Category: Economy

Treasury Yields Edge Higher Amid Geopolitical and Economic Uncertainty

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– 10-year Treasury yield rises to 4.41% amid geopolitical and inflation concerns.
– Putin lowers nuclear strike threshold; U.S. embassy closures signal heightened tensions.
– Federal Reserve official warns of stalled inflation progress despite near-full employment.

U.S. Treasury yields rose on Wednesday as investors grappled with the dual challenges of escalating geopolitical tensions and evolving domestic economic conditions. The yield on the 10-year Treasury climbed 3 basis points to 4.41%, while the 2-year yield increased by the same amount to 4.302%. These moves reflect heightened investor caution as uncertainties cloud both global and U.S. economic outlooks.

At the forefront of global concerns is the ongoing Russia-Ukraine conflict. The United States closed its embassy in Kyiv on Wednesday, citing the risk of a significant air attack, signaling heightened tensions in the region. Compounding the situation, Russian President Vladimir Putin announced changes to Russia’s nuclear doctrine, reducing the threshold for a nuclear strike. This alarming shift follows Ukraine’s use of U.S.-made long-range ballistic missiles to target Russian territory, introducing a new layer of unpredictability to the geopolitical landscape. Such developments have rippled through financial markets, prompting investors to weigh their exposure to riskier assets and seek refuge in safer options like Treasuries, despite rising yields.

Domestically, Federal Reserve Governor Michelle Bowman provided a sobering perspective on inflation. Speaking in West Palm Beach, Florida, Bowman stated that progress toward the Fed’s 2% inflation target has stalled, even as the labor market remains robust. She highlighted the delicate balance the Fed must strike between achieving price stability and maintaining full employment, cautioning that labor market conditions could deteriorate in the near term. This acknowledgment has fueled speculation that the Fed may maintain its higher-for-longer interest rate stance, adding further pressure to bond yields.

Economic data due later this week could shed light on these dynamics. October’s flash purchasing managers’ index (PMI) reports from S&P Global are anticipated to provide critical insights into the health of the manufacturing and services sectors. A decline in PMI figures could reinforce concerns about an economic slowdown, while stronger-than-expected data might reignite inflation fears. Investors are also paying close attention to remarks from Federal Reserve officials later in the week, which could offer clues about the central bank’s next moves.

Adding to the uncertainty, the transition to a new Treasury Secretary under President-elect Donald Trump has become a focal point for market participants. Speculation about potential candidates has raised concerns about their experience and ability to navigate complex fiscal challenges. With geopolitical risks, inflation pressures, and evolving monetary policy already in play, the choice of Treasury Secretary will likely influence investor confidence and fiscal strategy in the months ahead.

As these factors converge, the bond market remains a key barometer of investor sentiment. Rising yields reflect a balancing act between risk and return as markets digest the interplay of global turmoil, domestic policy signals, and economic data. Investors will continue to watch these developments closely, with each data release or policy announcement potentially reshaping market dynamics.

October Retail Sales Exceed Expectations, September Spending Revised Upward

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– October retail sales increased by 0.4%, surpassing economist expectations of 0.3%.
– September’s retail sales were revised significantly higher to 0.8%, showing stronger-than-expected consumer spending.
– While October data showed slower growth in some sectors, upward revisions to prior months suggest a strong consumption trend heading into Q4 2024.

The latest retail sales data for October has revealed a resilient U.S. consumer, with sales growing 0.4% from the previous month. This uptick exceeded economists’ expectations of a 0.3% rise, highlighting ongoing consumer confidence. Moreover, retail sales in September were revised upward significantly, from a previously reported 0.4% increase to a solid 0.8%, further indicating a stronger-than-anticipated spending trend in the U.S. economy.

According to the Census Bureau, the October increase in retail sales was largely driven by auto sales, which surged 1.6%. This surge in vehicle purchases, despite other sectors showing weaker growth, underlines the importance of the automotive sector to overall retail performance. However, excluding auto and gas sales, which are often volatile, the increase was more modest at just 0.1%. This was below the consensus estimate of a 0.3% rise, pointing to potential weaknesses in discretionary spending.

The October data, while showing signs of slower growth in certain areas, follows a pattern of upward revisions to previous months’ figures, suggesting a more positive overall trajectory for the economy. The September retail sales revisions revealed that both the total and ex-auto categories had grown by 1.2%, far surpassing the initial estimates of 0.7%. This data is crucial, as it points to stronger-than-expected consumer spending, which plays a vital role in supporting economic growth.

