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While longer-term U.S. government yields and the dollar increased on Thursday as investors assessed the monetary policy and inflation outlook in the United States, weak Chinese markets drove down broader Asian shares. Donald Trump’s return to the White House and the optimism that his administration will be good for cryptocurrencies helped Bitcoin stabilize above $90,000 after it had surpassed that mark in the previous session. Although Trump’s return to office muddled the outlook for monetary policy in 2025 and beyond, traders in the broader market responded to a U.S. inflation report that matched forecasts by raising bets on a Federal Reserve rate drop next month. It is anticipated that Trump’s tax cuts and tariff increases will increase inflation and limit the Fed’s ability to lower interest rates. Additionally, Edison Research predicted Wednesday that when the president-elect assumes office in January, the Republican Party will control both chambers of Congress, allowing him to essentially implement his program without interference. Longer-dated U.S. bond yields increased Thursday in Asia trade, reflecting this uncertainty. The benchmark 10-year Treasury yield reached its highest level since July 1 at 4.483%.Domestic policy and trade speculation about Trump are unlikely in the Fed’s December estimates. This will change with the initial policies. Since tariff increases and tax cuts take time to execute and affect the real economy, their impact will be recognized after 2025. This will allow the Fed to alter its reaction function. As a proxy for near-term rate expectations, the two-year yield fell. An 83% possibility of a 25 basis point Federal Reserve rate drop next month has increased from 59% a day earlier. Expectations of Fed cuts next year have dropped since Trump’s election last week. The dollar and longer-term Treasury yields gained on Thursday despite rising expectations for a December Fed cut, which would normally hurt the currency.Markets in Europe will be watching the publication of the third-quarter flash employment statistics and the second estimate for GDP growth from the eurozone. Although the bloc grew more quickly than anticipated in the third quarter, preliminary data released in October indicated that it was still fragile because household spending hardly increased and industry remained in recession. Following the release of the U.S. October producer prices report, which contributes to the Fed’s preferred inflation index, Fed Chair Jerome Powell will give a speech in Dallas. However, considering the uncertainties surrounding Trump’s policies once he assumes office, Powell’s remarks for 2025 and beyond will be limited. Trump has already appointed a number of people to his cabinet and other senior administration roles, including those in charge of trade, immigration, economic policies, defense, intelligence, and diplomacy. According to sources, investor Scott Bessent and billionaire banker Howard Lutnick are vying for the top Treasury position.
Overnight Newswire Updates of Note
(Sourced from reliable financial news outlets)
FX Options Expiries For 10am New York Cut (1BLN+ represents larger expiries, more magnetic when trading within daily ATR)
CFTC Data As Of 8/11/24
Technical & Trade ViewsSP500 Bullish Above Bearish Below 5960
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EURUSD Bullish Above Bearish Below 1.0750
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GBPUSD Bullish Above Bearish Below 1.3050
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USDJPY Bullish Above Bearish Below 154
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XAUUSD Bullish Above Bearish Below 2600
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BTCUSD Bullish Above Bearish Below 85000
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