Chapter 1 December 1st Financial News
[Quick Facts]
1. OPEC+ agrees production cuts of 2.2 million bpd early next year.
2. U.S. House passes resolution to block Iran's access to $6 bln from prisoner swap.
3. Yellen says the Fed doesn't need to raise rates again.
4. ECB rate cut pressure increases as Eurozone inflation weakens.
5. Fed officials dampen market expectations for quick rate cuts.
6. U.S. October PCE inflation hits a two-and-a-half-year low.
[News Details]
OPEC+ agrees production cuts of 2.2 million bpd early next year
OPEC+ held an online meeting on Thursday and agreed to voluntarily cut oil production early next year by about 2.2 million barrels per day (bpd), of which Saudi Arabia will extend its current voluntary production cuts. However, no specific details were announced. The above plan includes Saudi Arabia and Russia extending their voluntary supply cuts of 1.3 million bpd. The remaining 900,000 bpd quota includes 200,000 bpd of fuel export reductions from Russia, with the rest divided among the other six member states.
This production cut decision, however, did not send oil prices higher. Instead, oil prices tumbled. The market's reaction implies skepticism about whether the production cuts will take effect.
U.S. House passes resolution to block Iran's access to $6 bln from prisoner swap
The U.S. House of Representatives voted on Nov. 30. The results showed that the U.S. decided to re-freeze the $6 billion Iranian funds that had been unfrozen previously. The measure was approved as part of a new version of the No Funds for Iranian Terrorism Act, which received 307 votes in favor (119 against) in the House.
Under the terms of this act, any financial institution would be sanctioned once it transacts with the Qatari bank where the funds are deposited.
Yellen says the Fed doesn't need to raise rates again
The U.S. economy does not need further drastic monetary policy tightening to stamp out inflationary expectations, said U.S. Treasury Secretary Janet Yellen in an interview on Thursday. The employment is strong and the U.S. economy is expected to achieve a "soft landing."
Unemployment is stabilizing more or less, economic growth is slowing to a sustainable level, and wage gains are really translating into more real income. "So my hope is that Americans gradually will see that things are getting better," Yellen said.
ECB rate cut pressure increases as Eurozone inflation weakens
The preliminary Eurozone CPI for November released on Thursday came in at 2.4% year-on-year, lower than expected 2.7%. It's a significant drop from the 4%-5% inflation rate two months ago. Energy prices continue to be the main driver of bringing inflation down.
The market is now pricing that the European Central Bank (ECB) will cut rates by 25 basis points next April. A month ago, the market expected the ECB to cut rates as soon as June next year.
Fed officials dampen market expectations for quick rate cuts
New York Fed President John Williams said in a speech on Thursday that the Fed's benchmark lending rate is at or near its peak level. At present, the market has strong expectations that the Fed will cut interest rates next year, but it will depend on the evolution of the U.S. economy and inflation, and it is too early to talk about interest rate cuts.
U.S. inflation is expected to fall back to 2.25% in 2024. If inflation remains stubbornly high, the Fed may need to tighten policy further. Interest rate policy action will continue to depend on data.
On the same day, dovish San Francisco Fed President Mary Daly said she is not considering interest rate cuts yet. The Fed's monetary policy is in a very good place and the Fed should remain patient and vigilant. It is premature to determine whether the Federal Reserve has done the current cycle of interest rate increases. It is too early to declare victory in the fight against inflation. The United States will not see a recession in the foreseeable future.
The speeches by Williams and Daly caused traders to lower their bets on a rate cut in 2024. U.S. bond yields picked up briefly after Daly's speech and generally set new daily highs.
U.S. October PCE inflation hits a two-and-a-half-year low
U.S. PCE rose 3% year-on-year in October, flat with the expected 3%. It is coming down at a steady pace. Meanwhile, the annualized rate of core PCE excluding food and energy prices fell to 3.5%, flat with the expected 3.5%. Both figures were the lowest since April 2021.
This was the last PCE data before the Fed's last policy meeting this year. The current markets broadly do not believe that the Fed will raise interest rates again, and their focus has long been turned to "when to cut interest rates". The publication of the PCE data certainly consolidated the market expectations.
[Focus of the Day]
UTC+8 18:15 European Central Bank Governing Council Member De Cos Speaks
UTC+8 23:00 Chicago Fed President Goolsbee Speaks on the Economic Outlook
UTC+8 00:00 Next Day: Fed Chairman Jerome Powell Speaks
