Morning Blast - 10th December: Fed Day - Markets Brace as a 25bp Cut Looms — Volatility Ahead

Good morning, everybody. It is Wednesday, the 10th of December. This is the morning blast with myself Ryan and of course Michael. For those of you not aware, we aim to give a review, action, a preview of what to expect today, and what speaking at in terms of news, data, commentary from central banks, et cetera, et cetera. But it's very much broadside rather than fireside time for the disclaimers. Obviously, this is all recorded live. There's no editing. So apologies for people saying shit, fuck or bugger or trigger words. Nothing you say is trading on that's new bias. Nothing's endorsements unless we make it very clear, et cetera, et cetera, et cetera. Michael, how are you on this fine morning? Well, a very good morning to you, Ryan. Good morning, everyone. A very happy, fair-to-day question for you. Is there anyone in London who hasn't caught the plague yet? Well, I didn't have it until I went out as new yesterday, and now I'm starting to feel really sick and it's not even a hangover because I was stuck in bed by that nine o'clock. Well, so as I, yeah, as our listeners may have already worked out this morning, I'm sounding rather horse, and so this is really fun. Don't. No, I'm fine. I have to be a horse, but, yeah, right. I'm not, I'm not a pig form, I'll be honest. I'm sure we move swiftly on from the animal noises. Let's get our price up, date, and major technical level updates out the way from our good friend, Collive Lumber, who bought a couple of pints last night, which was a change. I'm joking. I'm joking. Honestly, but what are the sources, say it? Flashed up as a breaking news alert. I'm just going. Wow. No, no, no, you're very good at putting money behind the bar. Got to give them that. But anyway, it's update from Clive, from Future's text, as kick that off. Xymarkis will mix yesterday, waiting for the fed today, possibly the FTSE set a week of tone again, but the DAX is fairing better. U.S. indices were mostly in the red, but nothing trend changing. The bun, German government bonds, steady the ship with a doji, which basically means it might have gone up and down during the day, but finished pretty much flat, but didn't worry. Mondays, bum, bum, bum. Maribuzi resistance at 127.75. Not much to report in the FX majors. Cable was holding support at 132.80, dolly, yen on the rise again. One, one, one, one, one, big coin sales. Insight, joke there. Insight, joke there. Don't make me laugh. Big coin saw some gains in his own resistance at 98,000. So obviously all eyes on it can break the big 100 and get his nose above that. Gold, yellow metal, another doji on the daily chart. Silverat had other ideas though and busted through $60 on the way to a new all-time high of 61, 29 and a half. Can't stop, won't stop. This is obviously extending further overnight to 62, 14, as Clive was writing is to update this morning. Remember our long-held upside targets are 6308 and 6416. Proper, frothy. Elemy, proper, London, copper made a new all-time high on Monday with an 11,771 print, but ended up posting a doji on the day so it kind of came back and ended flat. Followed by a red candle yesterday to leave an evening star reverse or on the daily. No idea what it means to get your book. Although there's no follow-through from the bears yet today. Elemy and the Minium has put on some more distance on the resistance at 29,020. The oil bench marks Brent and WTI saw some further weakness after Friday's failures to trend resistance lines. Henry Harbour, US National Gas continued Monday's bearish work, breaking a four-spot 728 to a four-spot 740 without as much as a blink. Gas oil broke support at 648, so still looking to go lower, targeting 605 next. TTF, which is obviously European benchmark natural gas for those unaware, has steadyed the shift for now. EU markets, carbon markets, wide-posted positive days, they're still nicely bullish. Iron resistance at 83 spots, 37 and 84 spots with the 55. Corn over stateside is still looking at support at 531 for now. Soybeans weaker once more. That's it. Clive, thank you for that very much. Clive, what have you got for us, Mr Brown? What happened yesterday? Well, you went up from midday. Indeed, it was. Yeah, markets very much in weight and sea modes. To be completely honest with you, as you would expect and as Clive alluded to as we move towards the FOMC later on, which obviously will cover in some depths in a short while. In terms of fundamental development yesterday, we did have a few bits and bobs in terms of US labour market data. We got two months' worth of job openings, that's with the Jolts report. Two job openings haven't been at 7.5, 8 million in September and then at 7.6, 7 million in October. Both of those considerably above the 7.2, 3 million level to have had in August, which was of course the data that we had prior to that, but frankly not causing too much by way of market reaction. We also had the weekly ADP employment report, which again just emphasised the no higher, no fire nature of the US labour market. According to the ADP, private sector employers in the United States added an average of 4,715 jobs per week in the four weeks to November the 22nd. In a labour force of 160, 170 odd million, you may as well round that number down to zero and basically say there is just not a lot of hiring going on at the moment. Again, supporting the