US data released yesterday showed that the economy is stable in its fairly strong pace of growth as the increase of the second quarter GDP came out at an unrevised 2.1% annualised. The weekly jobless claims came in lower than expected, pointing to a robust labour market.
US Weekly jobless claims came in lower than expected
The US weekly jobless claims published yesterday, which came out at 204K verses the expected 215K, were similar to those released in previous weeks. The number shows that there are less unemployed people in the market than expected. The figure released is also below average, indicating that the labour market remains robust. All of this has occurred despite the significant increase in market interest rates, which should have calmed the already tight labour market.
US Q2 GDP adjusted to 2.1%
Yesterday also saw the announcement of the second quarter's GDP figures, which showed an adjusted figure to the anticipated 2.1%. The price components, however, decreased dramatically to 1.7% from the previous quarter's 4.1%. The market instantly reacted to this significant decline in the GDP price index by buying bonds and selling US Dollars. These actions lowered the 10-year yield to 4.6% and helped the stock market to slightly recover.
However, the market quickly turned around. The yield on the 10-year bond hit fresh highs of 4.68%, the stock markets started to sell again, and the US Dollar strengthened.
Investors who rule out the possibility of a change in the Federal Reserve's (Fed) plan to maintain interest rates at high levels for longer because of the single GDP price index data preferred the employment statistics. This was confirmed by statements of Fed officials yesterday who do not rule out further interest rate increases if inflation levels remain at current levels.
US debt ceiling agreement looms
The uncertainty around a spending ceiling deal between North American politicians is another topic concerning markets. Tomorrow, Saturday, is the deadline. If a deal is not met by then, the consequence will be a government shutdown. This could further result in new downgrades in the credit rating of the North American debt with the consequent rise in bond yields and more pressure on the stock market.
PCE out today
The Fed's favourite measure of inflation, the Personal Consumption Expenditure (PCE) statistic, will be released today. The data could have an important impact on the market. The stock markets, which are exhibiting unsettling signals of weakness, could only be supported by data that shows a noticeable improvement in inflation. The S&P500, which has fallen by more than 5% in September, is expected to close below the bullish trend line that has been in place since the start of the year.
USA500 monthly chart, September 29, 2023. Source: CAPEX.com WebTrader.
Key Takeaways
- US weekly jobless claims is lower than expected.
- US Q2 GDP adjusted to 2.1%.
- Drop in GDP price index resulted in the immediate buying of bonds and selling of the US Dollar.
- The market reversed its actions later on and the US Dollar strengthened.
- Fed officials released statements that despite recent data, further increases in interest rates have not been ruled out.
- Tomorrow is the deadline for a US debt ceiling agreement to be reached.
- The PCE data today will provide more information on the state of the US inflation.
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Sources: Bloomberg, Reuters
