Market Review: December 9-10, 2024

Data from December 9 and 10, 2024, reflects steady economic growth alongside rising inflation expectations and subdued wage pressures. The NY Fed’s 1-Year Consumer Inflation Expectations rose to 3.00%, signaling heightened near-term inflation concerns. However, Unit Labor Costs grew only 0.80% in Q3, well below expectations, indicating easing wage-driven inflation pressures. The Atlanta Fed’s GDPNow estimate remained steady at 3.30%, reinforcing consistent growth expectations. Meanwhile, crude oil inventories saw a modest increase, signaling stable supply conditions.

Key Highlights:

Inflation and Growth Expectations:

• NY Fed 1-Year Inflation Expectations increased to 3.00%, reflecting higher short-term inflationary pressures.
• The Atlanta Fed GDPNow estimate for Q4 remained unchanged at 3.30%, indicating stable economic momentum.

Labor Market Dynamics:

• Nonfarm Productivity grew by 2.20% in Q3, matching expectations but below the previous 2.50%, signaling steady efficiency gains.
• Unit Labor Costs rose by 0.80%, significantly below the forecast of 1.90%, suggesting subdued wage-driven inflation.

3-Year Note Auction:

• Yields on 3-Year Notes fell slightly to 4.12%, indicating stable demand for short-term U.S. debt.

Energy Markets:

• Crude oil inventories increased by 0.499M barrels, signaling stable supply-demand conditions in energy markets.

Impact Analysis:

• USD Impact:
  Rising inflation expectations and steady GDP growth provide support for USD, reinforcing the potential for Fed tightening. However, lower labor cost pressures temper inflationary concerns, leaving the overall USD impact neutral to slightly bullish.

• Gold Impact:
  Gold benefits from higher inflation expectations but faces bearish pressure from subdued wage-driven inflation and steady growth data, which reduce safe-haven demand. The overall gold outlook is neutral.

• Equities Futures Impact:
  Equities are likely to react positively to reduced labor cost pressures, which support profit margins, and consistent growth expectations. Rising inflation expectations could weigh on sentiment, but the overall equities outlook is bullish.

The data highlights a stable U.S. economy, with consistent growth expectations balanced by mixed inflation signals. Rising short-term inflation expectations point to potential price pressures, while lower labor costs provide relief for businesses. Energy markets remain stable, with crude inventories showing modest builds. Markets are likely to focus on the Fed’s response to these dynamics, particularly regarding inflationary pressures and labor market conditions