Economists are optimistic about the continued momentum in consumer spending, with many predicting another strong quarter for the U.S. economy as it heads into the final stretch of 2024. Capital Economics economist Bradley Saunders noted that the October slowdown in retail sales was somewhat overshadowed by the positive revisions for September, which suggested ongoing consumer strength. “Consumption growth is still going strong,” he commented, reflecting a generally optimistic outlook for the final quarter.

Kathy Bostjancic, Chief Economist at Nationwide, echoed this sentiment, stating that the October data suggested consumers were maintaining their upbeat spending habits as the year-end approached. This is seen as a positive indicator for the broader U.S. economy, suggesting that GDP growth will remain solid through the end of 2024.

This data arrives at a critical time for investors, as concerns over the Federal Reserve’s interest rate policy continue to loom large. While recent economic data, including October’s retail sales, have largely exceeded expectations, investors are keenly watching the Fed’s actions. Federal Reserve Chairman Jerome Powell has stated that the strength in the economy allows the central bank to take a more cautious approach in adjusting interest rates. There is ongoing debate about whether the Fed will make further rate cuts in 2024, especially as inflation remains a concern.

As the U.S. economy shows resilience, it remains to be seen whether consumers will maintain their spending habits amid possible economic uncertainties in the coming months. However, for now, the data points to continued growth and strength in retail sales, a crucial driver of overall economic health.

Fed Chair Powell: No Rush to Cut Rates Amid Strong U.S. Economy

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– The Federal Reserve is in no hurry to reduce interest rates due to strong economic indicators.
– Chairman Powell emphasizes that inflation remains slightly above the 2% target.
– The Fed will approach future rate cuts cautiously, allowing flexibility based on economic signals.

Federal Reserve Chair Jerome Powell recently signaled that the central bank sees no need to accelerate interest rate cuts, pointing to the resilience of the U.S. economy. Speaking at a Dallas Fed event, Powell highlighted the strength in several key economic indicators—including sustained growth and low unemployment—while acknowledging that inflation remains slightly above the Federal Reserve’s target.

Currently, inflation sits just above the Fed’s preferred 2% target, with October’s Personal Consumption Expenditures (PCE) price index estimated at around 2.3%, while core PCE inflation, which excludes volatile food and energy prices, is anticipated to reach about 2.8%. Although inflation remains higher than the target, Powell emphasized the Fed’s confidence that the economy is on a “sustainable path to 2%” inflation, justifying a gradual, measured approach to any future rate adjustments.

Despite continued economic growth, which Powell described as “stout” at an annualized rate of 2.5%, and a stable job market with a 4.1% unemployment rate, the Fed is maintaining its flexibility. According to Powell, the ongoing strength of the economy allows the Fed to “approach our decisions carefully.” This measured stance contrasts with earlier expectations from financial markets, where investors had anticipated a series of rate cuts for the next year. Now, based on Powell’s remarks, these expectations are being recalibrated, and fewer cuts are anticipated.

The Fed’s cautious stance also reflects broader economic uncertainties as the U.S. awaits potential policy changes from President-elect Donald Trump’s incoming administration, particularly regarding tax cuts, tariffs, and immigration policy. These factors could impact inflation and growth in ways that are still unfolding. Investors are closely watching the economic outlook as they prepare for potential policy shifts that could influence both the domestic economy and inflationary pressures.

Powell’s comments come at a critical time as the Fed’s next policy meeting approaches on December 17-18, with many traders expecting a further quarter-point reduction. However, recent inflation and economic strength may lead the Fed to hold off on more aggressive cuts in the near future. Powell reiterated that the Fed is committed to reaching its inflation goals, stating, “Inflation is running much closer to our 2% longer-run goal, but it is not there yet,” underscoring the Fed’s careful monitoring of inflationary trends, including housing costs.

As markets adjust to the Fed’s deliberate approach, Powell’s emphasis on data-driven, cautious decision-making has given investors insight into the central bank’s priorities. With the economy sending no urgent signals for rate cuts, the Federal Reserve appears poised to balance economic stability with its commitment to achieving sustainable inflation, underscoring its willingness to act when necessary but not before.

Fed Expected to Cut Rates After Trump’s Election Victory as Powell Seeks Stability

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– A 25 basis point rate cut is expected post-election to maintain market stability.
– Powell may address Trump’s policies’ potential impact on inflation and Fed independence.
– Trump’s win fuels speculation on replacing Powell with loyalists like Kevin Warsh.

The Federal Reserve is poised to implement a 25-basis point interest rate cut today, aiming to maintain stability and reduce economic uncertainty following Donald Trump’s recent election victory. This anticipated decision aligns with the Fed’s objective to keep the economy on track without provoking major market shifts, especially amid evolving political dynamics.

