In the US today, it was a quasi-holiday as the US debt market was closed in observance of the Columbus Day holiday. As a result, there were no government issued releases today. The US stock market was open, however. Also, bond futures markets were open and they rose in price (lower yields).
The weekend geopolitical risk from the Hamas bloody terrorist bombings in Israel which resulted in over 1000 deaths and thousands of injuries sent US stock lower at the opening of trading, and a flight into the US dollar. However, stocks started to recover, yields moved lower (as per the bond futures), and the USD reversed course through the course of the day.
The Dow fell -153 points at the session low but closed up close to 200 points or 0.59%. The Nasdaq index also traded down -153 points but closed higher by 52.89 points or 0.39%. The S&P rose 0.63% leading the way when looking at the major US indices.
Look at the forex, the USD was one of the strongest of the major currencies at the start of the NY session, but is closing as one of the weakest currencies at the close (only surpassed marginally by the EUR). The NZD is the strongest of the majors, followed by the AUD.
Helping to push the dollar lower was some conciliatory comments from Fed officials after the strong job gains on Friday.
Although Dallas Fed President Lorie Logan stressed the need for restrictive financial conditions to address inflation. She also noted the role of higher term premiums in elevating long-term rates and suggested that if this is a primary cause, the Fed might not need to raise rates as aggressively. She did caution that if a stronger economy is driving long-term rates, more action from the Fed may be required. She did stress that inflation control and price stability are her primary concerns, and while there’s progress, caution remains due to the uncertain path to the 2% inflation target. Logan highlighted the strong labor market and economic output but is also monitoring the China slowdown and financial conditions. She believes the economy is adapting quickly to monetary policy and anticipates a possibly higher long-term neutral rate.
Meanwhile VIce Chair Jefferson stressed the importance of cautious monetary policy adjustments to avoid excessive or insufficient tightening. He is not yet confident that enough tightening has been done but is also mindful of the delayed effects of past rate hikes. Jefferson is watching the rise in long-term yields and is focused on both the persistent high inflation and the potential for core PCE prices to moderate as the labor market balances. He acknowledged a tight labor market, inflationary risks from a strong economy, and downside risks from potential slowdowns in China and Europe. Jefferson described the current policy as restrictive and emphasized the need for flexibility in response to economic changes, aiming for a policy that supports employment growth while steering inflation towards the 2% target.
Of note was that the market took out tightening with the expectations for November rate hike falling from above 30% on Friday to around 14% today. Moreover, they moved a cut in 2024 to June from July earlier today.
US CPI will be released later this week and will be important for the Fed going forward.
