Market Review: October 30, 2023

The U.S. economic data release on October 30 reflects a mix of strength in labor and housing markets against modest inflation and tempered GDP growth. ADP Nonfarm Employment Change exceeded expectations, pointing to robust job growth and bolstering confidence in the labor market. Pending home sales also surged, indicating solid housing demand. However, GDP figures came in slightly below forecast, and the GDP Price Index indicated muted inflationary pressures, suggesting a stable but not accelerating growth environment. Crude oil inventories showed a decline, supporting energy prices, while Cushing inventories rose, signaling some softness in immediate demand at this key storage hub.

Today's Event Overview:

1. ADP Nonfarm Employment Change (Oct): The ADP report showed a strong increase in employment, with 233K jobs added, well above the 110K forecast. This robust growth suggests ongoing resilience in the U.S. labor market, providing optimism for consumer spending.
2. Core PCE Prices (Q3): Core PCE inflation rose by 2.20%, slightly above the forecast but down from the previous quarter, reflecting moderate inflation pressures. This aligns with the Fed’s targets, reducing immediate concerns about aggressive tightening.
3. GDP (QoQ) (Q3): GDP growth for Q3 came in at 2.80%, just below the 3.00% forecast, indicating consistent, though slightly decelerated, economic expansion. While steady, the figure may dampen expectations of a rapid economic acceleration.
4. GDP Price Index (QoQ) (Q3): The GDP Price Index rose by only 1.80%, below expectations, indicating subdued inflation pressures in Q3. This adds to signals that inflation may be stabilizing.
5. Pending Home Sales (MoM) (Sep): Pending home sales jumped by 7.40%, far exceeding the 1.90% forecast, signaling strong housing demand and positive sentiment in the real estate market.
6. Crude Oil Inventories and Cushing Inventories: Crude oil inventories fell by -0.515M, diverging from an expected increase, indicating tighter overall supply. Meanwhile, Cushing inventories rose by 0.681M, suggesting an increase in stock at this major oil hub.

Impact Analysis:

• USD Impact:
  The stronger-than-expected ADP Nonfarm Employment and Pending Home Sales figures are supportive of USD strength as they signal ongoing resilience in the labor and housing markets, which could drive consumer confidence. However, softer GDP growth and a muted GDP Price Index may weigh on USD sentiment, as they indicate only moderate economic momentum and inflation. The overall USD impact is slightly bullish but balanced by these moderating factors.

• Gold Impact:
  Mixed signals in inflation and GDP growth lend support to gold, as investors may view muted inflation and lower growth as reasons to seek safe-haven assets. The moderate rise in Core PCE is not enough to deter gold buying, while the stable inflationary environment implied by the GDP Price Index could favor gold’s appeal as an inflation hedge.

• Equities Futures Impact:
  Equities are likely to react positively to the strong labor market data and surging pending home sales, as these factors support consumer spending and economic growth potential. Lower GDP and GDP Price Index figures are mixed for equities: slower growth and inflation reduce the need for near-term rate hikes, which could support growth-sensitive sectors, while moderate inflation suggests stability in borrowing costs, a positive for equity markets.

Today’s data highlights the U.S. economy's resilience, particularly in employment and housing, despite slower GDP growth and inflation moderation. This combination may offer the Fed a reason to maintain stable rates in the short term, which could support equities while sustaining moderate USD strength. Gold appears well-supported amid stable inflationary pressures, while energy-related equities could benefit from reduced crude inventories.