Wall Street eked out a small gain 

Flat start for Europe after Asian shares were generally softer, turning negative as the session progressed. Wall Street eked out a small gain – the Nasdaq rallying for a seventh session for its best run since January, whilst the S&P 500 posted its best run since June with a sixth consecutive daily gain. China imports showed surprise growth but exports fell more than expected; imports +3% as exports fell 6.4%...sending crude lower with Brent back to under $84, where it traded on October 6th before the Hamas atrocities. Meanwhile German industrial production data fell 1.4% for the month in September and some Swiss bankers lost money for the first time in six years…oh dear. At least they can always lean on all that looted gold from the 1940s. 

FTSE 100, DAX, CAC Stabilize, Wall Street Cautious" 

The FTSE 100 firmed up around the 7,400 area after touching a low of 7,394 earlier. The DAX shed a few points to 15,125, bouncing off a low of 15,069 in early trade. The CAC held firm just above 7,000 after dipping to 6,970 this morning. Wall Street gains were tentative yesterday after a strong rally – something of a pause as investors catch their breath after the best week of the year. We await to see if there are any bullish catalysts or if the path of least resistance is to chase this higher. SPX has cleared the 50-day but we await for confirmation of the bullish move as this twice was a head fake in Aug and Sep … bullish MACD from oversold territory makes this look more like the spring move than the late summer one … but yields have a habit of reverting and I think there is something of a risk that the Fed pushes back against the loosening in financial conditions seen in the last few days – watch a raft of Fed speakers on the wires later today. 

AUD/USD Slips Amid Softer Central Bank Tone 

RBA hiked, but AUDUSD retreated a bit more than just the USD bid would suggest...slightly softer tone from the central bank’s statement. “Inflation in Australia has passed its peak but is still too high and is proving more persistent than expected a few months ago,” governor Bullock said.   

The RBA’s view is that while CPI inflation will continue to decline, “progress looks to be slower than earlier expected,” Bullock said. “CPI inflation is now expected to be around 3.5% by the end of 2024 and at the top of the target range of 2 to 3% by the end of 2025.” That all sounded a little hawkish, but the RBA refrained from repeating a statement in October statement that “some further tightening of monetary policy may be required”, which seems to have done for the Aussie a bit this morning.  

I mentioned Schnabel’s speech yesterday – the point which I maybe failed to spell out was this: it’s too early to declare victory over inflation.  

ECB Warns of Inflationary Risks Amid Global Shifts 

Meanwhile the ECB is warning that so-called friend-shoring – ie retrenching from China – will be inflationary...as I keep saying – the inflationary paradigm has changed – the forces of multi-polarity, deglobalisation etc are going to lift prices. “...from a purely economic perspective, trade fragmentation would entail sizeable costs in terms of substantially distorted trade, decreased welfare and higher prices,” the ECB says. This goes to the very heart of the matter – deglobalisation, war, fragmentation...it’s a new inflationary paradigm.  

Yields are lower this morning with the 10yr Treasury back below 4.60% from around 4.67% yesterday, but DXY is holding gains around 105.25 …focus today is on the Fed speakers and to what extent they push back against the decline in bond yields, albeit last night’s senior loan officer survey showed credit conditions are tightening and lending is weakening…which is of course -ve for the US economy.  Kashkari, Goolsbee, Barr, Waller and Logan are due on the slate. 

Key question – maybe we get a flavour today from the Fed speakers – if the RBA feels it needs to restart the hiking cycle after pausing for four months, does that mean the Fed will do too?