Market Review: October 10, 2024

The economic data released on October 10, 2024, paints a mixed picture of the U.S. economy, with notable pressures in the labor market and persistent inflation trends. The jobless claims data, both initial and continuing, indicate a weakening labor market, while inflation data remains slightly above expectations, suggesting that price pressures are not yet fully under control. The bond market reacted to higher yields in the 30-year auction, reflecting increased borrowing costs. These developments have potential implications for the USD, precious metals, and equity futures, as markets digest the prospects of future Federal Reserve actions.

Today's Event Overview



• Continuing Jobless Claims came in at 1,861K, higher than the forecast of 1,830K and up from the previous 1,819K. This rise suggests an increase in the number of people who continue to claim unemployment benefits, signaling potential weaknesses in the labor market's recovery.
• Core CPI (MoM) for September was 0.30%, above the expected 0.20% and in line with the previous month. This points to persistent inflation in core consumer goods and services, excluding food and energy.
• Core CPI (YoY) for September came in at 3.30%, surpassing both the forecast and previous readings of 3.20%, indicating ongoing inflationary pressures over the past year.
• CPI (MoM) recorded a 0.20% rise in September, above the forecast of 0.10% and unchanged from the previous reading, reflecting steady price growth at the consumer level.
• CPI (YoY) was at 2.40%, slightly above the forecast of 2.30% but below the prior reading of 2.50%, suggesting some moderation in year-over-year price increases, though inflation remains a concern.
• Initial Jobless Claims surged to 258K, higher than the forecast of 231K and the previous 225K, signaling an uptick in layoffs that could indicate softening economic conditions.
• 30-Year Bond Auction results showed a yield of 4.39%, a significant increase from the previous yield of 4.02%, highlighting rising borrowing costs and reflecting the market's expectations of higher interest rates.
• Fed's Balance Sheet remained unchanged at 7,047B, suggesting a stable stance in terms of liquidity support from the Federal Reserve, with no new monetary policy shifts.

Impact Analysis

• Impact on USD: The combination of stronger-than-expected inflation data and a weaker labor market creates a complex scenario for the USD. The higher Core CPI readings support the case for additional rate hikes by the Federal Reserve, which could be bullish for the USD as tighter monetary policy often strengthens the currency. However, the rise in jobless claims suggests economic softness, which could counterbalance some of the USD's gains as concerns over slower growth mount. Overall, the USD's direction will hinge on whether the inflation concerns outweigh the labor market's weakness in the Fed's policy calculus.
• Impact on Gold: The inflation data pressures gold prices downward, as expectations for continued rate hikes increase the opportunity cost of holding non-yielding assets. Higher bond yields, as reflected in the 30-year bond auction, further add to this pressure. However, the rise in jobless claims introduces an element of economic uncertainty, which could support gold's safe-haven appeal, partially offsetting the negative impact of higher rates. The net effect is likely to lean bearish, but with potential for support if labor market concerns deepen.
• Impact on Equity Futures: Equities face challenges from the day's data, particularly from the elevated inflation readings that suggest further interest rate hikes may be necessary. Higher rates can pressure stock valuations, as borrowing costs rise and future earnings are discounted more heavily. On the other hand, the weaker jobless claims data may provide some relief to equities, as it could temper the pace of rate hikes if the Fed becomes more cautious about economic growth. Nevertheless, the overall environment remains challenging for equities, with inflation still a significant concern.

The market's reaction to October 10's data will likely be one of caution, as investors balance the risks of inflation with signs of labor market stress. The stronger-than-expected inflation numbers keep the pressure on the Federal Reserve to maintain a hawkish stance, potentially supporting the USD in the near term. However, the rising jobless claims introduce concerns over economic momentum, which may temper rate hike expectations. The bond market's response, with higher yields, underscores the tightening financial conditions, which could weigh on both gold and equities. Market participants will be closely watching upcoming economic indicators for further clarity on the Fed's path forward.