16/08/2024 Daily Reports
US benchmark equity indexes and Treasury yields surged on Thursday as investors evaluated the latest economic data and corporate earnings reports.
The gains were led by consumer discretionary and technology sectors, while real estate was the only sector to decline. Utilities remained relatively unchanged.
On the economic front, US retail sales in July exceeded expectations, driven by strong spending on cars and electronics, according to the Census Bureau.
Data released on Wednesday revealed that the annual consumer inflation rate slowed more than anticipated, boosting hopes that the Federal Reserve might begin easing monetary policy in September.
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TD noted in a Thursday report that unless there is a significant boost in retail sales, the current trajectory of slowing employment and controlled inflation supports the expectation of three quarter-point rate cuts from the Fed by the end of the year.
Meanwhile, weekly jobless claims in the US unexpectedly fell, though the four-week average for continuing claims stayed at its highest level since November 2021, as reported by the Department of Labor.
US homebuilder confidence reached its lowest point since December 2023, with rising interest rates and high home prices affecting sentiment, according to data from the National Association of Home Builders and Wells Fargo.
Additionally, manufacturing activity in New York contracted less than expected in August, while the Mid-Atlantic region reported a surprising decline in new orders and shipments.
In the bond market, the US two-year yield surged by 15.6 basis points to 4.10%, and the 10-year yield increased by 9.9 basis points to 3.92%.
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The U.S. dollar hovered near a two-week high against the yen, following its largest one-day gain in four weeks, supported by strong U.S. economic data. Treasury yields surged as traders scaled back expectations for aggressive rate cuts by the Federal Reserve next month. The dollar index remained stable after a 0.41% rise, while the yen traded at around 149.11 per dollar, close to its highest level since early August. Retail sales growth of 1.0% and fewer-than-expected unemployment claims further bolstered the dollar’s strength.
Despite earlier predictions of a large 50 basis-point rate cut by the Fed, traders are now more cautious, with the likelihood dropping to 25%, down from 36% the previous day. Improved economic indicators have reduced recession fears, and the “soft landing” scenario is gaining traction. Risk-sensitive currencies like sterling and the Australian dollar also strengthened alongside a rally in equities.