case for the Fed to deliver another 25 basis point cut at the conclusion of their meeting later on today. Besides the data we did hear from President Trump yesterday, he gave quite a wide ranging interview to Politico on geopolitics. He was talking about Europe and saying how nations in Europe are decaying as a result of their weak leadership. It sounds like he's taking lines from the Kremlin on that one, but there we are. He was also talking about tariffs saying that they may make some changes to tariffs in an attempt to lower prices. I think that this is something we're going to be hearing quite a lot more of as we move into next year. The administration seemed to finally be realising that tariffs do probably have a place on certain things that can be manufactured in the United States, like cars, for example, but on things like coffee and bananas, which you simply cannot grow in the United States, putting a tariff on them to try and bring back domestic production is slightly stupid. So I just won last thing on that. And of course we're moving towards the midterms next year. Affordability is going to be a big, big issue in those midterms and you would expect Trump and his colleagues to be trying to do everything they can to at least look like they're giving people the helping hands. Just on the midterms, we have been said quite some time. We're not just at a few shrewdies out there, we've been saying for quite some time that obviously we've spoken about when in terms of trade negotiations et cetera, about this escalate to de-escalate. Now zooming out somewhat, there has been something we're saying that on a more kind of much broader terms, this whole first year of Trump has been very much escalating, get loads of problems out there and kind of make some of those luck going on and stuff. So then all of a sudden the solutions start coming together, like reducing tariffs, this, that and the other and just try to run it hot, pump the stock market et cetera into the midterms. And the electric, which we all know have very short memories, sort of forget about the fear and forget about it was Trump in that position and they're just kind of, they're just focused on the fact that Trump seems to be providing the answers, forgetting the fact that it was him that got us here in the first place. And I think it's something to be said for that. I think we're going to see a lot of back coming into the midterms and over the next few months. So you're a lot of good news and a lot of kind of proactive kind of pro-growth and what not from Trump. And because you know, it will make him look good coming into the elections. Yeah, I think you're probably right. I think it's almost okay. So if you can sell the solution as opposed to having to deal with the problem, it's far more elegant to try to. Just sticking with trade, we did have a few other headlines on that front yesterday. CNBC citing sources noting that while China is buying US soybeans, they're apparently falling short of the gold set by the agreement that Trump and G reached in South Korea. These sources cited by CNBC said that China has bought three million metric tons of soybeans since October, which apparently well short of the 12 million ton gold set by President Trump. I wouldn't read too much into this because of course Trump was talking about these soybean purchases himself earlier in the week and was actually saying he's relatively happy with what the Chinese are doing. And they might be buying even more. So I'm not entirely sure what this is from, but there we are. But also on this is one, I only know this because the gorgeous, the goddess of grain herself, Angie sets and I do the grain blast with did say when this was all first announced. Now, is this meant to be purchases within the calendar year or the growing year because the growing, you know, they can go into March kind of thing if they wanted to because obviously it's, but yeah, it's an interesting one. I don't know. I've got my wife. Well, hopefully Angie will later on. And just lastly on trade, we did hear from the US trade rep sensitive, James and Greer. He was saying rare earths from China are continuing to flow and that he expects to sign more trade deals over the coming weeks, which is what he's been saying since about January at this point. Just lastly, in terms of Trump, we also heard Trump talking about the Fed in this political interview. The interviewer said, "Is a litmus test for your Fed chair to cup rates immediately to which Trump replied, yes, if anyone is surprised by that, then you've clearly been living under a rock for the last year or so." But also on this race to become the next Fed chair, the financial time is reporting overnight, that the final round of Fed chair interviews is due to take place this week. According to these three senior administration officials that the FT have cited, Kevin Haset remains the top contender for the Fed chair job. Again, not really too surprising. And former Fed governor Kevin Wart is apparently having his interview for the job today. But of course, Trump has previously said, "Well, he said a lot on this than sort of another of what he's been saying is there's two or three names on considering. I think I know who I'm going to pick, but I won't tell you until early 2026 who that is, even though everyone knows it's probably going to be Kevin Haset." This FT report was also apparently citing the idea that administration