U.S. Indices began Friday on the back foot and continued on the NVIDIA (NVDA) weakness seen on Thursday, but swiftly turned around, which was largely supported by a surprisingly dovish Williams. The New York Fed President said, in his view, the Fed can still cut rates in the near term, given current policy is modestly restrictive, indicating that would be his preference in December. The comment helped lift stocks and bonds with a dovish repricing in Fed money markets. At its peak on Friday, a 62% chance of a 25 basis points cut was seen but pared back a couple of bps after the BLS announced the Oct. CPI is cancelled and November CPI will be released after the December FOMC meeting, meaning the Fed will not have access to inflation or labour market data until after the confab. As a reminder, in October, Powell gave a driving in the fog analogy, where it is best to slow down when visibility is not clear. The Dollar was flat, while the Japanese Yen was the clear outperformer and supported by comments overnight from Finance Minister Katayama, while a sharp, unexplained move in the US morning raised intervention suspicions. High-beta FX was also buoyed by the risk sentiment. T-Notes saw strength on the aforementioned dovish Williams but settled off peaks as sentiment improved. Bitcoin still saw selling, but sits around USD 84.5k, at the time of writing, off earlier troughs of USD 80.5k. The crude complex saw notable losses and tracked the initial sour risk tone in the morning, while ongoing peace prospects kept the complex pressured. However, President Trump has issued a Thursday deadline for President Zelensky to accept the plan, while reports noted Ukraine and the EU reject some of the key aspects of the deal, which helped oil settle off lows. The Flash PMI data in the US for November saw manufacturing slip to 51.9 from 52.5, only slightly below the 52.0 forecast, while services rose to 55.0 from 54.8, seeing the composite tick up slightly to 54.8 from 54.6, despite the consensus for a 54.5 print. The report highlights that “A marked uplift in business confidence about prospects in the year ahead adds to the good news. Hopes for further interest rate cuts and the ending of the government shutdown have boosted optimism alongside a broader undercurrent of improved economic optimism and reduced concerns over the political environment.” On prices and the labour market, it noted “The rate of hiring continues to be constrained by worries over costs, in turn linked to tariffs. Both input costs and selling prices rose at increased rates in November, which will be of concern to the inflation hawks.” The Final University of Michigan survey for November saw sentiment revised up to 51.0 from 50.3, and above the expected 50.5. Conditions were revised lower to 51.1 from 52.3, while expectations lifted back into expansionary territory at 51.0 from 49.0. However, consumers remain frustrated about the persistence of high prices and weakening incomes. Surveys of Consumers Director Hsu noted consumers remain frustrated about the persistence of high prices and weakening incomes. In terms of inflation expectations, 1yr and 5yr ahead both ticked lower to 3.4% (prev. 3.6%) and 4.5% (prev. 4.7%), respectively. Hsu said, “Despite these improvements in the future trajectory of inflation, consumers continue to report that their personal finances now are weighed down by the present state of high prices.” Williams the NY Fed President was unexpectedly dovish, as he said, in his view, the Fed can still cut rates in near term given current policy is modestly restrictive – seemingly alluding to a possible December cut. The influential FOMC Vice Chair Williams added that inflation progress has stalled, but it should be on track to 2% in 2027, and tariffs have increased prices but are not expected to lead to persistent inflation. Williams noted economic growth has slowed and the labour market has gradually cooled, stressing it is imperative that the Fed meets its inflation target, but without undue risk to the maximum employment goal. On the labour market, it has been cooling for over two years now, with demand for labour softening and the unemployment rate rising. In some later remarks, the NY Fed President said clear communication can limit market disruption, while noting the US has not been on a sustainable fiscal path for a while. Williams also does not like the notion of a short-run neutral rate. Williams remarked that financial markets set asset prices, and the Fed does not have a view on if they are too high or too low. Collins – the Boston Fed President – said the September jobs report did not change her view, noting the labour market has clearly softened, but the unemployment rate remains relatively low, although it may rise further. Collins said she is more concerned about inflation than the labour market at this point and wants to see clear evidence of labour-market softening and continued inflation progress before supporting further cuts. Described the current policy as mildly to moderately restrictive, which is very appropriate, and helps guide inflation lower as tariffs pass through. She believes the Fed is now much closer to neutral and must carefully balance risks, especially with financial conditions still accommodative. She expects to normalise rates further, but it needs to be done gradually, and she is hesitant to get too far ahead. Furthermore, she said that dialling down has already helped address the shifts in risks. She remains cautious about December, saying it’s a complicated context and the Fed must be forward-looking and weigh which side of the mandate is further from target. Finally, Paulson – the Philadelphia Fed President – said she is approaching the December decision cautiously, and viewed the September labour market report as encouraging overall, though, on the margin, remains more concerned about the labour market than inflation. She believes prior rate cuts have been appropriate, but each one raises the bar for another. She stressed monetary policy must walk a fine line, especially with upside risks to inflation and downside risks to employment. She expects to learn more before December. Paulson described the economy as doing okay, though noted that growth is unusually reliant on higher earners and sensitive to equity valuations. Added that tariff effects have been smaller than feared, with solid demand helping to cap inflation pressures. Elsewhere, Oil closed lower by 1.59% while Gold closed lower by 0.2%.
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