Hawkish Powell shakes markets

Further rate hikes not off the table

US Federal Reserve (Fed) officials including Fed chair Jerome Powell left the door open to further rate hikes. Asked at an IMF event yesterday, Powell said the Fed "is committed to achieving a stance of monetary policy that is sufficiently restrictive to bring inflation down to 2% over time; we are not confident that we have achieved such a stance." He added "If it becomes appropriate to tighten policy further, we will not hesitate to do so."

These comments, considered hawkish by markets, gave a boost to the dollar. Longer-term bond yields also rose. Traders now see about a one-in-four chance of a further rate hike by January and expect Fed rate cuts to wait until June. According to a poll by Reuters done between 3 and 9 November, so just before these latest Powell comments, 86% of economists believed the Fed was now done with hiking and would hold its federal funds rate steady through most of the first half of next year. But they agree on one point with the Fed chairman: they don't expect any measure of inflation - headline CPI, core CPI, PCE or core PCE - to fall below the Fed's 2% target until at least 2025.

UK growth stagnates

UK growth for the third quarter (Q3) has been released and it shows stagnation although that was slightly better than the forecasts of a contraction of 0.1%. It means the country has avoided a recession this year. Also flat in September is UK industrial output. Economists had anticipated a 0.1% decline.

In Germany, Allianz posted a 30% net profit fall for the third quarter, dragged down by claims from natural catastrophes. Net profit attributable to shareholders of €2.02 billion, a figure that was, however, higher than the €1.99Bln anticipated. Allianz described the level of claims as "exceptionally high". The group stuck to its full-year profit guidance of 2023 operating profit between €13.2Bln and €15.2Bln.

Commodities

Oil prices are little changed this morning but are set to fall for a third consecutive week. Both Brent and WTI have declined by nearly 6% this week. These three weeks of declines are the longest weekly losing streak for both contracts since a four-week drop from mid-April to early May.

Weak Chinese economic data this week increased worries of faltering demand. Additionally, refiners in China asked for less supply from Saudi Arabia for December.

Oil analysts now await the latest Baker Hughes data. Last Friday, the US weekly oil rig count fell by a net margin of seven to 618. US oil rigs fell by eight to 496 this week, while gas rigs by rose by one.