10.12.201810:21 Forex Analysis & Reviews: Markets are waiting for the completion of the growth cycle rates of the US Federal Reserve

The US labor market report for November came out strong enough to dispel the pessimistic expectations of a slowdown in the US economy, but the market reaction was rather modest.

The number of new jobs was 155 thousand against the forecast of 200 thousand, and this is the weakest part of the report, besides, the data for the two previous months were revised downward by 12 thousand. At the same time, the average annual wage growth did not change and amounted to 3.1%, which in general is quite enough to expect a quite moderate Fed reaction, signals that labor market growth is slowing are too weak to suggest a halt in interest rates.

However, the market thinks very differently. The probability of a rate hike at the meeting on December 19 is, according to the CME futures market, only 71.5%, and quite recently the eye surely exceeded 90%. Moreover, the probability of two increases until the end of 2019, only 46.8%, that is, the market assumes that the current cycle of rate increases will end after reaching a range of 2.25% -2.50%.

This means no less than a tectonic change in expectations regarding both the Fed's plans and the prospects for the US economy as a whole. The Fed, according to the market, is close to declaring the level neutral at a rate of 2.5%, not 3.0%, as was assumed quite recently.

The change in expectations explains the steady decline in stock markets and the strong growth in demand for bonds and gold. The dollar trend is turning to the south even before the debate on the national debt in the US Congress, and the easing of the political and economic components in the eurozone, the UK government crisis and the slowdown in Japan can stop this weakening, all three components should start changing simultaneously. Such changes will mean the arrival of a new wave of crisis, more destructive than in 2008, and, apparently, the case is moving in the indicated direction.

Eurozone

Eurozone GDP growth in Q3 2018 slowed to 1.6% y / y, the lowest level since Q2. 2014, data revision was an unpleasant surprise for the market. Weaker data increases the likelihood that the ECB will look for ways to soften the announcement of the completion of the asset repurchase program.

There is also growing confidence that the ECB will revise the outlook for the growth of the eurozone downward, plus the announcement of the launch of the permanent LTRO program with a floating rate, which will allow the ECB to act more flexibly during reinvestment, is possible.

In any case, the ECB will try to prevent a sharp rise in the euro, but the expectations are still positive. Today, the currency pair EUR / USD is facing north, resistances are 1.1340 and 1.1500.

Great Britain

The likelihood that the UK will not be able to hold an agreement on Brexit through parliament has increased. In this case, the May government is waiting for resignation, and the pound will remain under increasing pressure. Today, GBP / USD is neutral, trading in a narrow range of 1.2660 / 2810 with a tendency to decline to the lower limit of the range.

Oil and Ruble

OPEC + agreed to reduce oil production by 1.2 million barrels per day in the first half of 2019. This is less than the previous reduction of 1.8 million, primarily because Iran under sanctions has been bracketed and will not cut production.

Futures for Brent found support above $ 62 per barrel, which is completely satisfied with the majority of market participants. At the same time, the measures taken may not be sufficient to resume growth, firstly, because of the relatively small volume of production cuts, and secondly, because of fears of a slowdown in the global economy. Nevertheless, corrective growth to 68.50 / 69.00 is quite possible if the panic moods dominating in the markets subside somewhat.

The currency pair USD / RUB is trading just above 66 rubles/dollars, stability is a response to both the positive outcome of the OPEC meeting and the loss of EU unity regarding the possibility of introducing new restrictive measures against Russia, as it becomes increasingly difficult to legitimize the absurd "sanctions" regime.

The ruble may somewhat strengthen in the current week to 64.50 / 65.00, RUB /