The Fed minutes recognises that the risk of a US recession next year is almost ‘as likely as the base case’. This revelation sent the USD sharply lower on Wednesday and will put acute focus on the US PCE print next week. The week started rather subdued with the lack of any major catalyst expected and going forward the main market focus remains on whether the Fed will pivot or not and, if so, when? In other news, the RBNZ stepped up its fight against inflation significantly raising its terminal rate projections. Other key events from the past week USD: US PMIs, Nov 23: US PMIs for services and manufacturing both printed below the market’s minimum expectations showing weakening US sentiment. Will it change the Fed’s mind? Unlikely, but it moved the USD quickly lower. NZD: RBNZ hikes by 75bps, Nov 24: The RBNZ rate hike was as expected, but the committee also discussed a 100bps hike and raising the terminal rate to 5.5% for Q3 2023. This was a decidedly more hawkish tilt from the RBNZ. USD: FOMC Minutes, Nov 24: US Markets paused for US Thanksgiving celebrations on Thursday, but the Wednesday minutes showed the Fed anticipate a US recession next year which led to further USD selling and XAUUSD buying. Key events for the coming week USD: Fed’s preferred inflation measure, Dec 01: At 13:30 UK time the core PCE print is released with expectations of a 4.9% y/y print. However, if we see a larger than expected print watch out for potentially sharp falls in US stocks. Stronger seasonals approach for copper: Could improving sentiment for China support copper prices?  S&P500: US Labour data, Dec 02: Will the US Non-Farm Payrolls start to show significant signs of a slowdown in the US jobs market? If the market sees a very disappointing number then watch out for potential further USD weakness. Learn more about HYCM

Since the Fed's last raise November 3, Fed Funds rate opens and closes at 3.83. The Fed Funds rate once traded freely on its own with highs and lows as any financial instrument. In 2000, Central banks implemented meetings every 6 weeks. Prior to 2000, central banks met anytime they desired and changed interest rates at their own discretion. Traders were forced to factor Fed Funds for oversold and overbought status for possible changes to an unknown date to meetings. Fed Funds then was known as the discount rate and this rate is discounted to headline. The question was the spread and insight to possible interest changes. Bernanke and Big Sis Yellen changed Fed Funds into an immovable fixed rate. Fed Funds moves every 12 points with every 25 point change to headline and remains fixed. From 3.83, Fed Funds trades daily at its maximum 25 points and minimum 12 from 3.80 to 4.05. Yields are priced from Fed Funds and normally trade much higher rates. The question to past yield curve inversions occurrs particularly when higher yields trade below lower yields especially the 10 to 2 rates. How serious is an inversion must be measured by the 10 year to 3 month to determine where was Fed Funds location in relation to inversions. Avoidance of recession in 6 months on a 10 to 2 inversion might nullify recessions by money supply adjustment. Due to Fed Funds at Fixed rates, speculation to inversions under a completely different system as existed in past years happens when yields trade below Fed Funds rather than the old definition of 10 to 2 year crossovers and imminent economic danger. Under the new speculation to inversions, the 30, 10 and 7 year yields meet the criteria to inversions as Yields trade below Fed Funds by 11, 15 and 3 points at 3.72, 3.68 and 3.80. Further, interest on reserves or IOR trade 3.90, SOFR 3.80 and 3.76 for Tri Party and Broad collateral rates. Fed Minutes released yesterday revealed Treasury Markets were functioning normally. The overall assumption is yesterday's inversions and recession no longer applies as the criteria pertains to a systemic condition that no longer exists. The week Best trades for next week are short to severely overbought EUR/CAD, GBP/CAD, AUD/CAD and NZD/CAD. All are subject to Gap openings on Sunday night. Next is deeply overbought EUR/USD, GBP/USD and NZD/USD. AUD/USD is excluded as it imposes a different set of circumstances than EUR, GBP and NZD/USD. When AUD/USD traded 0.6500's and 0.6600's, AUD/EUR also traded in lock step to AUD/USD at 0.6500's and 0.6600's. This marriage left EUR/AUD paralyzed to movements over months. AUD/EUR now trades 0.6480 or EUR/AUD 1.5413 and AUD/USD at 0.6700's. AUD/USD lower must break 0.6673 and AUD/EUR 0.6552 or EUR/AUD 1.5262. AUD/USD and AUD/EUR remain in a tight relationship. EUR/AUD or AUD/USD requires a wider range movement to break the AUD/USD and AUD/EUR relationship and force a better trade for both currencies. Until this happens, AUD/USD and EUR/AUD will suffer to total range movements and reduced profits. Overbought EUR, GBP and NZD/USD is the direct result of DXY. Last week big lines above were located at 107.81 and 108.34 and DXY traded to 108.01. DXY above averages now exist at 106.81, 108.27 and 108.42 and 109.29. DXY averages above are dropping slowly as weeks progress. DXY traded 232 pips this week Vs EUR/USD at 226. DXY targets 105.05 this week and another 200 pip range week. USD/CAD as a result of DXY averages, faces many and massive lines at 1.3400's and 1.3500's on a short only strategy. USD/CAD first major line is located 1.3329. USD/CAD averages above are droppoing slowly every week along with DXY. USD/JPY last week 139.44 to 140.29 or 141.15 and 142.01. Highs traded to 142.24 and lows at 138.02 on the break ay 139.44. USD/JPY this week: 137.76, 139.29 and 140.05. Above 140.81 then higher for USD/JPY. Overall, USD/JPY will follow DXY lower. EUR/NZD long for next week anywhere at 1.6500's. AUD/NZD trades massive oversold while GBP/NZD also heads long but least favored. EUR/NZD is the best of the 3 currencies. GBP/JPY and NZD/JPY trade overbought while EUR/JPY waits for a resolution at 143.29 and oversold to AUD/JPY and deeply oversold CAD/JPY. JPY cross pairs lack uniformity.

