Market Review: November 05, 2024

U.S. economic data released on November 4 and November 5 shows resilience in the services sector and rising Treasury yields, signaling ongoing demand and expansion outside of manufacturing. The widening trade deficit and softer factory orders, however, reveal challenges in U.S. goods production and export demand, adding complexity to the economic outlook. The GDPNow forecast saw a slight upward revision, while PMI data in both services and non-manufacturing employment indicate robust performance in key sectors. Additionally, crude oil inventories rose unexpectedly, suggesting softer demand in energy markets.

Events Overview:

1. Factory Orders (Sep): Factory orders declined by -0.50%, slightly worse than expected, suggesting weaker demand within the manufacturing sector.
   
   
2. 3-Year and 10-Year Note Auctions: Yields on both the 3-year (4.15%) and 10-year (4.35%) notes rose, reflecting continued demand for higher yields and rising borrowing costs, which may temper equity gains.
   
   
3. Trade Data (Sep): The trade balance widened to -$84.40B, with exports falling and imports rising. This indicates increased domestic consumption but reflects global demand challenges for U.S. goods.
   
   
4. Services and Non-Manufacturing Data (Oct): The S&P Global and ISM services PMIs both showed robust performance, with the ISM Non-Manufacturing PMI reaching 56 and its Employment Index increasing to 53. These indicators point to growth in services and non-manufacturing employment.
   
   
5. ISM Non-Manufacturing Prices (Oct): Prices in non-manufacturing sectors rose, with the ISM Prices Index reaching 58.1, indicating inflationary pressures in the service sectors.
   
   
6. Atlanta Fed GDPNow (Q4): The GDPNow forecast for Q4 growth was revised slightly up to 2.40%, signaling stable growth expectations.
   
   
7. API Weekly Crude Oil Stock: Crude oil inventories increased by 3.132M barrels, suggesting potential softening in demand within the energy market.

Impact Analysis:

• USD Impact:
  Rising yields in the 3-year and 10-year Treasury auctions support the USD by attracting foreign investment and reflecting positive sentiment in U.S. debt. The strength in the services and non-manufacturing sectors further supports USD, indicating economic resilience in non-manufacturing activities. However, the widening trade deficit and weaker factory orders may weigh on the dollar, as they suggest challenges in the goods production and export sectors. Overall, the USD impact is bullish but moderated by manufacturing weaknesses.

• Gold Impact:
  Rising Treasury yields and strength in services weigh on gold, as these factors reduce the demand for safe-haven assets and increase the opportunity cost of holding gold. Additionally, the upward revision in GDP growth further diminishes safe-haven appeal. However, gold may receive slight support from the widening trade deficit and increased crude inventories, which reflect underlying economic uncertainties.

• Equities Futures Impact:
  Equities futures may find support from robust services data and higher employment in non-manufacturing sectors, as these indicate ongoing growth and consumer spending potential. However, rising yields in Treasury auctions and increased non-manufacturing prices may create some caution, as they imply increased borrowing costs and potential margin pressures. Additionally, the weaker factory orders and wider trade deficit suggest that challenges remain in goods production and exports, potentially weighing on industrial and export-driven stocks.

Today’s data reflects a mixed U.S. economic outlook, with strong performance in services and a resilient labor market in non-manufacturing, contrasted by weaknesses in manufacturing and trade. Rising yields support the USD and may weigh on gold as inflationary pressures continue within non-manufacturing prices. Equities may be buoyed by robust services data, although caution may arise from increasing input costs and borrowing rates. Overall, economic resilience is evident, though goods production faces notable headwinds.