On Tuesday (October 17), the strong economic report strengthened the reason for the Federal Reserve to maintain high interest rates for a longer time. The yield of US treasury bond bonds climbed, and the US stock market was in trouble.
The yield of two-year US treasury bond hit the highest level since 2006, while the yield of 10-year treasury bond rose 13 basis points to 4.83%. Swap contracts related to the Federal Reserve's interest rate decision show that traders expect policymakers to have a more than 60% chance of increasing by another 25 percentage points in January after stabilizing in November. Taking action in December is considered possible, but the likelihood is lower than in January.
The S&P 500 index erased the gains, led by the decline in its most influential sector - technology stocks. NVIDIA's stock price plummeted due to US restrictions on the sale of chips designed for the Chinese market. Goldman Sachs' profits fell by 33%, leading to a decline in its stock price. Bank of America's stock market rose after traders reported their best third quarter results in over a decade.
Gold and silver prices slightly rose on Tuesday. Although the US retail sales report this week was stronger than expected and the yield of US treasury bond bonds rose, the bullion of precious metals still held its ground. In December, gold rose by $1.80 to $1936.10, while silver rose by $0.23 to $22.995.
In the foreign exchange market, the US dollar/yen rose to 149.85, and the US dollar/Canadian dollar initially surged due to US retail sales and Canada's weak consumer price index report, highlighting that the Bank of Canada may have ended raising interest rates. But after rising by 70 points, the currency pair will fully retreat and remain low for the next 90 minutes.
Edward Moya, Senior Market Analyst for the Americas at Oanda, said: "The good news on the economic front is once again becoming bad news because it will make policymakers take a wait-and-see attitude towards implementing more tightening policies. The US economy does not seem ready to enter a recession
The retail sales in the United States in September exceeded market forecasts, and industrial production has also strengthened, which is evidence of the resilience of American consumers, whose spending is helping to stabilize the manufacturing industry.
According to a preliminary report released by the US Department of Commerce on Tuesday, retail sales increased by 0.7% in September, far exceeding Dow Jones' expectation of 0.3%. With the rise in oil prices, gas station sales increased by 0.9%, driving overall data growth.
If excluding car sales, retail sales also increased by 0.6%, far exceeding the expected 0.2%. When calculating Gross Domestic Product (GDP), the control group for items such as car dealerships, gas stations, office supply stores, mobile homes, and tobacco stores is usually excluded, resulting in an increase of 0.6%.
These reports have prompted many economists such as Goldman Sachs, JPMorgan Chase, and Morgan Stanley to improve their tracking forecasts for the third quarter's gross domestic product.
Richmond Fed Chairman Thomas Barkin stated that policymakers "have time" to consider whether they can maintain interest rate stability or whether further interest rate hikes are needed to achieve their 2% inflation target.
Traders are also closely monitoring the latest geopolitical events. US President Joe Biden will travel to Israel on Wednesday to express solidarity after the October 7th attack by Hamas, which is designated as a terrorist organization by the United States and the European Union. The Israeli army attacked the southern Gaza Strip after ordering people to take refuge.
The Bank of Israel emphasized the urgency of stabilizing the shekel after it fell to an eight year low, reversing traders' expectations of a significant interest rate cut next week.
According to insiders, the Bank of Japan may discuss raising its inflation expectations for the fiscal years 2023 and 2024 at its policy meeting later this month, extending the time frame for it to expect prices to reach or exceed the 2% target. After the announcement of the central bank's monetary policy outlook, the yen briefly strengthened. Wednesday trading day focus and wind vane:
① 10:00 China's third quarter GDP annual rate, China's September total retail sales of consumer goods annual rate, China's September industrial value-added annual rate above designated size
② 14:00 UK September CPI and retail price index monthly rate
③ 17:00 Eurozone September CPI annual and monthly rates
④ 20:30 Annualized total number of new housing starts in the United States in September and total number of construction permits in the United States in September
⑤ 22:30 EIA crude oil inventory for the week from the United States to October 13, Cushing crude oil inventory for the week from the United States to October 13, and Strategic Petroleum Reserve inventory for the week from the United States to October 13
⑥ 24:00 Federal Reserve Governor Waller delivers a speech on the economic outlook
⑦ The next day at 00:30, Federal Reserve Williams delivered a speech
⑧ The next day at 02:00, the Federal Reserve releases the Beige Book on Economic Conditions
⑨ The next day at 03:15, Federal Reserve Huck delivered a speech on labor challenges
Analysis of Major Currency Trends:
EUR: EUR/USD up, closing at 1.0577, up 0.16%. Technically, the initial resistance to the upward trend of the exchange rate is at 1.0603, the further resistance is at 1.063, and the key resistance is at 1.0665; The initial support for the downward trend of the exchange rate is at 1.0540, further support is at 1.0505, and more critical support is at 1.0478.
GBP: GBP/USD fell to close at 1.2182, a decrease of 0.24%. Technically, the initial resistance to the upward trend of the exchange rate is at 1.2220, the further resistance is at 1.2260, and the key resistance is at 1.2304; The initial support for the downward trend of the exchange rate is at 1.2136, further support is at 1.2093, and more critical support is at 1.2053.
JPY: USD/JPY up, closing at 149.798, up 0.19%. Technically, the initial resistance to the upward trend of the exchange rate is at 150.192, the further resistance is at 150.588, and the key resistance is at 151.323; The initial support for the downward trend of the exchange rate is at 149.061, further support is at 148.326, and more critical support is at 147.93.