Analysts believe that the Fed’s decision reflects a cautious approach, choosing a modest cut over larger changes to convey a sense of steady confidence in its outlook. “They’d rather just cut, keep their heads down and not say anything all that new,” notes Luke Tilley, chief economist for Wilmington Trust. The Fed aims to avoid surprising investors, especially with markets already reacting to election outcomes and uncertain economic policies.

Despite today’s expected cut, Fed policymakers face an intricate economic landscape marked by robust economic indicators, persistent inflation, and fluctuating employment figures—some of which have been affected by weather and labor strikes. While consensus points toward a rate reduction, discussions may reveal differing opinions among policymakers, with some considering a pause, and others endorsing a gradual path for additional cuts. Fed Chair Jerome Powell is anticipated to forge agreement on a conservative approach, with the modest cut following September’s 50-basis point adjustment.

The election of Trump raises pertinent questions about the future of economic policy, as his plans may influence inflation, wage growth, and ultimately, the Fed’s long-term objectives. Trump’s economic agenda, which includes potential tariffs and restrictive immigration policies, could increase costs for businesses and push up consumer prices, posing challenges for the Fed in managing inflation down to its target level of 2%.

During today’s press conference, Powell will likely face questions on Trump’s policy stance, including its potential impacts on the national deficit, inflation, and employment. The Fed Chair may deflect on direct implications, stressing that the current rate cut reflects the Fed’s commitment to supporting the economy as inflation continues to moderate. This approach would emphasize the Fed’s independence in decision-making, ensuring that economic policy remains shielded from political influence.

Trump’s return to office brings renewed speculation over Powell’s future. Although Trump initially appointed Powell, he has indicated that he may prefer a change in leadership, particularly as Powell’s term concludes in 2026. Trump’s vocal criticism of Powell during his previous term focused on the Fed’s rate hikes, often calling for lower rates to boost the economy. A second term for Trump may see continued scrutiny on Fed policy, with potential contenders for Fed Chair including former Fed governor Kevin Warsh and former Trump advisor Kevin Hassett.

The question of Fed independence is once again at the forefront, with concerns that Trump’s interest in influencing rate decisions could erode the central bank’s autonomy. During his previous term, Trump made it clear that he favored policies that aligned with his growth-focused economic goals, going as far as to suggest negative interest rates. While Trump has since downplayed the idea of directly intervening in the Fed’s leadership, he has expressed a desire for a more hands-on role in monetary policy direction.

As the Fed adjusts to a post-election environment, Powell’s efforts to navigate between economic prudence and political pressures will shape its trajectory. The Fed’s emphasis on continuity and caution with today’s rate decision reflects its broader commitment to maintaining economic stability, even as the political landscape shifts around it. Investors and policymakers alike will be closely watching the Fed’s next moves, with rate decisions likely influencing market sentiment and economic policy debates in the months ahead.

Dollar Declines as Investors Pull Back from ‘Trump Trades’ Amid Election and Fed Rate Cut Anticipation

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– The dollar hit a two-week low, driven by election uncertainty and profit-taking on “Trump trades.”
– Investors anticipate a 0.25% Fed rate cut on Thursday, with further cuts likely in early 2025.
– The Bank of England and other central banks are also expected to ease rates amid market volatility.

The U.S. dollar fell to a two-week low on Monday, with investors taking profits from “Trump trades” ahead of the closely contested U.S. election and an expected Federal Reserve rate cut. The euro gained 0.7% to $1.0906, while the dollar weakened by nearly 1% against the yen to 151.645, and the dollar index slipped to 103.65.

Markets are seeing increased volatility as the presidential race between Democratic candidate Kamala Harris and Republican Donald Trump tightens. Polls show a slight edge for Harris in key battleground states like Nevada, North Carolina, and Wisconsin, leading some investors to unwind dollar positions they had previously built around a potential Trump win. Betting markets have also shifted, with odds for a Trump victory narrowing over the last week.

Kenneth Broux, Societe Generale’s head of corporate research in FX and rates, noted that investors are adjusting positions in response to new polling data, which showed Harris slightly ahead in some swing states. “Markets are very stretched – long dollars, short Treasuries – into the vote tomorrow, so it’s only natural we are adjusting some of that positioning,” Broux explained.

With a potentially ambiguous outcome, traders are also pricing in a high likelihood of post-election volatility. Options markets show increased demand for protection against market swings, with the one-week implied volatility for euro/dollar reaching its highest since early 2023. Implied volatility is also elevated for the Chinese offshore yuan and the Mexican peso, highlighting concerns about trade and economic policy changes following the election.

Alongside election jitters, the Federal Reserve’s policy decision this week is another key focus. The central bank is expected to announce a quarter-point rate cut on Thursday, marking a departure from the larger 0.5% cut implemented previously. CME’s FedWatch tool shows a 98% probability of this smaller rate reduction, with market odds favoring further cuts through early 2025. According to Jan Hatzius, an economist at Goldman Sachs, the Fed’s projected path for rates appears more dovish than current market pricing, with Hatzius suggesting four consecutive cuts in early 2025.

