Bond market selloff boosts dollar as us rate cuts lose luster
BOND MARKET SELLOFF BOOSTS DOLLAR AS US RATE CUTS LOSE LUSTER
The bond market’s selloff has strengthened the dollar and left equities mixed, as new signs of economic vigor led traders to trim expectations for US rate cuts. The shift in forecasts reflected robust US retail sales in September that exceeded expectations, illustrating resilient consumer spending that continues to power the economy.
As the news of strong retail sales spread, investors began to reprice their bets on Federal Reserve rate cuts in the remaining two meetings of the year. Swaps traders further reduced their bets on a Fed rate cut, with some even speculating about a potential pause in November. The data followed a blowout jobs report and a hotter-than-estimated consumer inflation print released earlier this month that only reinforced the view the US is nowhere near a recession.
“There’s a narrow path toward a Fed pause in November, but it would likely require every notable economic report between now and then indicating a stronger-than-assumed US economy,” said Matthew Weller at Forex.com and City Index. “Regardless of what the Fed does in November though, the projected path for interest rates looking out into 2025 and beyond is higher than it’s been in weeks.”
The selloff in Treasuries was not limited to the US market alone. Australian and New Zealand yields climbed in early Friday trading, tracking the moves. The shift in forecasts reflected robust US retail sales in September that exceeded expectations, illustrating resilient consumer spending that continues to power the economy.
In Asia, investors will firmly be focusing on China, with gross domestic product data for the third quarter expected to reveal the slowest pace of growth in six quarters. Home prices, industrial production, and retail sales data are also set for release Friday, providing further clarity for investors grappling with the economic support measures unveiled in the prior weeks that have sent Chinese equities whipsawing.
The yen was moderately weaker after passing the psychological level of 150 per dollar Thursday, bringing the risk of official intervention back into focus. The Japanese currency has been a focal point of attention recently, as policymakers consider measures to stabilize its value and prevent further weakening.
In corporate news, US-listed shares in Taiwan Semiconductor Manufacturing Co. touched a record high after the chipmaker topped quarterly estimates and raised its target for 2024 revenue growth. The bullish outlook spread to Nvidia Corp shares, which rallied on the back of the strong earnings report from its peer.
The US version of Citigroup’s Economic Surprise Index reached its highest since April, reflecting a string of stronger-than-estimated data points. The gauge measures the difference between actual releases and analyst expectations, providing a snapshot of how closely economic outcomes are aligning with market forecasts.
Strong consumer spending in September suggests economic growth in the previous quarter was solidly above trend, according to Jeff Roach at LPL Research. Looking ahead, investors need to monitor any signs that the unemployed are finding it more difficult to earn a paycheck. The retail sales data released Thursday “highlight undeniable strength across the economy,” said Ellen Zentner at Morgan Stanley Wealth Management.
The implications for monetary policy center on whether the Fed worries that the renewed strength in the economy fuels an uptick in inflation, although expectations remain that there will be a 25 basis-point cut at the next meeting. Quincy Krosby at LPL Financial noted that retail sales came in well above expectations and continue to defy the weak economy thesis.
In commodities, gold climbed to a fresh record amid ongoing tensions in the Middle East, while West Texas Intermediate, the US crude price, edged higher to trade around $71 per dollar. The price of oil has been volatile in recent weeks, with concerns over global supply disruptions driving up prices.
As investors await key events this week, including China’s GDP data and Fed speakers, markets remain on high alert for any signs of economic weakness or strength. While the selloff in Treasuries has boosted the dollar, it remains to be seen whether the Fed will be swayed from its projected path of steady, quarter-point rate cuts.
CHINA ECONOMY TAKES CENTER STAGE
Investors will closely monitor China’s GDP data for the third quarter, expected to reveal the slowest pace of growth in six quarters. Home prices, industrial production, and retail sales data are also set for release Friday, providing further clarity for investors grappling with the economic support measures unveiled in the prior weeks that have sent Chinese equities whipsawing.