officials have been talking about whether Haset would be appointed for a shorter term than normal, which could then mean that Scott Besson takes over a to later date. That seems a little bit fanciful on the line, but none of that is something to bear in mind. I'm also not entirely sure it would be possible because I think the Federal Reserve Act says the chair's term is four years long, so you then need Haset to kind of pledge that he's going to resign after 18 months and it would just become chaos to be honest with you. Yes, just where flagging it as well as Haset and Walsh, Michelle Bowman's Chris Waller and Black Rock's Ripper Reader are also technically in the kind of like the final. They made a proof of a final round, but as we know, the money is on Haset. The live, televised final of the apprentice will be airing soon, I'm sure. Moving on from that and into the tech space, in video, of course, on Tuesday, actually yesterday, we were talking about how the US has now lifted its ban and allowing Nvidia to sell these H200 chips to China. Well, according to the FT, China is going to limit companies access to these H200 chips, despite having received that export approval. Of course, they are trying to build out their own domestic chip industry. And again, as we said yesterday, it's all well and good that they can be sold, but if the other side doesn't want to buy them, then it makes no difference. And that seems to be the way that this one is going. Also, on Nvidia, there were reports overnight that they are apparently now building what they're calling location verification software, which is basically an optional update that they can put onto their black well chips. This is to get around basically what we think China have been doing, which is buying a load of chips in Singapore, then magically they end up in China somehow. Well, these chips are now going to be able to report exactly where they are, which is a way of actually getting around that backdoor shipping that appears to have been going. Oh, I'm lost for an episode. So just before you do that, I might as well wear my green out so an update on the Nvidia that I've got, save us a jump from that as we forwards. Yeah. Just on Nvidia, apparently, it's going to avoid us. Lawmakers, US lawmakers are absolutely furious over Trump's decision to allow China to buy them, how do China hawks and Democrats are slamming Trump administration for letting Nvidia ship its H200 chips to China. Critics warn Beijing could use the tech to supercharge its military assuming that they want them. Well, exactly. It is also just worth noticing, actually, that one of the very few issues that United's both sides of the political aisle in the US at the moment, despite how divided they are, is based on the anti-China sentiment. So that one could have some legs. Just a few other headlines in the AI, I suppose, via Rappux. I was going to wrap up the Fed later on. CNBC, noting that Meta could release a new AI model in the first quarter of next year. Apparently, this will be called Avocado. Again, these people really need to work on their branding and quite a lot of investment going into India, it would seem. The Microsoft announcing yesterday that they're committing to 17 and a half billion dollars worth of investment to support India's AI building. This will take place over the next four years and not wanting to be left behind Amazon. They're going to throw 35 billion dollars into India through the end of 2030. And for the time being, that's all from me. Wonderful. Thank you very much for that Mr. Michael Brown. I'll read out some, now, some choice headlines from the overnight news roundup. As always, do follow Zach Eismann Twitter and also do subscribe to our sub-stack the overnight news roundup to get all the cent directly into your inbox. I've just selected about a dozen, but there's plenty in there to keep you updated about what's going on and what's moving markets. Amazon, they're dropping 35 billion dollars on India, not physically, I hope. Amazon are investing 35 billion in India by 2030 to expand AI capabilities and boost exports. The tech giant is betting on betting big on the world's most populous country. GE Verona is rewarding shareholders, doubling its costly dividend to 50 cents and boosting its buyback plan by four billion to a whopping 10 billion dollars. Big tech state said the build out is driving massive power demand. Pics and shovels time. Activist investor Elliott just bought a 5 cent stake in Toyota industries for $1.7 billion. The same company Toyota Motor wants to buy out. This could get interesting. Apparently, so I want to keep it on in Japanese buy outs and take over markets. SK Heinex, eyeing a New York listing. The Korean memory chip giant, SK Heinex is exploring a New York share listing to close the valuation gap with rivals like Micron, another big chip maker could be heading to the street. China property stock surged on stimulus hopes. Chinese stocks are rallying. Chinese property stocks are rallying hard on speculation of new policy support and progress. China's bank, sorry, banky debt talks. The beating down sector is showing signs of life finally, but how many times we heard this before. Japan is mulling wealth tax on the ultra rich. They're considering expanding taxes on the ultra wealthy lowering the threshold from 5 billion yen to 600 billion. Sorry, I'll start again, from 3 billion yen to 600 million