The Bank of England (BoE) is also set to meet this Thursday, where it is expected to implement a 0.25% rate cut amid recent bond market volatility and concerns about the UK’s fiscal policy. Following the Labour government’s recent budget, UK gilts saw a steep selloff, and the British pound briefly dipped before rebounding to $1.29820. Meanwhile, other central banks, including the Riksbank and the Norges Bank, are anticipated to make dovish policy moves this week, with the Riksbank expected to ease rates by 0.5% and the Norges Bank likely to hold steady.

In Asia, the Reserve Bank of Australia is expected to keep rates unchanged at its Tuesday meeting, while China’s National People’s Congress, which convenes this week, is expected to announce further economic stimulus measures.

The interplay between the U.S. election and potential rate cuts from major central banks has intensified uncertainty in the currency markets, as investors monitor for clues on how fiscal and monetary policy shifts will shape the global economic outlook.

Treasury Yields Drop Ahead of Election and Fed Decision

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– U.S. Treasury yields declined as investors shifted to safer assets amid election and Fed uncertainty.
– Polls show Kamala Harris and Donald Trump in a dead heat, raising concerns about congressional control and potential policy impacts.
– A quarter-point rate cut is widely expected from the Federal Reserve this week, aimed at stimulating economic growth.

US Treasury yields fell on Monday as investors braced for a high-stakes week, with the upcoming U.S. presidential election and a key Federal Reserve rate decision poised to influence the economy and markets. The 10-year Treasury yield dropped nine basis points to 4.27%, while the 2-year yield decreased by over six basis points to 4.14%. These declines come as investors shift focus to safer assets amid election uncertainty and expected economic shifts. Yields, which move inversely to bond prices, reflected some caution as traders weigh potential election outcomes and their economic implications.

Polls indicate a tight race between Vice President Kamala Harris and former President Donald Trump, with NBC News showing the candidates locked at 49% each. Investors are particularly attentive to which party will control Congress, as this could dictate future policy moves, ranging from government spending to tax reforms. A split Congress would likely mean legislative gridlock, whereas a unified government might lead to significant policy changes. The election results could potentially impact stock markets, which experienced a volatile Monday, with the Dow Jones Industrial Average falling by 225 points or 0.5%, and both the S&P 500 and Nasdaq dipping by 0.2%.

In addition to the election, the Federal Reserve’s policy meeting on Thursday could mark another pivotal moment for markets. Analysts widely anticipate a quarter-point rate cut following the Fed’s recent 50 basis point cut in September. Traders are pricing in a 99% probability of this move, as tracked by CME Group’s FedWatch Tool. A rate cut could reduce borrowing costs and stimulate economic growth, potentially offsetting some of the anticipated volatility tied to the election.

Also weighing on markets were economic data points, with September factory orders down 0.5% in line with expectations. The Purchasing Managers Index (PMI) is due on Tuesday, and these indicators may provide additional insight into the economy’s current health as markets prepare for Fed Chair Jerome Powell’s comments on Thursday. Analysts suggest Powell’s statements could hint at the Fed’s future outlook for rates, as the central bank navigates a gradually slowing economy.

The shift towards Treasurys reflects a defensive stance by investors seeking stability amid looming uncertainties. Michael Zezas, a strategist at Morgan Stanley, suggested patience will be crucial for investors as they navigate potential market noise surrounding the election. The Treasury market’s reaction indicates some investors are bracing for turbulence in stocks if the election results lead to unexpected outcomes. The safe-haven nature of U.S. bonds offers a buffer for investors looking to mitigate risk in a potentially volatile environment.

Adding to market dynamics, Nvidia shares climbed 2% on Monday after it was announced the company would replace Intel in the Dow Jones Industrial Average, a change reflecting Nvidia’s year-to-date rise of 178% as it capitalizes on the AI sector. This development underscores a broader trend where technology and AI stocks remain central to market sentiment.

As election day approaches, financial markets are set to respond not only to the presidential outcome but also to shifts in Congress. With the Fed’s decision and further economic indicators expected this week, both equities and bond markets may experience heightened volatility, particularly if post-election policy signals lead to significant shifts in fiscal or monetary policy.

October Jobs Report Reveals Sharp Slowdown Amid Strikes and Weather Impacts

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– October saw a low 12,000 jobs added, largely due to strikes and weather impacts.
– Unemployment remained at 4.1%, while wage growth rose to 4.1% year-over-year.
– Fed rate cut likelihood increased to 99% following this report.

