Jerome Powell Signals Fed Prepared to Slow Rate-Rise in December
Recently Federal Reserve Chair Jerome Powell provided a clear signal that the FED prepared to slow rate-rise pace in December2022.
Fed chair is now focusing in looking at 2 big factors, which
are covering topic of inflation and unemployment & average wages (y/y) to
determine the next move.
Let’s look at US inflation rate:
From the above chart, the US inflation rate and US Core
inflation rate has been dropped below 8.0% after variable interest hikes since
May2022). Potential market starts to tend down / cool down in next 1 to 3
months. IF the inflation starting to calm down and drop back to meet FED forecast,
market would strongly speculate that “End of QT cycle”.
This would eventually result that US dollar will
be weakened; we are expecting that market institution would partially swift their
capital flow outflow from US dollar.
Next, let’s us to have deep
dive into the US manufacturing PMI as below:
The US manufacturing PMI and Industrial Production is
clearly demonstrating down trend. This is due to global market demand had been slowed
down, that impacting the production orders as well as orders of raw material.
Why do we expect the global demand slowdown?
Let’s look to China PMI and Industrial Production data as
above, both data indicate that currently China also facing a slowdown economy
in its domestic markets too.
NEXT, let’s look at FED’s 2nd concerning factor - US Unemployment
Rate:
Looking at US unemployment rate is already at bottom level
and become flattened or so called “NO Trend” and same to US Average Hourly Earnings
that been hold at high range. There is higher possibility that global economy
is heading to recession pillar after various interest hikes that caused a pause
/ slowdown on global economy.
Next, you may ask where the capital flow will be heading
next. By looking at the 8 major currencies, next speculation will be EUR. The
EUR interest rate is at 2%, which is consider still have room to increase
compare USD 4%. From the Euro area inflation rate below showing, it is not yet
U-turn and ECB will continue to tightening the economy.
This
is well supported by President of the European Central bank, Lagarde mentioned:
“ Next, we started raising our policy rates at their fasters pace ever”
In term of Euro Area unemployment rate shown below, there is
no U-turn signal and the trend will continue for coming months.
In terms of Euro Area manufacturing PMI, given the Russia
war incident had further disrupt the EU manufacturing (PMI) as well as EU
industrial production to bottom low. Given the Russia war incident is
stabilizing, big possibility Euro PMI and industrial production will bounce up
and kick start the production.
By looking at US 10-year bond, currently is already
completed triple top chart pattern, which indicate it is very likely to slow
down at no trend and thus break the trend line and decline all the way to level
1.0 (where demand zone situated)
Next, we are looking at DXY, US Dollar currency chart. There
are twice rejection and heading downtrend. USD seems to find its foothold at
resistant level at 109 level. To accumulate more strength, it might go up to 109
level (which currently form supply zone) and swing big up and downs for coming
months.
When FEB started the plan to end the tightening policy, big
player will sell away the USD and flows their capital toward EUR, which still
have room to increase interest rate.
As a conclusion, the theme to trade is buy EUR/USD. It is
very unlikely to stay below 1.0 level. It will gradually move up to as high as
1.12 area which is the solid supply zone area.
