Market Review: december 19, 2004

Economic data from December 19, 2024, highlighted the resilience of the U.S. economy, with GDP growth for Q3 revised upward to 3.10% and labor market metrics improving. Initial jobless claims fell to 220K, and continuing claims dropped to 1,874K, underscoring labor market strength. However, the Philadelphia Fed Manufacturing Index fell sharply to -16.4, reflecting a significant contraction in regional manufacturing activity. Housing market data showed robust performance, with existing home sales exceeding expectations and rising 4.80% month-over-month. The Fed’s balance sheet continued to decline, reflecting ongoing quantitative tightening.

Key Highlights:



GDP and Inflation:

• Q3 GDP growth was revised upward to 3.10%, beating expectations of 2.80%, reflecting strong economic activity.
• The GDP Price Index rose by 1.90%, aligning with forecasts and showing moderate price pressures.

Labor Market:

• Initial jobless claims fell to 220K, below the forecast of 229K, while continuing claims decreased to 1,874K, indicating labor market resilience.

Manufacturing and Leading Indicators:

• The Philadelphia Fed Manufacturing Index plunged to -16.4, well below the forecast of 2.9, signaling a sharp contraction in regional manufacturing.
• The US Leading Index rose by 0.30%, improving from the prior -0.40%, signaling better future economic conditions.

Housing Market:

• Existing home sales rose to 4.15M, exceeding expectations, while monthly sales increased by 4.80%, reflecting strong consumer demand.

TIPS Auction and Fed’s Balance Sheet:

• The 5-Year TIPS yield rose to 2.12%, reflecting higher inflation expectations.
• The Fed’s balance sheet declined to $6,889B, signaling continued quantitative tightening.

Impact Analysis:

• USD Impact:
  Strong GDP growth, labor market improvements, and a rising leading index supported USD. However, weaker manufacturing data and lower TIC net transactions slightly tempered bullish sentiment. The overall USD impact is bullish.

• Gold Impact:
  Gold faced bearish pressure from strong GDP and labor data, as well as quantitative tightening. However, weak manufacturing data and reduced foreign investment provided mild support. The overall gold outlook is bearish.

• Equities Futures Impact:
  Equities futures reacted positively to strong GDP and labor market data, as well as robust housing activity. However, the sharp decline in manufacturing and higher TIPS yields may have weighed on industrial and rate-sensitive sectors. The overall equities outlook is bullish.

Thursday’s data showcased a resilient U.S. economy, with strong growth and labor market data driving market optimism. However, manufacturing weakness and rising yields highlight ongoing sectoral challenges. The Fed’s balance sheet tightening remains a key factor influencing liquidity conditions. Markets will focus on balancing these dynamics as the year approaches its end.