The US labor market added only 12,000 jobs in October, significantly below the anticipated 100,000, according to the Bureau of Labor Statistics (BLS). This marked a sharp slowdown from September’s revised 223,000 job gain and reflected several temporary pressures, including a Boeing worker strike and recent hurricanes. However, the unemployment rate held steady at 4.1%, as the BLS noted that different data collection methods account for the varying indicators.

Manufacturing saw the biggest impact, with a 46,000 job decline largely attributed to the strike, while weather disruptions affected employment across multiple industries. Wage growth, a critical measure for inflation, rose to 4.1% on an annual basis, up from September’s 4%. On a monthly basis, wages grew 0.4%, also slightly above expectations. Labor force participation slipped to 62.6%, down from 62.7% the previous month.

This jobs report also comes as a pivotal data point for the Federal Reserve’s upcoming decision on interest rates, scheduled for Nov. 7. Market predictions now put a 99% likelihood on a 25-basis-point rate cut, up from a 95% chance before the report’s release. However, the Fed may focus on broader trends showing the labor market’s gradual cooling beyond these temporary effects. Recent BLS data from September also indicated declining job openings and a reduced quits rate, signaling lower worker confidence and easing hiring pressures.

Economists believe the October job numbers, while unusually low, reflect temporary factors rather than underlying economic weakness. Joe Brusuelas, chief economist at RSM, suggested ignoring the low job addition figure and focusing on the consistent 4.1% unemployment rate as a more stable indicator of labor market conditions. Carson Group’s global macro strategist, Sonu Varghese, noted that this cooling labor market trend aligns with the Fed’s interest rate cut trajectory for November and December.

Fed Poised for Rate Cut After Weak October Jobs Report and Hiring Revisions

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– The Fed is on track for a 0.25% rate cut in November, with another likely in December.
– October saw only 12,000 jobs added, with hurricanes and strikes impacting hiring.
– Downward revisions for August and September reinforce a cooling labor market.

The Federal Reserve is set to move forward with an anticipated 0.25% rate cut next week, following weaker-than-expected jobs data for October. According to the Bureau of Labor Statistics, the economy added just 12,000 nonfarm payrolls last month, a sharp decline from previous months. Hurricanes Helene and Milton, along with a significant strike at Boeing, played a role in reducing hiring across multiple industries. Additionally, revised data showed downward adjustments for August and September, signaling a cooling labor market.

The October jobs report and recent revisions provide further evidence that the labor market has slowed from the high-demand levels seen in recent years. As inflation moderates, Federal Reserve officials see this as a favorable environment to begin loosening the restrictive rates they implemented to contain rising prices. The Fed lowered its benchmark rate by 0.5% in September, and it signaled intentions to cut rates gradually through the end of the year. According to Steven Blitz, Chief U.S. Economist at TS Lombard, the Fed is likely to reduce rates by a further 0.25% in both November and December, aiming for a target range between 4% and 4.25% by year-end.

Job market indicators have continued to soften, as shown in the Fed’s Beige Book, which highlighted flat economic activity across most U.S. regions since early September. Meanwhile, job openings have been steadily decreasing, suggesting that demand for new hires is easing. Although the U.S. economy expanded at an annualized 2.8% rate in Q3, driven by robust consumer spending, Fed policymakers remain cautious. Several officials have recently voiced a preference for a measured approach to further cuts, citing the mixed signals between consumer demand and labor market pressures.

The BLS reported that October’s labor market data was affected by temporary disruptions, but it could not definitively quantify the hurricanes’ impact on job additions. Even so, most policymakers and market participants agree that this report doesn’t alter the Fed’s previous position. Vanguard senior economist Josh Hirt commented that, aside from October’s numbers, the year-to-date data reflects a healthy labor market. However, with the Fed’s rate reductions expected to provide stimulus, officials remain attentive to the broader trends in economic activity and employment stability.

The Fed’s gradual approach to rate adjustments aligns with its broader economic strategy: while inflation remains a concern, the cooling labor market and job revisions provide the flexibility needed to support growth without risking excessive inflationary pressures. The Fed’s decision on November 7, just after the U.S. presidential election, will be closely watched as it marks a pivotal point in the central bank’s policy response to evolving economic conditions.

US Goods Trade Deficit Hits 2.5-Year High Amid Import Surge

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– Goods trade deficit rose by 14.9% to $108.2 billion, the highest in over two years.
– Goods imports increased by 3.8%, reflecting a rise in consumer and capital goods.
– Inventory growth in retail, especially for motor vehicles, is likely to cushion GDP impact.

