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[Quick Facts]

1. Israeli forces push into southern Gaza and launch heavy airstrikes.

2. NY Fed: Underlying U.S. inflation pressures eased in October.

3. Goldman Sachs: Markets make excessive rate-cut pricing.

4. Saudi Arabia says 'absolutely not' to oil phaseout at COP28 summit.

5. U.S. October factory orders fell to a three-and-a-half-year low.

6. The market's rate-cut bets will be challenged by the dot plot.

[News Details]

Israeli forces push into southern Gaza and launch heavy airstrikes

Israeli troops and tanks began launching intensive airstrikes on the southern Gaza Strip city of Khan Yunis on Monday afternoon after largely taking control of the devastated northern region and clashing fiercely with Palestinian militants there.

U.N. Secretary-General António Guterres called on Israel to stop actions that would lead to a further deterioration of the already dire humanitarian situation in Gaza and to avoid further civilian suffering. Israel's ally, the United States, has repeatedly urged it to do more to protect civilians, saying Israel's offensive in the south should not lead to "massive" civilian casualties like in the north.

Health authorities in Gaza said Israeli airstrikes had killed about 900 people since the truce ended last Friday.

NY Fed: Underlying U.S. inflation pressures eased in October

The New York Fed released a report on Monday showing that its multivariate core trend (MCT) inflation gauge was reported at 2.6% in October, down from 2.88% in September. The October MCT reading was also in line with the six-month trend for the much-watched Personal Consumption Expenditures (PCE) price index, which rose 2.5% in October. The New York Fed said the MCT inflation is currently higher than the pre-pandemic average, due in large part to the sector-specific trends in housing and services ex-housing. The NY Fed's MCT index is designed to measure inflation persistence and how broadly price pressures are changing. The index touched a peak in June 2022 at 5.44%. The report came at a time when it was widely expected that the Fed's current interest rates appear to have peaked.

Goldman Sachs: Markets make excessive rate-cut pricing

Goldman Sachs said financial markets are overly optimistic about the extent of the Fed's rate cuts next year as the market expects the Fed to cut rates by 125 basis points in the next 12 months, including 50 basis points by the end of June. This is much more aggressive than Goldman's forecasts. The bank only projects one rate cut in 2024, by 25 basis points.

Saudi Arabia says 'absolutely not' to oil phaseout at COP28 summit

Saudi Energy Minister Abdulaziz bin Salman Al Saud said in a television interview on Monday that his country would not agree to phase out fossil fuels asked at the COP28 Summit in Dubai.

An agreement to call for a fossil fuel phase-out or phase-down is a key demand of many countries at COP28 including the US and EU. The text must be agreed upon unanimously. Negotiations will continue through December 12. Negotiators have been considering other options, such as limiting the unmitigated fossil fuels or linking it to a just (energy) transition.

In addition, Salman said OPEC+ oil production cuts could continue beyond the first quarter of next year if needed. About half of the production cuts by more than 2 million barrels per day (bpd) announced last week came from Saudi Arabia. It will only be canceled after market conditions are improved and will be a gradual phased out. Market watchers noted that only about half of the cuts were newly added and they questioned whether the promised cuts would actually be implemented.

U.S. October factory orders fell to a three-and-a-half-year low

U.S. new orders fell more than expected in October, dragged down by weak demand and high interest rates which began to weigh on spending. Data showed that U.S. factory orders posted a monthly decline of 3.6% in October, the lowest level since April 2020. The manufacturing sector, boosted by a surge in goods spending in the third quarter, is increasingly feeling the pressure of rising interest rates and there are further signs that the economy will slow sharply in the fourth quarter.

The market's rate-cut bets will be challenged by the dot plot

Market bets on a Fed rate cut are surging. It's easy to understand why markets are doing so despite Powell's warnings. That's because key indicators are weaker than they were in July 2019 when the Fed last shifted from tightening to easing. The Fed will update its dot plot this month, and then these market bets may be challenged. Policymakers may be reluctant to sharply lower their median rate estimate of 5.125% at the end of 2024 (25 basis points lower than now), as this would trigger further bond yield gains. In addition, the bond rally in November may have affected the economy, offsetting the Fed's efforts at restrictive policy, such as the 10-year real yield, which has fallen back below 2%. This does not support an easing of policy in the near term.

[Focus of the Day]

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