Dow sank 305, decliners over advancers 2-1 & NAZ tumbled 427. The MLP index was up 2+ to 292 & the REIT index inched up 1 to the 419s. Junk bond funds fluctuated & Treasuries finished about even (more below). Oil lost 1+ to just above 67 & gold fell 5 to 2577 (more on both below).
Dow Jones Industrials
Oct retail sales grew from the prior month, reflecting continued resilience in the American consumer. Retail sales rose 0.4% in Oct. The forecast called for a 0.3% rise in spending. Meanwhile, retail sales in Sep were revised up to a 0.8% increase from a prior reading that showed a 0.4% increase in the month, according to Census Bureau data. Auto sales drove a majority of the gains in Oct's reading, with sales in the sector rising 1.6%. Oct sales, excluding auto & gas, rose just 0.1%, below estimates for a 0.3% increase. The control group in the release, which excludes several volatile categories & factors into the gross domestic product reading for the qtr, decreased by 0.1% in Oct, below estimates for 0.3% increase. However, both categories saw large revisions for Sep sales. Revisions showed sales in both groups increased 1.2% in Sep, up from a previous reading of 0.7% growth. The report comes as investors continue to closely monitor the health of the US economy & the Federal Reserve dials back its restrictive interest rate policy. To date, economic data has largely been better than expected, a welcome sign for investors as markets shift to accept the Fed may not slash interest rates as quickly as initially hoped.
Retail sales jump as consumers keep spending
Federal Reserve Bank of Chicago Pres Austan Goolsbee signaled he feels the central bank will likely end up cutting the policy rate by another qtr of a percentage point this year & a full percentage point further next year, as Fed policymakers projected in Sep. "I think we are going to be looking at rates coming down over the next year along the line the dot-plot said," Goolsbee said, referring to Fed projections released in Sep that depict the rate-path forecasts of the Fed's 19 policymakers as dots on a chart. The median view of that dot plot was for the Fed policy rate to end this year at 4.4%, a qtr of a percentage point below where it is today & to be 3.4% by the end of next year.
Fed's Goolsbee sees another 125 bps of rate cuts by end-2025
The highest Treasury yields in months reached today after a batch of strong economic data cast additional doubt on whether the Federal Reserve will cut interest rates again next month, proved appealing to bond investors. The benchmark 10-year Treasury yield topped 4.5% for the first time since May after the release of retail sales data including hefty upward revisions. A large block trade in 10-year note futures shortly afterward signaled that for at least 1 trader, that was cheap enough. Within a few hours, the yield was back to around 4.43%, adding about $5M to the value of the block. Yields extended their retreat from session highs as crude oil & US equity benchmarks declined, stoking demand for bonds. 10-year yields fell to about 4.40%, 2-year yields to about 4.27%, a drop of about 10 basis points from the day's high. The market's earlier declines signaled a drop in confidence in an interest-rate cut next month as resilient economic data empowers Fed officials to take a more cautious approach to easing.
Treasury Yield Surge Draws Buyers After 10-Year Tops 4.5%
Gold edged lower following 5 losing sessions as the $ eased & Oct retail sales came in higher-than-expected. Gold for Dec was last seen down $2 to $2570 per ounce. The $ eased off a 2-year high early, with the ICE dollar index last seen down 0.07points to 106.6. The rise comes as the Dept of Commerce reported retail sales rose 0.4% in Oct, matching the Sep rise but ahead of the consensus estimate for a 0.3% increase. The rise showed the US economy remains solid, with Federal Reserve chair Jerome Powell saying the central bank has room to slow interest-rate cuts as inflation cools & the labor market remains robust. "We are moving policy over time to a more neutral setting. But the path for getting there is not preset. In considering additional adjustments to the target range for the federal funds rate, we will carefully assess incoming data, the evolving outlook, and the balance of risks. The economy is not sending any signals that we need to be in a hurry to lower rates," Powell said in the text of a speech.
Gold Edges Lower as Dollar Falls to Two-Year High and October Retail Sales Beat Forecasts
Oil fell, deepening a weekly loss, on mixed economic & consumption data from China, the lingering impact from a stronger $ concerns that the market will flip to a supply glut next year. Global benchmark Brent dropped below $72 a barrel & was down by around 3% this week. The Intl Energy Agency said it expects a surplus next year as demand growth in China slows, while global output swells. The glut will be even bigger if OPEC+ presses on with plans to revive halted production. Commodities have also struggled this week as a gauge of the $ rallied to the highest in 2 years, powering upward in the aftermath of Donald Trump's election victory. Despite a retreat today, the US currency is set for its 7nth weekly gain, making raw materials priced in the greenback less appealing. Brent for Jan settlement dropped 1.3% to $71.60 a barrel & WTI for Dec fell 1.4% to $67.76 a barrel. In China, while figures today showed some encouraging signs for the wider economy after Beijing's latest round of stimulus, apparent oil demand still declined in Oct from a year earlier. In addition, local refiners processed 4.6% less oil than in the same month of 2023. Crude has been alternating between weekly gains & losses since mid-Oct, buffeted by tensions in the Middle East, the prospect of oversupply & shifts in currency markets. YTD, Brent has retreated by more than 6%, after touching its lowest since 2021 in Sep.
Oil Heads for Weekly Drop as Glut Concerns and Dollar Take Toll
Stocks sank, on track for steep weekly losses as investors absorbed Chair Jerome Powell's signal that the Federal Reserve won't hurry to make interest-rate cuts. His hawkish comments are casting a pall on markets as the initial optimism for Pres-elect Trump's policies starts to wear off. The S&P has already reversed 1/3 of its post-election rally & the NAZ suffered a weekly loss of 3%. Retail sales data today reflected continued resilience in the American consumer, a sign of the economic strength Powell suggested would allow the Fed to take its time. Traders are back to puzzling over the Fed's path next year, a question already muddied by this week's inflation reports. Today, traders are pricing in 62% odds of a rate cut at its Dec policy meeting, compared with 72% the day before. Bets on a Jan easing stand at 74%, versus the previous 81%. The Dow fell 544 this week.
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