yen, which is about 3.8 million dollars. The rich in Japan could be about to pay a lot more. US Navy, high as talented, to fix its submarine production. The Navy is turning to no one reeners what they do to help speed up submarine production betting the data on it. Well, don't you buy that, see the other day? I'm not sure if there's CEO knows what it is. No, quite. Where was it? To help speed up submarine production, betting the data analytics firm can expose supply chain problems that have played the program for years. The CEO of South Korea's largest e-commerce company has stepped down after historic data breach exposed personal information of more than 30 million people. Hedge fund bets, and they're moving forward on drug stocks, have made a bumper profit this year as big farmers deal making spree drives the biggest rally in biotech in a decade. China puts Huawei AI chips on the government's shopping list. China's added domestic AI chips from Huawei and can break on to its official government procurement list for the first time, a boost for local chip makers ahead of Trump's Nvidia decision. I'm just on that, very enough, our good friend's act actually posted a piece out this morning, which was basically sources from a company in China that are basically saying, yeah, it's all well and good that China announced that we've got bi domestically, but we've built basically our whole business on a video chip, so it means we're granted. There are a load of work to rewrite the code or not for these new chips. So there's already some pushback domestically from our Chinese businesses on this. Where was I Russian and Chinese bombers? They flew near Japan and South Korea and a joint patrol that Tokyo called a "show of force". It's worst diplomatic crisis in years between Japan and China. Trump suggested Biden's Fed appointments might be illegal. Here we go again. Trump said he's heard Biden using auto pens to sign some Fed governor appointments and suggested he could challenge their legality. The independence of the Office of Central Bank is under more scrutiny. And finally, for me before we hand that to you, our friendship in giant CMA CGM is planning more journeys through the Suez Canal after Huffie M and Rebels signaled a halt to their strikes. Global supply chains could get some relief. And yeah, for anyone that has forgotten about this, there's still basically no traffic going through the Gulf through the Suez Canal. So maybe that will change. I don't know. But anyway, that's due to... No, nor do I. Maybe I'll make Eurasian knockoff a note on it at some point, but logic would say if the company's not going around the Horn of Africa and go through the Suez that is a shorter journey, so it should bring down shipping costs, but I am absolutely no expert in this. Are you done? I am. Oh, you are. Right. Fine. In terms of today, then, our government's to Fed in a second, but before that, at a quarter to three London time this afternoon, we do have a policy to see from the Bank of Canada. The POC set to keep policy rates steady at two and a quarter percent, reiterating that the easing cycle is done and dusted. After that really hot jobs report that we had last week, Canadian money market is actually now fully discounting a 25 basic point hike from the POC by October of 2026, basically this time next year. I think it's unlikely the POC explicitly endorsed that pricing, but nonetheless, something to bear in mind as the narrative is now one that's very much shifting towards easing cycle by the being done or coming to a conclusion. And I guess that kind applies to the Fed as well. As 7 o'clock this evening, of course, we'll get be getting the FOMC's latest policy decision. A company that will be the updated policy statement and also the quarterly summary of economic projections, which will be followed half an hour later by Chair Powell's post-meeting press conference. We are expecting a 25 basis point cut to the Fed funds rate at this meeting, which would lower the target range to between three and a half as three and three quarter percent, with money market surprising in around about a nine in ten chance of such an action. In many ways, that is the biggest argument to deliver such a cut in order to avoid surprising market participants and sparking an unwarranted tightening in financial conditions. Though, of course, the official reasoning behind continuing to ease policy is risk management moves in order to try and shore up the labor market, which is showing signs of stalling. In terms of the other bits and bots focused on with the Fed, first and foremost, it is highly unlikely that tonight's decision will be unanimous. We are likely to get at least a couple of hawkish dissenters, i.e. voting for rates to remain unchanged. Of course, Jeffrey Schmidt, the Kansas City Fed president, voted for policy to remain on hold back in October, and it'll probably do so again. You're likely to see him be joined by one or many of Kansas City Fed president, sorry, St Louis Fed president musulam, Chicago Fed president Ghoulsby Boston Fed president Collins, and or Governor Michael Barr. All of those have been relatively hawkish in recent weeks. Just in thousand bit of historical context, context even. The last time that we had three dissents was in 2019, the last time we had four dissents was in 1983, and we have never had five dissents against a policy decision. It's not only hawkish dissent you need to