The U.S. Dollar was lower across the board on Thursday, as markets reacted to the latest Fed minutes. The Federal Open Market Committee confirmed that it could be prepared to pivot from aggressive rate hikes in coming months. Yesterday's minutes showed that, "A substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate."  The minutes went on to say that, "The uncertain lags and magnitudes associated with the effects of monetary policy actions on economic activity and inflation were among the reasons cited regarding why such an assessment was important." GBPUSD is currently trading at a three month high, with EURUSD nearing a five month high.

Dollar Index has declined sharply post the FED meeting minutes released yesterday and could be headed towards 105/104 while Euro has scope to rise to 1.05/1.06. Aussie and Pound are headed towards 0.68 and 1.22 while EURJPY holds below 146 and can fall. USDJPY can test 136 before bouncing back from there. USDCNY can test 7.10 while USDRUB remains within 59-61.50 region. EUINR has risen sharply and can test 86. USDINR can be ranged within 82-81.50 region before breaking higher eventually. The US Treasury yields are continuing to fall in line with our expectation. The minutes of the US Federal Reserve's November meeting showing that the pace of rate hikes would be slowed down soon has dragged the yields lower. The Treasury yields have room to fall more from here. The German Yields are coming down as expected and can fall further to test their key supports. Thereafter a bounce is possible. The 10Yr and 5Yr are looking mixed and are stuck in a sideways range. Dow continues to rise above 34000 keeping our bullish view intact. DAX remained stable but overall view remains bullish to see a rally on the upside. Nikkei has risen as expected and has room to test key resistance on the upside before reversing lower from there. Shanghai looks mixed but broader picture remains weak while below resistance at 3125-3150. Nifty remains bullish to see a break above 18400 while above the support at 18100-18000. Brent and WTI fell sharply to $84.12 and $76.87 yesterday on talks of price cap on Russian oil and release of higher than expected US gasoline inventory data. As per the news, G7 nations are considering a price cap on Russian seaborne oil in the range of $65-70/bbl. Gold recovered well from a low of 1719 as the support at 1720 seems to be holding well while Silver has broken above the resistance at 21.30/50. Both the metals have scope to rise further on the upside while above 1720 (Gold) and 21.50 (Silver) respectively. Copper remains bullish for a rise towards 3.80-3.85 while above the support at 3.5. Visit KSHITIJ official site to download the full analysis

