{x} | Trading.live

[Quick Facts]

1. Big divisions loom over fossil fuels as COP28 talks head into final phase.

2. U.S. non-farm payrolls are unexpectedly stronger.

3. ECB may lower growth and inflation forecasts for the next two years.

4. CPI data may shape expectations for the Fed's easing policy.

5. U.S. vetoes UN resolution calling for Gaza ceasefire, disappointing many countries.

6. Biden says jobs numbers should deter more Fed rate hikes.

7. EU states fail to agree on fiscal rules reform.

8. EU reaches deal to enable nations to ban Russian LNG imports.

[News Details]

Big divisions loom over fossil fuels as COP28 talks head into final phase

The 28th Conference of the Parties of the UNFCCC (COP 28) lasting for two weeks entered its final phase. The chairman of the summit urged negotiators Sunday to work harder to reach a consensus on a first agreement to phase out the global use of fossil fuels.

The coalition of more than 80 countries, including the United States, the European Union, and small island nations, is pushing for an agreement at COP28 that includes words to "phase out" fossil fuels. But the proposal has been firmly opposed by OPEC and its allies.

Saudi Arabia, OPEC's largest oil producer and de facto leader, shares the view of Russia and others that the focus of COP28 should be on reducing emissions, not on the fuels that cause them.

The summit highlighted deep divisions in the international community over the future role of oil, gas, and coal, complicating efforts made by nearly 200 countries to reach an agreement before the summit's scheduled conclusion on Dec. 12.

U.S. non-farm payrolls are unexpectedly stronger

U.S. non-farm payrolls came in at 199,000 in November. The unemployment rate did not stabilize but fell further to 3.7%. Wage growth slowed slightly to 4.0% year-on-year as expected, but the month-on-month growth rose by 0.4%, the highest growth rate in a year, beating expectations.

For now, the non-farm payrolls data certainly reduced the possibility of a U.S. recession, but it hit the market expectations for a Fed rate cut as early as next March, heating expectations that the Federal Reserve will maintain high-interest rates longer.

Before that, the market expected wages and labor demand to slow, but the November report showed the opposite. The U.S. labor market remains strong, consumer spending is in good shape, and there is little sign of a recession. If the December non-farm payrolls report is as strong as the November one, it will complicate the Fed's policy outlook.

After the release of the data, swap contracts showed that the market downgraded expectations for the Fed's 2024 rate cut, and the probability of leaving rates unchanged in December rose slightly.

Nick Timiraos, a reporter at The Wall Street Journal, wrote that the 199,000 new jobs marked the second consecutive month of job growth below the average level of 2023, which will make the Federal Reserve to keep interest rates stable in next week's meeting. The low unemployment rate, slowing job growth, and moderating inflation have sparked optimism that the U.S. economy can achieve a so-called soft landing (i.e., inflation cooling without a recession).

ECB may lower growth and inflation forecasts for the next two years

The European Central Bank (ECB) is expected to leave rates unchanged for the second consecutive time after pausing its rate hike action in October. The signal for action in 2024 may come from the accompanying macro forecasts. ABN AMRO Bank sees downward revisions to growth and inflation in 2024 and 2025. Finally, there are speculations about balance sheet reduction and an early end to the pandemic emergency purchase programme (PEPP) reinvestment after Lagarde said on November 27 that she would discuss the PEPP in the "near future." However, many believe that it is too early to make adjustments at the December meeting.

CPI data may shape expectations for the Fed's easing policy

This week's U.S. CPI data will be released a day before the Fed's policy meeting. While it is unlikely to change the policy in December, it may help shape expectations for the Fed's easing going forward. Earlier in his speech, Powell said that inflation remained well above target, although he acknowledged that inflation was heading in the right direction with its recent sharp decline. Powell said he would like to see more progress and retained the option to resume rate hikes if necessary.

U.S. vetoes UN resolution calling for Gaza ceasefire, disappointing many countries

The U.S. vetoed on Dec. 8 a U.N. Security Council draft resolution aimed at promoting a humanitarian cease-fire between Israel and Palestine. Many countries expressed their disappointment and regret. Robert Wood, deputy U.S. Representative to the United Nations, said after the vote that the draft resolution was "divorced from reality". Mansour, Permanent Observer of Palestine to the UN, said it was regrettable and "disastrous" that the Security Council was unable to fulfill its responsibilities by adopting a new resolution.

Biden says jobs numbers should deter more Fed rate hikes

The employment report shows that inflation continues to ease at a time when the labor market remains resilient, U.S. President Joe Biden said in a speech after the release of non-farm payrolls. For the economy, this is "a sweet spot that's needed for stable growth and lower inflation," not encouraging the Fed to raise interest rates further.

EU states fail to agree on fiscal rules reform

Finance ministers of EU member states failed to reach an agreement on reforming EU fiscal rules on December 8. Some countries led by Germany and some countries represented by France still have different views on deficit reduction. Countries led by Germany insist on the need to ensure that EU member states accelerate deficit reduction.

EU finance ministers are likely to meet again in the week beginning Dec. 18 to try to reach an agreement on reforming the EU's fiscal rules, Spanish Economy Minister Nadia Calvino said.

EU reaches deal to enable nations to ban Russian LNG imports

The European Union reached a preliminary agreement on a gas regulation that would enable member states to effectively ban imports of Russian liquefied natural gas (LNG) without new sanctions on energy.

The European Parliament and the Council of the European Union, representing the member states, approved parts of a decarbonization package on December 8. The package sets out common rules for natural gas, renewable gases, and hydrogen in preparation for the EU's move away from fossil fuels. The measure would allow member governments to temporarily prevent Russian and Belarusian exporters from booking the infrastructure capacity needed for the shipments of LNG and natural gas.

[Focus of the Day]

None