The dollar index (DXY00) Thursday rose by +0.07%. Bullish factors included generally strong U.S. economic news and safe-haven demand with the sharp sell-off in stocks. The dollar was undercut by a sharp -11 bp decline in the 10-year T-note yield and reduced expectations for Fed tightening.
U.S. Q3 GDP rose +4.9% (q/q annualized), stronger than expectations of +4.5%. The Q4 GDP price index rose +3.5%, stronger than expectations of +2.7%, but the core price index rose by +2.4%, slightly weaker than expectations of +2.5%.
Also on the strong side, Sep U.S. durable goods orders rose +4.7%, much stronger than expectations of +1.9%. Sep core (ex-defense and aircraft) capital goods orders, a proxy for capital spending, rose +0.6%, stronger than expectations of unchanged. In addition, the Sep U.S. pending home sales report of +1.1% m/m and -13.1% y/y was stronger than expectations of -2.0% m/m and -14.6% y/y.
On the weaker side, U.S. weekly initial unemployment claims rose by +10,000 to 210,000, which showed a slightly weaker labor market than expectations for an increase to 207,000. Weekly continuing claims rose by +63,000 to 1.790 million, showing a weaker labor market than expectations for an increase to 1.74 million.
The markets are discounting a 2% chance that the FOMC will raise the funds rate by +25 bp at the next FOMC meeting that ends on November 1, and a 19% chance for that +25 bp rate hike at the following meeting that ends on December 13. The markets are then expecting the FOMC to begin cutting rates in mid-2024 in response to an expected slowdown in the U.S. economy.
EUR/USD (^EURUSD) Thursday fell by -0.17%, undercut by the ECB’s pause in its rate-hike regime and the general market sense that the ECB’s string of rate hikes is over. Meanwhile, USD/JPY (^USDJPY) rose by +0.10%.
The European Central Bank (ECB) Thursday left its key rates unchanged, in line with market expectations, with the deposit rate at 4.00% and the main refinancing rate at 4.50%. The markets had expected the ECB to halt its rate-hike regime Thursday, given the weakness in the Eurozone economy and the recent rise in European bond yields. The markets are discounting a small 5% chance for an ECB rate hike at its meeting in December, but the market is then discounting ECB rate cuts for 2024.
December gold (GCZ3) Thursday closed +2.50 (+0.13%), and Dec silver (SIZ23) closed down -0.099 (-0.43%). Gold prices were boosted by safe-haven demand tied to the sharp drop in U.S. stocks and news of a brief Israeli ground raid involving tanks into Gaza. Precious metals prices were also boosted by the sharp -11 bp decline in the 10-year T-note yield and reduced expectations for a Fed rate hike in December. Silver failed to get much support from the strong U.S. Q3 GDP report due to the view that it was boosted by temporary factors and that there would be negative GDP payback in Q4.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
