Markets:
- Bitcoin trades to a new high at $93,483 before correcting lower to $89,021 currently. And is still up over $1000 on the day
- WTI crude trades down nine cents at $68.03
- 2 year yield 4.279%, down -6.5 basis points. 10 year yield 4.451%, +1.8 basis points
- Gold down -$22.69 or -0.87% at $2575.17
- S&P 500 rose 0.02%
- Nasdaq index fell -50.66 points or -0.26%
- Russell 2000 fell an additional -22.47 points or -0.94%. The index is down -1.26% this week
The US CPI data came in as expected with the headline up 0.2% in the court measure up 0.3% MoM. The year on year rose by 2.6% and 3.3% respectively.
Initially, the dollar fell but then reverse course and began a move back to the upside. The biggest rise vs the USD were versus the AUD (0.77%) and NZD (0.76%). The greenback also rose by 0.59% vs the JPY and 0.56% vs the EUR.
For the EURUSD, it is closing below the 1.0600 level which was the low price for the year before this week (see post here). The current price is trading at 1.0563. Staying below the 1.06005 to 1.0610 in the new trading day will keep the sellers in full control.
The USDJPY extended above the high of a swing area at 155.21 (see post here), and will look toward 156 and 157.11 in the new trading day.
The USDCAD is stretching to the 1.4000 level after breaking above the 2022 high price at 1.3977 (that level is close risk now). The current price is trading at 1.4002 just above that natural resistance target. The price is also trading at the highest level going back to May 2020.
The AUDUSD fell below a swing area between 0.6506 and 0.6511, and down to another swing area from July and August between 0.6471 and 0.6479. The low price reached 0.6479 and has bounced modestly.
IN other fundamental influences, there were several Fed members speaking today.
Dallas Fed President Lorie Logan cautioned that while the US economic activity remains resilient, the Federal Reserve should proceed cautiously with interest rate cuts to avoid reigniting inflation. Models suggest that the Fed funds rate is already “very close” to neutral, indicating that further cuts may not be necessary ¹. Logan emphasized the importance of balancing the need for more cuts with the risk of over-accommodation, which could lead to inflation re-acceleration.
Key Takeaways
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The Fed has made significant progress in reducing inflation but still hasn’t achieved price stability.
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The labor market is cooling gradually without weakening materially.
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Financial conditions pose significant challenges for monetary policy.
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Rising bond yields may necessitate less restrictive policy.
Logan’s comments highlight the delicate balance the Fed must strike in navigating the economy’s recovery while controlling inflation. With the Fed funds rate nearing neutral, policymakers must carefully consider their next moves to ensure sustainable economic growth
St. Louis Fed President Alberto Musalem also spoke today and noted that recent data indicates inflation risks have increased, but the jobs market risks remain unchanged or have decreased. Despite elevated core inflation, Musalem believes the Fed is nearing price stability, with inflation expected to converge to 2% in the medium term. He considers monetary policy well-positioned, allowing for cautious evaluation of income data to determine future rate cuts.
Musalem highlighted the economy’s strength, driven by consumption, income growth, productivity and supportive financial conditions, forecasting a solid fourth quarter. Productivity growth may be structurally sustainable, although uncertainty remains.
Key takeaways:
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Inflation data has strengthened but hasn’t altered the path to neutrality.
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Gradual policy easing towards a neutral rate is possible.
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Stronger data boosts Treasury yields, signaling higher inflation risks.
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The Fed may reassess rate cuts amid rising bond yields.
Musalem’s comments suggest a balanced approach, acknowledging inflation concerns while emphasizing the economy’s resilience and the Fed’s progress toward price stability.
Fianlly, Kansas City Fed President Jeffrey Schmid stated that the Federal Reserve’s recent interest-rate cuts reflect growing confidence that inflation is declining toward the 2% target. However, he emphasized that it remains uncertain how much further rates will decrease and where they will ultimately settle ¹.
Schmid acknowledged the economy’s resilience, driven by consumption, income growth, productivity, and supportive financial conditions, forecasting a solid fourth quarter. He hopes productivity growth can outweigh the effects of slowing population growth and rising fiscal deficits, but will prioritize data-driven decision-making over enthusiasm for productivity gains.
European indices close next with modest gains and losses in the 10 year note sector. Sen. John Thune of So. Dakota beat out Sen John Cornyn of Texas and Rick Scott of Florida for the new Senate Majority Leader.
Pres. Trump officially announced that Marco Rubio would be his Secretary of State and Matt Goetz would be his nominee for Atty. Gen.(HMMM).