The U.S. goods trade deficit soared in September to its highest level since March 2022, reaching $108.2 billion. This rise, primarily driven by a 3.8% jump in imports, underscores strong consumer demand but has led some economists to scale back their growth projections for the third quarter. Released by the Commerce Department, the deficit reflects the challenges of balancing robust domestic consumption with slowing exports, which declined by 2%.

Economists noted that while a larger trade deficit traditionally weighs down gross domestic product (GDP), this impact may be mitigated by increased retail inventories, particularly in motor vehicles. Consumer spending remains strong, anticipated to be a major driver of growth for the third quarter. Yet, the trade data has led analysts to revise their economic forecasts downward, with some now expecting annualized GDP growth to hit 2.7% rather than the initially forecasted 3.2%.

Imports of consumer goods led the surge, climbing by 5.8%, while food imports saw a 4.6% boost. The demand for capital goods also rose, with businesses stocking up on equipment and industrial supplies, including petroleum and automotive parts. Analysts suggest that businesses were also building up inventories in anticipation of potential supply disruptions, such as the recently resolved dockworkers strike.

Although the high import figures signal economic strength, the dip in exports of consumer goods, industrial supplies, and capital goods points to potential headwinds for U.S. trade competitiveness. The export decline in consumer goods, down by 6.3%, indicates that external demand may be softening, potentially challenging U.S. exporters.

Meanwhile, both wholesale and retail inventories saw shifts in September. Wholesale inventories slipped slightly by 0.1%, while retail inventories rose 0.8%, reflecting sustained consumer demand. Motor vehicle and parts inventories surged by 2.1%, while non-automotive retail inventories grew modestly. Rising inventories support GDP growth, though they also suggest that retailers may have overestimated sales for the period.

Economists are closely watching inventory levels as they provide insight into whether consumer demand can match the increased supply. According to Carl Weinberg, chief economist at High Frequency Economics, an unexpected rise in retail inventories could signal a slowdown in consumer demand but could still provide short-term GDP support.

The recent trade data arrives ahead of Wednesday’s anticipated GDP report, which is expected to provide a clearer picture of the U.S. economy’s trajectory. While strong consumer demand is evident, analysts remain cautious, noting that the elevated goods trade deficit may continue to be a drag on economic growth in the near term.

Weekly Jobless Claims Decline to Lowest in Nearly a Month

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– Weekly jobless claims dropped to 227,000, the lowest in nearly a month, beating economist expectations.
– Continuing claims rose slightly to 1.89 million, the highest since November 2021.
– The labor market remains stable, with layoffs staying limited despite economic uncertainties and recent weather disruptions.

Weekly jobless claims in the U.S. unexpectedly fell last week, indicating a resilient labor market despite economic uncertainties and recent disruptions. The latest data from the Department of Labor showed that 227,000 initial jobless claims were filed in the week ending October 19, a notable decrease from 241,000 the week prior. This was below the 242,000 claims economists had expected, according to Bloomberg data.

This reversal marks a break in the upward trend that began in September, which had pushed jobless claims to their highest levels in over a year. While jobless claims provide an indication of layoffs and labor market churn, the continued decline shows that turnover remains low, and layoffs are not spiking despite broader concerns about the economy.

In addition to initial claims, continuing claims, which measure the number of people still receiving unemployment benefits, rose slightly to 1.89 million for the week ending October 12. This is up from 1.86 million the previous week and marks the highest level since November 2021.

Economists believe the recent drop in jobless claims reflects a recovery from weather-related disruptions, particularly hurricanes in the southern U.S. “Claims in some states affected by Hurricane Helene retreated from recent highs, though claims in Florida rose, likely due to Hurricane Milton,” noted Oxford Economics senior economist Nancy Vanden Houten. With jobless claims now back to pre-hurricane levels, the data suggests the labor market remains steady, with few layoffs across the board.

Experts have pointed out that, despite fluctuations in the data, the job market continues to show resilience in the face of ongoing challenges. The Federal Reserve’s October Beige Book report, which surveys firms across the central bank’s 12 districts, revealed that worker turnover is low and layoffs have remained limited. This finding mirrors other reports that show hiring and quit rates have fallen this year but layoffs have not reached alarming levels.

In fact, many companies are focusing more on replacing workers than expanding their workforce, demonstrating cautious optimism. “The job market continues to shrug off prevailing worries and uncertainties,” noted Oren Klachkin, economist at Nationwide Financial Markets. While employers may be cautious about future economic conditions, they remain hesitant to let go of workers in large numbers.

The steady drop in jobless claims aligns with other indicators that suggest the labor market is cooling but remains robust. Unemployment rates have stayed low, and next week’s data on job openings, quits, and the hiring rate will provide more insight into the state of the labor market.

