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The dollar closed another day in the red as traders warmed up to the idea that the Fed might not be as aggressive with tightening in the year ahead. The Kiwi also took some hits later in the session when New Zealand’s quarterly retail sales figures disappointed.

  • U.S. UoM consumer sentiment index for Nov upgraded from 97.8 to 98.5
  • U.S. UoM consumer inflation expectations downgraded from 2.6% to 2.5%
  • U.S. crude oil inventories down by 1.9M barrels vs. 1.4M forecast
  • FOMC minutes: Many participants concerned that inflation would remain below target longer than expected
  • FOMC minutes: Low inflation might not just be due to transitory factors
  • New Zealand headline retail sales up 0.2% vs. 0.4% forecast in Q3
  • New Zealand core retail sales up 0.5% vs. 0.9% forecast in Q3

Major Events/Reports

FOMC minutes reflect inflation concerns

The release of the transcript of the November FOMC meeting was the main event for the session before traders packed up their stuff for their Thanksgiving holidays.

The minutes were widely expected to bolster hopes for a December hike, but most market watchers were also on the lookout for clues on how tightening might proceed in 2018.

To the disappointment of rate hike fans, the minutes revealed that officials became increasingly concerned about subdued inflation, citing that it “might reflect not only transitory factors but also the influence of developments that could prove more persistent.” The FOMC minutes indicated:

“Many participants observed that there was some likelihood that inflation might remain below 2% for longer than they currently expected.”

Some policymakers even went on to say that the decline in long-term inflation expectations could partly be pinned on the Fed’s aggressive hikes and forward guidance earlier on. Yikes!

With that, traders could adjust to the idea of what some are dubbing a “Powell pause” or a less aggressive pace of hiking for 2018. This follow Yellen’s own admission that she is “very uncertain” about a rebound in inflation happening soon.

Crude oil up on supply constraints

Black Crack jumped on a larger than expected draw in EIA stockpiles, partly due to a shutdown in a major pipeline carrying the commodity from Canada to Uncle Sam.

  • WTI crude oil popped up to a high of $58.13 per barrel
  • Brent crude oil rallied to a high of $63.39 per barrel

The EIA reported a reduction of 1.9 million barrels in inventories versus the estimated draw of 1.4 million barrels. This supports the API report which also indicated a larger than expected dip in supply.

As it turned out, part of the Keystone pipeline was shut down last week after a huge spill in South Dakota. This pipeline carries around 590,000 barrels per day from Alberta to the U.S. and the spill was estimated to have yielded a shortage of around 5,000 barrels.

Downbeat NZ retail sales

Before New York session traders were able to head out the door and call it a night, New Zealand printed its latest batch of quarterly retail sales figures.

Analysts had already been expecting to see a slowdown in consumer spending for Q3, so the disappointment over the lower than consensus readings was palpable.

Headline retail sales posted a meager 0.2% uptick versus the estimated 1.4% gain while the core version of the report had a 0.5% increase versus the projected 0.9% rise. This pales in comparison to the 1.8% increase in headline retail sales and the 1.9% gain in the core figure for Q2.

However, components of the report confirmed that the relatively low results were mostly due to the end of the British and Irish Lions rugby tour during the previous period. Components still indicated that eight out of 15 industries posted gains while supermarket and grocery sales posted the largest pickup at 1.6%.

U.S. markets slightly lower

Bond yields were dragged down by cautious views on inflation while a couple of equity indices closed in the red despite earlier rallies.

  • U.S. 30-year bond yield down 0.77% to 2.471%
  • U.S. 10-year bond yield down 1.72% to 2.321%
  • U.S. 5-year bond yield down 3.02% to 2.043%
  • Dow 30 index down 64.65 points to 23,526.18 (-0.27%)
  • S&P 500 index down to 2,597.08 (-0.07%)
  • Nasdaq up 4.88 points to 6,867.36 (+0.07%)

Major Market Mover(s):

USD

The rug was pulled out from under the dollar’s feet when the FOMC minutes reflected growing doubts from most policymakers on inflation, dampening rate hike hopes for next year.

USD/JPY tumbled from 112.18 to 111.08, USD/CHF is down to .9817, EUR/USD popped up from a low of 1.1735 to a high of .1829, and GBP/USD is back above the 1.3300 mark.

JPY

The yen was able to take advantage of dollar weakness as it snatched some of the gains away from its safe-haven rival.

EUR/JPY sank from 131.82 to 131.39, GBP/JPY slid to the 148.00 handle, AUD/JPY fell from a high of 84.85 to a low of 84.60, and CAD/JPY is down to 87.49.

Watch Out For:

  • Japanese banks closed for the holiday
  • Thin liquidity expected on U.S. Thanksgiving holidays