well below 3%.
In a report, strategists including Aditya Bhav predicted that Hassett would advocate for sharply lower borrowing costs while at the helm of the Fed, echoing frequent calls from U.S. President Donald Trump.
Hassett's success in significantly lowering interest rates will depend not only on the flow of data but also on the www.xmasseuse.composition of the Federal Open Market www.xmasseuse.committee that sets rates, analysts said. The current target range for U.S. interest rates is 3.75% to 4%.
"If the economy is as resilient as we expect and there are limited changes to the www.xmasseuse.committee's staff, Hassett may have difficulty making the case for a significant rate cut," they wrote, calling Hassett a "credibility-seeking dove."
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