[US Market Conditions]“Fed-friendly” statistics lower yields, pushing up the yen – Bloomberg

In the US financial market on the 16th, the S&P 500 stock index continued to rise slightly while US bond prices rose. A series of economic data highlighted a gradual slowdown in the economy, reinforcing expectations that the Federal Reserve will end its first aggressive interest rate hike in decades.

stock	closing price	Compared to previous business day	Rate of change
S&P 500 stock index	4508.24	5.36	0.12%
Dow Jones Industrial Average	34945.47	-45.74	-0.13%
Nasdaq Composite Index	14113.67	9.83	0.07%

The US stock market had risen until the previous day and was approaching “overbought” territory.On this day, a major retailer Walmart announced a cautious outlook for consumer spending, while department store Macy’s stock prices rose after reporting better-than-expected results. Cisco Systems sold off on the bearish outlook.

　　 Statistics on the number of U.S. unemployment insurance applications showed that the number of people continuing to receive benefits increased from the previous week, reaching the highest level in about two years. It has become clear that it is becoming increasingly difficult for unemployed people to find new work. According to statistics from the US Industrial Production Index, Manufacturing production fell more than expected, reflecting a decline in activity at automakers and parts suppliers. Sentiment among U.S. home builders has fallen to its lowest level this year.

“The lag in monetary policy is finally catching up with the economy, from input costs to industrial production to labor,” said Jamie Cox, managing partner at Harris Financial Group. “The fight against inflation turns into a fight to maintain economic growth and avoid recession. Rate cuts are closer than people think. It could be as early as March 2024,” he said.

US Federal Reserve Board (FRB) Director Cook indicated that he was mindful of the risk of causing a sharper economic downturn than necessary. He noted that the tightening of financial conditions has put a strain on some parts of the economy.cleveland fed bank Mester said it was too early to decide whether further rate hikes were needed, adding that policymakers had time to assess economic trends.

Chris Larkin, managing director at Morgan Stanley’s E-Trade Financial, said it is still too early for the Federal Reserve to declare victory in the fight against inflation and that interest rate cuts are still a long way off. The data should dispel lingering concerns about further interest rate hikes, he said.

“The question then is whether this ‘Fed-friendly data’ will continue to generate bullish momentum in the stock market.”

Despite this year’s rally in U.S. stocks, investors have held off on the market due to the uncertain economic outlook and the attractive returns offered by cash. Goldman Sachs Group believes this sense of caution will continue into 2024.

David, Chief U.S. Equity Strategist “Equities will provide positive returns, but with a risk-free return of 5%, cash remains a competitive alternative to stocks,” Kostin said. He explained, “In the current interest rate environment, the yield on three-month Treasury bills (T-bills) is 5.5%, which is close to the yield on S&P 500 stocks.”

For individual stocks, Apple’s multibillion-dollar plan to replace Qualcomm’s own modem chips in its iPhone smartphones has been delayed yet again.China’s e-commerce giant Alibaba Group has canceled plans to spin off its cloud business unit. It is believed that US regulations regarding exports of cutting-edge semiconductors to China had an impact.

us debt

US bond prices are rising across the board.Announced in the morning Unemployment insurance statistics had an impact. The number of new applications was higher than expected, and the number of continuing recipients increased, reaching the highest level in about two years. In afternoon range trading, the morning gains were largely maintained. After 3:00 p.m. New York time, trading volume tapered off.

national debt	Latest value	Compared to previous business day (bp)	Rate of change
US 30 year bond yield	4.62%	-7.9	-1.68%
US 10-year bond yield	4.44%	-9.4	-2.07%
US 2 year bond yield	4.84%	-7.0	-1.43%
		US Eastern Time	16:53

Intermediate-term bonds dominated trading, with yields falling by as much as 9 basis points. The 10-year Treasury yield closed near the day’s lows.

Most of the market gains came after the morning unemployment insurance figures were released. In response to the data, interest rate markets have increasingly priced in the prospect of a rate cut, with some predicting a rate cut of about 52 basis points by the Federal Open Market Committee (FOMC) meeting in July. At the close of the previous day, it was 45bp. By the close of the day, the July rate cut had been priced in at 49 basis points.

