Stock markets cleared the major hurdle to Nvidia’s earnings announcement yesterday. While the S&P 500 remains lower in November as valuation concerns appear to be growing, yesterday’s strong earnings provide relief to global risk sentiment and help stabilize the high-yield G10 segment. The recent risk-off move has given the dollar some safe-haven support, but USD pairs remain primarily an extension of the Fed’s outlook. Two factors led them to the hawkish side yesterday, with December rates falling to just 7 basis points, notes Francesco Pisol, FX analyst at ING.
Nvidia’s Earnings Ease Nerves, But Fed’s Outlook Has Toughened
“First, the Bureau of Labor Statistics announced that the November jobs report — along with October payroll estimates (excluding unemployment) — will be published on December 16. That is after the Fed’s December 10 meeting. The second factor is the hawkish Fed meeting minutes, which were released yesterday. At the October meeting, many FOMC members were against the decision to cut interest rates, and many expected it to be suspended in December. This confirms that the hawkish Powell pressure was a large part of the committee.”
“Our call so far has been that the jobs data will justify a December cut, but the change in the data release schedule makes it more difficult now. The balance is tipping in favor of a hold because the upper bound the FOMC set for a cut may not be met by today’s payrolls, which, by the way, are outdated (September numbers) and lack unemployment data. The consensus is 54K, and while the risks are likely to be on the downside for the dollar today given the recent tight repricing events, we will likely need to see a very weak reading to convince the FOMC “For the open market to cut interest rates without seeing the October and November releases.”
“Looking to the end of the year, our bearish outlook on the dollar remains intact, although dollar weakness may only fully materialize in the second half of December, after the release of jobs data. Prior to that, the balance of risks was on the downside for the dollar, whose rise has outpaced what our short-term valuation model indicates, and stabilizing stocks could lift some support.”
