US Retail Sales came in weaker than expected today. However, the trend remains positive on a year-over-year basis. The slowdown is attributed to weaker demand due to the U.S. experienced sub-freezing temperatures and winter storms overwhelmed power grids in Texas and the Great Plains.

This comes when the US equity market is continuing to make all-time highs, though price action looks overdone relative to our risk ranges. Looking forward, retail sales are likely to improve significantly as stimulus checks from the government are sent out, bolstering demand. Overall, while the print is disappointing, the outlook is still positive.

The upcoming FOMC meeting on Wednesday will most likely be focused on term interest rates. Long-term rates in the US have been rising immensely due to rising inflation expectations as the economy rebounds from the pandemic recession. The question ahead of this FOMC meeting is how much long-term interest rate increases can the Fed tolerate?

The Fed has largely said it would be patient about inflation, so we think there is potential for the Fed to allow these moves to continue. After all, interest rates are still not at 2019 highs. If long-term rates continue to sell-off the way they have, the broad dollar should continue its bounce, particularly against EURUSD. There is evidence that even if the Fed decides to control long-term rates by increasing their asset purchases, EURUSD will continue to fall. Here’s a chart from Nordea showing EURUSD during QE and “Operation-Twist”- a program the Fed engaged in to bring down long-term rates.

People often compare the price of a stock relative to its earnings. Today, we think it makes more sense to compare stocks to the amount of money outstanding that can purchase it- i.e., we don’t think there’s a bubble (yet)!

US CPI once again came in at 1.4%, far from market expectations of a booming inflation environment. In fact, median CPI was actually negative!

The FED left rates unchanged at today’s FOMC meeting, followed by Chairman Powell’s press conference with some dovish tone saying “case for rate hike has weakened, incoming data has showed more slowing in global growth”.

DJIA up over 500 points at one stage led by Apple which rallied 7%, USD heading south with lower Treasury yield across the curve.

Minutes of Dec 18-19 FOMC came out with some dovish tone;

• FED can afford to be patient about future rate hikes
• Officials felt timing and extent of future hikes less clear
• A few officials favored no hike at the meeting
• Fed should assess impact of risks that have become more pronounced in recent months

FXDD trading hours remain as usual on Monday November 12 US Veterans day.

Busy First week of November with Bank of Japan MPC meeting on Monday, Bank of England on Thursday, and US NFP report on Friday.

Both BOJ and BOE are expected to keep policy unchanged, Friday’s NFP is expected to see a strong increase of 193k vs 1334k in previous month.

Bank of Canada is meeting on Wednesday for a possible 25bp hike in its official interest rate from current 1.50% to 1.75%, while ECB is expected to keep policy unchanged on Thursday at the monetary policy meeting, press conference by ECB President Mario Draghi should be carefully monitored to see if there is a hint of first rate hike in Q2 or Q3 2019.

Not much economic indicators out of the U.S. during the week of October 15, FOMC minutes will be out on Wednesday to see if there is any hint of another hike in December.

Otherwise, Global stock market behavior remains to be the focus after a turbulence started in the U.S. market spread worldwide this week.