The market shows optimism regarding the likelihood of a deal being finalized between the US and China tomorrow. A decrease in the fentanyl tariff is anticipated, along with a proposed one-year postponement of the comprehensive export licensing requirement for rare earths and associated technology. Recent reports indicate that China has acquired two cargoes of US soybeans, marking the first such purchase in several months. However, the specifics of the concessions made by the US remain ambiguous. In a separate development, the US seems to have concluded an agreement with South Korea. In anticipation of the FOMC meeting results later today, the US dollar remains strong. Among the G10 currencies, the Australian dollar stands out as an exception, with stronger than anticipated inflation leading to an increase in rates across the curve, resulting in the market reducing the likelihood of a rate cut next week. In the realm of emerging market currencies, nearly all East Asian currencies, with a few exceptions, are exhibiting weakness. The Philippine peso, currently facing significant pressure, reached a new record low before staging a recovery. Officials have minimized discussions regarding intervention.

The Nikkei, China’s CSI 300, and the primary indices of South Korea and Taiwan experienced a rally exceeding 1% today. Europe’s Stoxx 600 remains relatively stable, whereas US index futures are predominantly showing strength. European benchmark 10-year yields are exhibiting a slight divergence. The 10-year US Treasury yield shows slight firmness, remaining under 4.0%. Gold exhibits strength and has surpassed the previous day’s high for the first time since the record high was established on October 20. The asset has remained below $4000 for the past two sessions and is currently approaching $4030 during the European morning hours. December WTI continued its decline, reaching approximately $59.70 today, marking a four-day low as it nears the 20-day moving average of $59.60.

The Dollar Index rebounded from the decline below the 20-day moving average yesterday (98.65) and reached a session high close to 98.95 during North American trading. The asset has experienced a slight uptick today following its lowest closing value in the past seven sessions yesterday. A resistance band is forming around the 99.20 area, with the trendline from the month’s high established on October 9 (~99.55) currently positioned near 99.45. The results of the FOMC meeting are crucial. In light of the fifth consecutive increase in the year-over-year rate of CPI and the persistently high core rate, the market recognizes that a quarter-point cut today is nearly inevitable. While Miran is likely to dissent in favor of a 50 bp cut, as he did in September, comments by Governor Bowman, who is on the short-list to succeed Chair Powell, indicate she may also support a more substantial move, contrary to the prevailing consensus.

Speculation exists regarding a dissent supporting a standpat policy; however, we believe it is more probable to occur at the December meeting. At this juncture, bank reserves have dipped below $3 trillion, and the anticipated decision to conclude quantitative tightening, which we speculated might occur last month, could be revealed today. The market’s tendency to respond differently to the statement compared to Powell’s press conference renders trading around the FOMC meeting quite perilous.