United States: Leftovers are for quitters The closest thing to leftovers in economic data are unfilled orders, which may help sustain factory activity, but they're unlikely to be a saving grace should demand dry up more meaningfully. In addition to a jump in durable goods orders this week, new home sales shot higher in October. The number of people still on unemployment benefits rose to the highest level since March. Next week: Personal Income & Spending (Wednesday), ISM Manufacturing (Thursday), Employment (Friday). International: European sentiment improves, but recessions unavoidable Eurozone and U.K. purchasing manager indices were better than expected in November, but remain in contraction territory. While the upside surprise signals the magnitude of economic contraction may not be as severe as initially expected in Q4-2022, we still believe recessions in the Eurozone and U.K. are imminent. Next week: China PMIs (Tuesday), Eurozone CPI (Wednesday), Brazil GDP (Thursday). Credit market insights: China steps in to help struggling property sector China's property sector has certainly faced challenges this year, as struggles to generate sufficient cash flow and liquidity issues have seen real estate projects across the country stall. Furthermore, over-leveraged developers continue to face elevated probabilities of defaulting on debt as well as an inability to deliver completed properties to homebuyers. Given these problems, the government has taken steps to help alleviate some of the stress on the industry. Topic of the week: Talking Turkey on thanksgiving As millions of Americans gather this Thursday, some are noticing all of the food they have brought to the table has left their wallet a little less stuffed this season. Whether it is a meal of traditional Thanksgiving trimmings or an evening gathered around a restaurant table, prices have gone up significantly over the past year. Download The Full Weekly and Financial Commentary

Stagflation is coming – and it could make the 1970s look like a walk in the park. As you’ve probably noticed, I expect a recession next year, and I’m not alone, as this has become the baseline scenario for many financial institutions and analysts. Even the DSGE model used by the New York Fed shows an 80% probability of a hard landing (defined as four-quarter GDP growth dipping below -1%) over the next ten quarters. Reasons? Inflation and the Fed’s tightening cycle. The history is clear: whenever inflation has been above 5%, the Fed’s hikes in interest rates have always resulted in an economic downturn. The key yield curve has recently inverted, which means that the most reliable recessionary indicator has started to flash red light. Although the coming recession could decrease the rate of inflation more than I assume, given the slowdown in money supply growth, I believe that high inflation (although lower compared to the current level) will continue through 2023 and perhaps also in 2024 due to the excess increase in money supply during the pandemic. It means that recession is likely to be accompanied by high inflation, forming a powerful yet negative combo, namely, stagflation. If the calls for stagflation are correct, it suggests that the coming recession won’t be mild or short-lived, as it’s not easy to combat it. In the early 1980s, Paul Volcker had to raise the federal funds rate to above 17%, and later even 19% (see the chart below), to defeat inflation, which triggered a painful double-dip recession. During stagflation, there is a lot of uncertainty in the economy, and monetary policy becomes much more complicated, as the central bank doesn’t know whether to focus on fighting inflation, which could become entrenched, or rising unemployment. In a response to the Great Recession or the Great Lockdown, the Fed could ease its monetary policy aggressively to address declining aggregate demand and neutralize deflationary pressure. But if inflation remains high, Powell’s hands are tied. Some analysts argue that today’s financial imbalances are not as severe as those in the run-up to the 2007-2009 global financial crisis. Partially, they’re right. Commercial banks seem to be in much better shape. What’s more, inflation has reduced the real value of debts, and it remains much higher than many interest rates, implying that governments and companies can still issue very cheap debt. However, financial markets remain very fragile. A recent example might be the turmoil in the UK after the government proposed unfunded tax cuts that altered the price of Treasury bonds and negatively affected the financial situation of pension funds. The level of both private and public debt as a share of global GDP is much higher today than in the past, having risen from about 200% in 1999 to about 350% today. It means that the space for fiscal expansion will be more limited this time, and that the current tightening of monetary policy all over the world could have huge repercussions for the global economy. We’re already observing the first symptoms: the financial bubbles are bursting and asset prices are declining, reducing financial wealth and the value of many collaterals. This is why economist Nouriel Roubini believes that “the next crisis will not be like its predecessors.” You see, in the 1970s, we had stagflation but no debt crisis. The Great Recession was essentially the result of the debt crisis, followed by the credit crunch and deleveraging. But it caused a negative demand shock and low inflation as a result. Now, we could have the worst of both worlds – that is, a stagflationary debt crisis. What does it all mean for the gold market? Well, to be very accurate, nobody knows! We have never experienced stagflation combined with the debt crisis. However, gold shone both during the 1970s stagflation and the global financial crisis of 2007-2009, so my bet is that it will rally this time as well. It could, of course, decline during the period of asset sell-offs, as investors could sell it in a desperate attempt to raise cash, but it should later outperform other assets. To be clear, it’s possible that inflation will decline and we’ll avoid stagflation or that the Fed will blink and prevent the debt crisis instead of fighting with inflation at all costs, but one or another economic crisis is going to happen. When gold smells it, it should rebound! 2023 should, therefore, be much better for gold than this year, as the economy will be approaching recession and the Fed will be less hawkish.