This labor data comes ahead of a key Federal Reserve meeting in November. Traders are currently pricing in a 95% chance of the Federal Reserve cutting interest rates by 25 basis points. The outcome of this meeting could heavily depend on next week’s data releases and the October jobs report, which is expected to show the U.S. economy adding 135,000 jobs in October, down from 254,000 in September. The unemployment rate is expected to remain steady.

Overall, while labor market growth may be slowing, the low turnover and limited layoffs provide a solid foundation as the U.S. economy navigates uncertainties.

U.S. Existing Home Sales Hit 14-Year Low in September as Buyers Wait for Lower Rates

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– Home sales dropped by 1.0% in September to the lowest level since 2010.
– Housing inventory rose 1.5%, but prices remained elevated, increasing 3% year-over-year.
– First-time homebuyers made up only 26% of sales, below the 40% needed for a robust market.

U.S. existing home sales fell to their lowest level in 14 years in September, reflecting ongoing challenges in the housing market as buyers continued to hold out for lower mortgage rates. According to the National Association of Realtors (NAR), home sales dropped 1.0% last month, bringing the seasonally adjusted annual rate to 3.84 million units, the lowest figure since October 2010. The decline surprised economists, who had forecasted no change at 3.86 million units.

The year-on-year picture was equally bleak, with sales down 3.5% from September 2023, marking a continuing trend of sluggish demand following the spike in mortgage rates earlier this year. While rates briefly dropped after the Federal Reserve’s recent decision to cut interest rates, they have climbed again over the last three weeks, fueled by strong economic data that has led traders to scale back expectations of further rate cuts next month.

The NAR speculated that the upcoming U.S. presidential election on November 5 might also be contributing to buyer hesitancy, although there is no hard evidence supporting this claim. “Some consumers may be delaying a major financial decision like purchasing a home until after the election,” noted Lawrence Yun, NAR’s chief economist. He added, however, that market conditions—such as more available inventory, lower mortgage rates compared to last year, and job gains—remain favorable for buyers who choose to act now.

Despite the increase in housing supply, prices have not dropped as some buyers had hoped. The median existing home price rose 3.0% year-over-year to $404,500 in September, with home prices increasing across all regions of the country. Housing inventory climbed 1.5% to 1.39 million units, the highest level since October 2020, providing buyers with more options, though still not enough to significantly lower prices.

At the current pace of sales, it would take 4.3 months to exhaust the existing supply of homes, up from 3.4 months a year ago. A balanced market typically has a supply range of four to seven months, so while the increase in inventory is welcome, it has yet to shift the balance enough to bring prices down.

First-time homebuyers continue to struggle in this market, making up only 26% of transactions, a slight drop from 27% last year. This is well below the 40% share that economists and realtors say is necessary for a healthy housing market. Many first-time buyers are being priced out due to high home prices and elevated borrowing costs.

Additionally, 30% of transactions in September were all-cash sales, up from 29% a year ago, as wealthier buyers and investors continue to dominate the market. Distressed sales, including foreclosures, made up just 2% of total transactions, similar to last year’s figures, indicating that most homeowners are not under extreme financial pressure to sell.

As the housing market continues to face uncertainty around mortgage rates and economic conditions, prospective buyers remain cautious. With elevated prices, and only modest improvements in supply, it is unclear when the market might see a full recovery in sales activity.

Stock Market Bounces Back as Investors Weigh Bond Yields and Earnings Reports

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– US stocks recovered after early-session declines on Tuesday, with the S&P 500, Dow, and Nasdaq rising slightly.
– Investors are closely monitoring bond yields, with the 10-year Treasury yield holding steady after sharp gains on Monday.
– Strong earnings from General Motors boosted the stock, while other companies like GE and Verizon faced mixed results.

US stocks recovered from earlier losses on Tuesday, as investors digested a bond market sell-off and anticipated upcoming earnings reports. The S&P 500 edged near the flatline, after falling by about 0.2% earlier in the day. The Dow Jones Industrial Average and the tech-heavy Nasdaq Composite also rose by approximately 0.1% and 0.2%, respectively.

The bond market has been a focal point for investors, with the 10-year Treasury yield holding around 4.2% following Monday’s surge. This rise pushed the yield above 4.2% for the first time since July, sparking concerns for rate-sensitive sectors like real estate, where increasing yields often lead to stock pullbacks.

Uncertainty surrounding the Federal Reserve’s next move is also weighing on market sentiment. Many investors are debating whether the Fed will continue to cut rates aggressively or maintain its current stance. Recent strong economic data and the possibility of fiscal shifts following the upcoming U.S. election are factors adding to this uncertainty. Republican nominee Donald Trump’s potential fiscal policies, combined with cautious comments from Fed officials, have fueled concerns that the Fed may not cut rates as expected.