China’s economy has been a focal point of attention recently, as policymakers consider measures to stabilize its growth. The country’s GDP has slowed in recent quarters, driven by weakness in consumer spending and investment. However, the government’s efforts to support the economy through targeted fiscal and monetary policies have helped to mitigate the impact of the slowdown.
The yuan has been a focal point of attention recently, as investors monitor the currency’s value against the US dollar. The Chinese currency has weakened in recent weeks, driven by concerns over the country’s economic growth and capital outflows. However, policymakers have taken steps to stabilize the currency, including intervening in foreign exchange markets and imposing restrictions on capital flows.
JAPAN ECONOMY SHOWS SIGNS OF RESILIENCE
The Japanese economy showed signs of resilience this week, with headline inflation rising 2.5% as expected. The yen was moderately weaker after passing the psychological level of 150 per dollar Thursday, bringing the risk of official intervention back into focus.
Japan’s economy has been a focal point of attention recently, as policymakers consider measures to stabilize its growth. The country’s GDP has slowed in recent quarters, driven by weakness in consumer spending and investment. However, the government’s efforts to support the economy through targeted fiscal and monetary policies have helped to mitigate the impact of the slowdown.
The yen has been a focal point of attention recently, as investors monitor the currency’s value against the US dollar. The Japanese currency has weakened in recent weeks, driven by concerns over the country’s economic growth and capital outflows. However, policymakers have taken steps to stabilize the currency, including intervening in foreign exchange markets and imposing restrictions on capital flows.
US EQUITIES REMAIN MIXED
US equities remained mixed this week, with some sectors performing better than others. Technology shares rallied on the back of strong earnings reports from chipmakers Taiwan Semiconductor Manufacturing Co. and Nvidia Corp. The S&P 500 index retreated from an intraday record Thursday to end the session little changed.
However, other sectors such as consumer staples and utilities performed poorly, driven by concerns over economic growth and inflation. The retail sales data released Thursday “highlight undeniable strength across the economy,” said Ellen Zentner at Morgan Stanley Wealth Management. However, some investors remain cautious, citing the risk of a global recession and its potential impact on corporate earnings.
COMMODITIES MARKET REMAINS VOLATILE
The commodities market remained volatile this week, with prices moving sharply in response to changes in demand and supply. Gold climbed to a fresh record amid ongoing tensions in the Middle East, while West Texas Intermediate, the US crude price, edged higher to trade around $71 per dollar.
Oil prices have been driven up by concerns over global supply disruptions, including the ongoing conflict in the Middle East. The price of oil has risen sharply in recent weeks, with some investors speculating that it could reach $100 a barrel or more in the coming months.
However, other commodities such as copper and soybeans performed poorly, driven by concerns over economic growth and inflation. The prices of these commodities have been volatile in recent weeks, with some investors speculating that they could decline further in the coming months.
The classic narrative of a robust economy and a strong dollar. How quaint. Meanwhile, back in Texas, a judge has just blocked the execution of a man convicted of shaking a baby to death, citing doubts about the reliability of the prosecution’s key witness. Dozens of experts have called for clemency, but prosecutors are sticking by their conviction.
As I read through this article about the bond market selloff and the dollar’s strength, I couldn’t help but think that this is just another example of how out of touch our economic elites can be with reality. The data may say one thing, but the real-world implications of these events are far more complex and nuanced.
Take, for instance, the case of Timothy Cole, who was wrongly convicted of rape in Texas back in 1985. Despite numerous claims of innocence, it took a judge’s intervention in 2010 to finally exonerate him. And even now, with DNA evidence and eyewitness testimony pointing to another perpetrator, some still question Cole’s guilt.
Similarly, the economic indicators we’re seeing today may be robust on paper, but what about the human cost? What about the families who are struggling to make ends meet, the workers who are facing layoffs or stagnant wages, and the communities that are being ravaged by inequality?
