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The Axiom IFS Update 28th November 2023

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Some of the world’s biggest audit and consulting firms are asking staff to use burner phones when they visit Hong Kong, a sign of the increasing difficulties global companies are facing in a city long known as an international business hub.

 

Remember when markets expected central banks to have begun cutting interest rates by now? Recent comments from decision makers at the Bank of England, European Central Bank and Federal Reserve have firmly pushed back on this narrative. Andrew Bailey was particularly strident yesterday – claiming it is ‘far too early’ to be thinking about rate cuts. Whilst this may not be helpful to companies and consumers experiencing credit tightening and deteriorating economic conditions it is helpful to the pound strengthening against both the dollar and the Euro. With President Lagarde and Governor Powell both due to speak this week we might witness some coordinated language intended to kick interest rate cuts into the long grass.

GBP.

The pound reached new multi-week highs against the Dollar and Euro after the Bank of England’s Governor ratcheted up his campaign against expectations for interest rate cuts, warning that rates would not be cut “in the foreseeable future”. Ultimately, markets predict the pound could extend gains over the coming weeks if market participants continue to buy Governor Bailey’s message and reduce bets for the scale of cuts in the coming 12 months.

USD.

The Dollar fell slightly in Asian trade, extending overnight losses after sinking to three-month lows at the start of the week. In fact, the greenback was hit by growing bets that the Fed will raise interest rates no more and is likely to begin trimming rates in 2024. However, markets are now awaiting more economic cues to gauge just when the Fed could begin loosening policy.

EUR.

The Euro got a slight boost yesterday after ECB’s Christine Lagarde’s hawkish words during her address at the European Parliament. In fact, the President of the European Central Bank cautioned that headline inflation could experience a slight increase in the near future. Ultimately, this narrative has helped the single currency maintain its ground.

CAD.

Monday’s USDCAD trading saw a lot of chop but little direction for the pair as loonie traders settled in for the week. That said, price action was largely dictated by oil prices and dollar dynamics, with little meaningful Canadian news flow of note to drive CAD through yesterday’s session. Indeed, rumours that production cuts could be announced at the OPEC+ meeting later this week suggests some good news is on the horizon for the loonie, potentially putting a floor under WTI.

GOLD.

Gold held its ground on Tuesday after touching a six-month peak, buoyed by expectations that the U.S. Federal Reserve has concluded its interest rate hikes, ahead of the release of key economic data. Spot gold edged up around 0.1% to $2,015.29 per ounce by 1023 GMT, after hitting its highest since May 16 earlier in the session.

STOCKS.

European stocks fell for a second day and US futures pointed to a weaker open on Wall Street amid signs the November rally in equities is overstretched. The Stoxxhttps://www.bloomberg.com/quote/SXXP:Index600 declined 0.6%, while contracts on the S&P 500 slipped. LVMH led a retreat in European luxury stocks as HSBC Holdings Plc cut its price targets across the sector. Dutch biotech Argenx SE sank as much as 17% after preliminary results suggested its only medicine failed in a trial.

CRYPTO.

The US’s successful prosecution of Binance’s Changpeng Zhao this week removed the top executive at the world’s largest cryptocurrency exchange, a key target in its efforts to clean up a market with a Wild West reputation. Zhao, also known as CZ, agreed to plead guilty to a criminal charge of failure to protect against money laundering, pay $50mn in penalties and step down as chief executive as part of the deal he struck with US authorities. He is due to be sentenced in February. His departure underscores the sharp reversal of fortune for the top crypto chiefs who garnered the most hype and attention during the market boom years of 2020 and 2021.

OIL.

Oil edged higher after a string of losses as the market weighed the possibility of deeper output cuts from OPEC+. Brent crude traded near $81 a barrel, reversing losses from previous sessions, with prices effectively treading water before a meeting of the producer group later in the week. OPEC+’s de-facto leader Saudi Arabia has asked other members to reduce their production quotas to shore up markets, although some members are resisting, delegates said.

 

 

 

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