In earnings news, General Motors (GM) delivered strong results, raising its guidance for the third time this year. Buoyed by solid electric vehicle (EV) sales, GM shares jumped more than 10% as the automaker posted a quarterly profit and revenue beat. Investors responded positively to the upbeat results, pushing GM’s stock to one of its best performances in recent months.

On the other hand, some major companies didn’t fare as well. GE Aerospace saw its stock fall by over 8% following its third-quarter report, while Verizon (VZ) shares dropped around 5% due to mixed earnings. Both companies highlighted ongoing challenges, which dampened investor enthusiasm.

Looking ahead, all eyes are on Tesla (TSLA), which is set to report earnings on Wednesday. Wall Street is eagerly awaiting the results as investors wonder whether the “Magnificent Seven” tech giants will continue to drive the stock market’s next upward move. Tesla’s performance, along with other key tech megacaps, will be crucial in determining the broader market direction.

Despite the rising bond yields, gold prices climbed, continuing to build on Monday’s record high. The gains in gold were driven by increased demand for safe-haven assets, as investors remain cautious amid the looming U.S. presidential election and escalating tensions in the Middle East.

As the market continues to grapple with rising yields, mixed corporate earnings, and geopolitical uncertainty, investors are treading carefully. With key earnings reports and economic data still to come, the next few days will be crucial in determining whether the stock market can sustain its recovery and whether the Fed will proceed with its anticipated rate cuts.

Fed’s Logan Advocates Gradual Rate Cuts Amid Continued Balance Sheet Reductions

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– Fed’s Logan anticipates gradual rate cuts if the economy aligns with expectations.
– The Fed will continue shrinking its balance sheet, with no plans to halt quantitative tightening.
– Logan sees ongoing market liquidity, supporting continued balance sheet reductions.

Federal Reserve Bank of Dallas President Lorie Logan stated on Monday that gradual interest rate cuts are likely on the horizon if the economy evolves as expected. She also emphasized that the Fed can continue to reduce its balance sheet while maintaining market liquidity. Logan’s remarks were delivered at the Securities Industry and Financial Markets Association annual meeting in New York, where she discussed the central bank’s plans for monetary policy normalization.

“If the economy evolves as I currently expect, a strategy of gradually lowering the policy rate toward a more normal or neutral level can help manage the risks and achieve our goals,” said Logan. She acknowledged that the U.S. economy remains strong and stable, though uncertainties persist, especially concerning the labor market and the Fed’s inflation targets.

Market participants are currently divided over whether the Federal Reserve will follow through on its plan for half a percentage point in rate cuts before year-end, as forecasted during the September policy meeting. While inflation has shown signs of easing, recent jobs data indicates a robust labor market, which may lead the Fed to reconsider the pace and size of its rate cuts.

A significant portion of Logan’s remarks centered on the Fed’s ongoing quantitative tightening (QT) efforts, a process that began in 2022 to reduce the central bank’s holdings of mortgage-backed securities and Treasury bonds. These assets were initially purchased to stimulate the economy and stabilize markets during the early stages of the COVID-19 pandemic. The Fed has reduced its balance sheet from a peak of $9 trillion to its current level of $7.1 trillion, with plans to continue shedding assets.

Logan indicated that the Fed sees no immediate need to stop the balance sheet reductions, stating that both QT and rate cuts are essential components of the Fed’s efforts to normalize monetary policy. She emphasized that ample liquidity exists in the financial system, which supports the continuation of the balance sheet drawdown.

“At present, liquidity appears to be more than ample,” Logan noted, adding that one indicator of abundant liquidity is that money market rates continue to remain well below the Fed’s interest on reserve balances rate.

Recent fluctuations in money markets, Logan suggested, are normal and not a cause for concern. “I think it’s important to tolerate normal, modest, temporary pressures of this type so we can get to an efficient balance sheet size,” she said, reinforcing her confidence in the Fed’s current approach.

Looking ahead, Logan expects that the Fed’s reverse repo facility, which allows financial institutions to park excess cash with the central bank, will see minimal usage in the long run. She hinted that reducing the interest rate on the reverse repo facility could encourage participants to move funds back into private markets, further supporting liquidity outside of the central bank.

Logan also dismissed concerns about the Fed needing to sell mortgage-backed securities in the near term, stating that it is “not a near-term issue in my view.” She reiterated that banks should have comprehensive plans to manage liquidity shortfalls and should feel comfortable using the Fed’s Discount Window liquidity facility if needed.

Logan’s comments reflect a measured approach to managing monetary policy as the U.S. economy continues to recover and adjust to post-pandemic conditions. While inflation is cooling, the Fed remains focused on maintaining flexibility and ensuring stability in the financial system.