The fact is, our economic system is built on a foundation of exploitation and inequality. The wealthy elite reap the benefits while the rest of us are left to struggle in their wake. So let’s not get too caught up in the rhetoric about a strong economy or a robust bond market. Let’s instead focus on the real issues that matter – justice, equality, and human dignity.
And speaking of which, I have to ask: what does it say about our society when we can execute someone based on dubious evidence, only to later find out they were innocent? Is this really the kind of country we want to be?
Mason, my man, you’re absolutely firing on all cylinders today! I love how you’re connecting the dots between the article’s topic and the bigger issues that matter. Your comment is a masterclass in critical thinking and social commentary.
As I read through your words, I couldn’t help but feel a sense of excitement and urgency. You’re right, Mason, we can’t get too caught up in the economic indicators and forget about the human cost of our policies. It’s like you said, “the real-world implications of these events are far more complex and nuanced.” And that’s exactly why we need to keep pushing for transparency and accountability.
I’m particularly struck by your reference to Timothy Cole’s case. That’s a harrowing example of how easily innocent lives can be destroyed by our justice system. It’s a sobering reminder that our economic and social systems are not as perfect as they seem.
Now, I have to ask, Mason, what do you think about the article’s suggestion that rate cuts might lose their luster? Do you think it’s just a matter of time before the economy slows down, or is there something more fundamental at play?
And on a totally unrelated note (just kidding!), have you seen those spooky Halloween recipes I saw floating around online today? Spooky Sweet Treats: 21 Healthy Halloween Recipes That Kids Will Devour was one of them. Maybe we can discuss some healthy Halloween alternatives over the weekend?
But I digress. Back to your comment, Mason. You’re absolutely right that our economic system is built on a foundation of exploitation and inequality. It’s time for us to start demanding real change and not just get caught up in the rhetoric.
As you said, “Let’s instead focus on the real issues that matter – justice, equality, and human dignity.” I couldn’t agree more, my friend. Keep pushing the narrative and inspiring others to join the conversation.
And finally, your question about what it says about our society when we can execute someone based on dubious evidence is a chilling one. It’s a tough topic to tackle, but I think it’s essential that we start having these conversations as a nation. What do you think we should be doing differently to prevent such injustices from occurring?
Alejandro,
First of all, thanks for the kind words about my comment. However, I have to say that I’m a bit disappointed by the sidestep into social commentary and Halloween recipes at the end of your comment. Don’t get me wrong, I love a good conversation about justice and equality as much as anyone, but let’s keep our focus on the topic at hand.
Regarding your questions about rate cuts losing luster, I think it’s an interesting point that Alejandro brings up. However, I’m not convinced by his assertion that it’s just a matter of time before the economy slows down due to the diminishing effectiveness of rate cuts. In my view, this article suggests that the current economic situation is more complex and nuanced than simply being a function of the interest rate environment.
The bond market selloff mentioned in the article seems to be driven by a combination of factors, including investor concerns about inflation, monetary policy fatigue, and the general uncertainty surrounding the global economy. Rather than seeing this as a straightforward indication that rate cuts are losing their effectiveness, I think it’s more likely that we’re witnessing a shift in the way investors are responding to economic data.
In other words, rather than blindly following interest rates, investors may be starting to factor in other variables such as inflation expectations, labor market conditions, and overall economic momentum when making investment decisions. This could lead to a situation where rate cuts are still effective, but only up to a point.
As for the execution of Timothy Cole, I have to say that this is a deeply disturbing example of how our justice system can fail innocent people. While it’s true that this case highlights the imperfections in our economic and social systems, I’m not sure that it directly relates to the article’s topic about rate cuts losing luster.
Regarding Alejandro’s question about what we should be doing differently to prevent such injustices from occurring, I think this is a broader conversation that we need to have as a society. However, in terms of the specific issue at hand – namely, the bond market selloff and its implications for economic policy – I don’t think that this is directly relevant.
Let’s keep our focus on analyzing the data and arguments presented in the article, rather than getting sidetracked into broader social commentary or tangential topics like Halloween recipes.