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More Economic Data Points to a Rate Cut Next Year

Miguel A. Rodriguez
Miguel A. Rodriguez
17 November 2023

Rise in US jobless claims and a fall in industrial production figures show a slowing economy. Bets on cut rates next year mount as US Dollar weakens against the Japanese Yen.

US Jobless Claims Rose  

The US Dollar weakened, and Treasury yields fell yesterday after jobless claims rose to 231,000 from 217,000 in the week ending November 11.

Together with weaker-than-expected industrial production figures, this data reinforces market sentiment of a slowing economy. The Federal Reserve's (Fed) aggressive cycle of interest rate hikes is what led to the current state of affairs.  

US Dollar Weekend Against the Yen

As a result, the US Dollar weakened against the Japanese yen, taking the USD/JPY pair almost 100 pips lower. This pair maintains the greatest correlation with the Dollar interest rates.

Consequently, Treasuries rose (yields fell) after data highlighted a gradual economic cooling. Speculations that the Fed will end its aggressive hiking campaign were reinforced. Currently, the federal funds futures market is already anticipating interest rate cuts for next year.

Treasury Yields and the S&P 500 Index Fell

Treasury yields fell between 5 and 9 basis points across the curve. Two-year yields fell eight basis points to around 4.85%.

Yesterday saw a decline in the S&P 500 index following several days of gains. Just as in recent days, the fall in market interest rates failed to support the stock market. Everything indicates that investors are beginning to worry less about the evolution of interest rates and more about the state of the economy and the results of companies.

Walmart Stock Plummeted after Q3 Earnings Release

Yesterday, the retail giant Walmart Inc. released its Q3 earnings. The release cast doubts on the future of American consumers and caused the company’s stock to fall more than 7%.

Walmart also warned yesterday that there was a "steeper decline" in sales during the last two weeks of October. This quote suggests a slowdown in consumption. The company’s CEO, Doug McMillon, also said he sees possible deflation in the coming months.

A pessimistic speech that brings the issue of a deeper economic slowdown and the question of a possible soft landing to the forefront.

Walmart chart 17 nov 2023.png

Walmart daily chart, November 17, 2023. Source: CAPEX.com WebTrader.  

Key Takeaways

  • US jobless claims rose to 231,000 from 217,000 in the week ending Nov. 11.
  • Industrial production figures fell more than forecasted.
  • These figures show a slowing economy and enhance the notion that the Fed could cut rates next year.
  • The USD/JPY pair fell almost 100 pips lower.
  • Treasury yields fell between 5 and 9 basis points across the curve.
  • The S&P 500 fell after several days of rallies.  
  • Walmart’s stock fell more than 7% after release of Q3 earnings.

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Sources: Bloomberg, Reuters 

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Miguel A. Rodriguez
Miguel A. Rodriguez
financial_writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.