look out for though, but dovish dissent as well. It is highly likely that Governor Stephen Myron will vote for another 50 basis point cut, although he has said already explicitly that if his vote was the marginal one, i.e. it's down to him whether they cut rates at all or stand pat, then he would vote for a 25 basis point cut just to ensure that rates do lose lower. So do bear that one in mind when we're looking at the votes split. In terms of the policy statement, the economic assessment that's likely to be pretty much unfair for the one that they issued in October, basically because we haven't really had any data since then, although there is a pretty high likelihood that the forward guidance has a subtle tweak to it, signaling increased data dependency around future rate moves. One of the ways the Fed could do this is to add the extent and timing of additional adjustments to the Fed funds rate. That line currently just reads when determining additional adjustments. So extent and timing would be a bit of a hawkish tweak to that statement. In terms of the projections, the economic forecasts again, because we haven't really had much by way of data since the September forecast round, they are likely to be pretty much unchanged across the horizon. Although as always, it will be the dot plot that is in sharp focus. The 2026 median expectation is currently for just one 25 basis point cut to be delivered next year. Do note though that the dispersion, either spread among individual policymakers and where they see rates going, is absolutely huge on that dot plot. And it's so big that just one dovish revision would see the median fall just pointing towards two 25 basis point cuts next year, while two policymakers making a hawkish revision could see that median rise to point to no cuts throughout 2026. The reason why I mentioned this is because the market is obviously going to be very, very sensitive to that 2026 dot and whenever that headline pops up, it's seven o'clock this evening. But actually, you could see quite a lot of volatility on the back of, you know, two policymakers changing their race expectations. So I would expect Chair Powell to not necessarily push back, but try and water down any significance of the dot plot at the post meeting press conference. We do have a post back story. Oh, you're speaking of that post meeting press conference. Of course, last time out in October, the key line from Chair Powell was when he said that another cut in December is far from a foregone conclusion. You would then naturally question, does he use the same language to describe rate cuts or potential rate cuts in the first half of next year? The other thing is to keep an eye on is whether Powell continues to describe policy as either moderately or modestly restrictive. If he does, that's the sign that he believes rates are still above neutral. IE, there's more room for cuts. If he doesn't, then are we getting close to neutral? Are we getting close to the end of the easing cycle? The other thing to keep an eye on is just to go back to the language Chair Powell was using in the first six months of this year when the Fed were on hold. He was describing policy as being in a good place. And that was very much taken by the market as a sign that, you know, as a Fed, I'm not doing anything for the time being. I don't think he'll repeat that today, but if he does, that would imply that the Fed could well be on hold for a prolonged period of time. That is the Fed preview done and dusted. The other thing just to mention on that is, and we alluded to this earlier in the week, I think many market participants are going to be viewing the SOMC today as basically the end of the year. Yes, we have non-vomperos June next week. Yes, we have US CPI June next week, but I think a lot of participants traditionally go last Fed meetings done the year is over. As a result of that, do bear in mind that conditions could still now become like my barn. Very, very rapidly towards the back end of this week and also probably even worse into next week as well. So do bear that in mind if you are trading. Just other bits and bobs to focus on today. Of course, the Fed is going to take by firing away the lion's share of the attention and you'd expect markets to largely tread water into that meeting later on. We are, though, due to hit from the ECB President, Christine Lagarde, she is speaking in London this morning, not entirely sure what about, but making some exhilarating remarks nonetheless. And also just on the earnings from aftermarket close, we are due to care from Oracle, not a huge index waiting Oracle, but of course, they have been very much in the line like recently in terms of the AI story and also in terms of this massive debt sale that they embarked on. So again, potentially some volatility is on the tech and AI-related names on Oracle's report on it. AI Bellweatherstock. Indeed, that's the word I was looking for. Speaking of Bellweather, we hear from Broadcom after close tomorrow. So that might be something to bear in mind as well. But in the here and now, all eyes on the Fed should be getting a hawkish 25 basis point cuts this evening. And that is all from me. There you go. You heard it here first, hawkish cuts. Michael, thank you so much. As always, my dear grand listeners. Thank you all for listening in and putting up with us. We hope you've added some value and put smile on your face. Whatever you do,