In morning trading, falling oil prices also added to support for US Treasuries. West Texas Intermediate (WTI) crude oil futures remained weak until late trading. The upward momentum of U.S. Treasury bond futures has stalled due to recent block trades and large-scale selling in federal funds (FF) interest rate futures.

foreign exchange

In the foreign exchange market, the yen rose. U.S. Treasury yields fell after a series of weak U.S. economic data and Walmart’s consumer spending outlook. The sharp decline in WTI crude oil futures also put pressure on the currencies of resource-rich countries.

money order	Latest value	Compared to previous business day	Rate of change
bloomberg dollar index	1250.67	-0.29	-0.02%
dollar/yen	¥150.75	-¥0.61	-0.40%
euro/dollar	$1.0852	$0.0004	0.04%
		US Eastern Time	16:53

The Bloomberg Dollar Index was down 0.3%. The dollar strengthened against most major currencies, and trading was reasonably brisk.

Factors such as a sharp drop in the 10-year Treasury yield, U.S. indicators such as unemployment insurance statistics, and remarks by Cleveland Fed President Mester were among the factors.

The dollar temporarily fell to 150.29 yen against the yen. In addition to the fall in US bond yields, there was also cross-linked dollar selling. Volatility has generally declined.

The euro rose 0.4% against the dollar, hitting a two-month high. The pound is weak against the dollar.UK interest rates are likely to remain high for a long time, the Bank of England says. Deputy Governor Lumsden said.

crude oil

The New York crude oil market plummeted to its lowest level since July. In addition to awareness of inventory buildup, the price’s break below the support line triggered selling, and trend-following trading accelerated the decline.

“The decline has likely accelerated in conjunction with multiple selling programs, creating a vicious cycle,” said Daniel Galli, an analyst at TD Securities. He said the average commodity trading advisor (CTA) would have closed most of his long positions by the end of the day, and that CTAs were “very likely adding to the pain.”

Despite OPEC+, which is made up of major oil producing countries both inside and outside of the Organization of the Petroleum Exporting Countries (OPEC), coordinating production cuts and Russia cutting back on crude oil exports, crude oil supplies remain plentiful. According to statistics released on the 15th, U.S. crude oil inventories last week piled up to the highest level since August, and inventories also increased in Cushing, Oklahoma, the delivery hub for WTI crude oil futures. Meanwhile, oil refiners in China, the world’s largest importer of crude oil, slowed their daily refining pace last month as margins worsened.

Furthermore, the market was weighed down by the release of US unemployment insurance data in the morning that suggested a slowdown in growth.

WTI futures for December on the New York Mercantile Exchange (NYMEX) closed at $72.90 per barrel, down $3.76 (4.9%) from the previous day. In addition to inventory expansion, the sell-off increased due to the stock breaking below the 200-day moving average. Brent futures for January contract fell 4.6% to $77.42.

Money

New York gold prices rebound. U.S. unemployment insurance data showed a slowdown in the labor market, raising expectations that the U.S. Federal Reserve will keep interest rates unchanged.

“The unemployment insurance data follows recent indicators and reiterates that the labor market, and perhaps the U.S. economy, is cooling slightly,” Craig Erlam, senior market analyst at Oanda, said in a note. He said gold bulls may have their sights set on the $2,000 an ounce milestone.

As of 2:04 pm New York time, the spot gold price was $1,984.07 per ounce, up $24.22 (1.2%) from the previous day. Gold futures for December on the New York Mercantile Exchange (COMEX) closed 1.2% higher at $1,987.30.

Original title: ‘Fed-Friendly’ Data Lift Bonds as S&P 500 Wavers: Markets Wrap (excerpt)

Treasuries Rally After Jobless Claims Rise, Hold Bid Into Close (excerpt)

Yen Rises Amid Growth Concerns, Oil Drops: Inside G-10 (excerpt)

Oil Plunges to July Low as Algorithms Amplify Supply-Driven Drop (excerpt)

Gold Climbs as US Jobless Claims Underline Weaker Labor Market (excerpt)