The DXY Index was barely changed at 104.32 overnight, consolidating in a 104-104.6 range for the fourth session. Since October 23, the greenback’s gains against the JPY and CAD have been offset by losses against the GBP, EUR, and CHF. Technically, the DXY is overbought. The 14-day RSI has cooled to slightly below 70 (overbought level) after peaking at 74.7 on October 23. A decline in this Friday’s US nonfarm payrolls to 110k (consensus) in October could reverse this month’s USD recovery driven by the surprise jump to 254k in September. The Fed’s Beige Book noted that employment growth was modest, primarily driven by replacement hiring rather than expansion.
The greenback has not been responding to rising US bond yields. First, the futures market has priced in two Fed cuts in November and December, which would lower the Fed Funds Rate to 4.25-4.50%. if so, this should cap the rise in the 2Y and 10Y yields, which closed overnight at 4.14% and 4.28%, respectively. Additionally, WTI crude oil prices plunged 4.4% on Monday to USD68 per barrel, reversing the spike to USD77 in early October driven by fears of a broader Israel-Iran conflict.
Markets should look past tomorrow’s US advance GDP growth for 3Q24, which is expected to stay at the same pace as 3Q24 at an annualized 3% QoQ saar. The Fed’s Beige Book noted that US economic activity has changed little across most districts since early September, contrasting with recent positive economic data. The report also cited cautious consumer spending because of the uncertainties surrounding the US Presidential elections on November 5. With bond yields some 50 bps higher this month, consensus may be too optimistic in expecting today’s Conference Board’s consumer confidence index to improve to 99.5 in October from 98.7 in September.
Second, US fiscal sustainability worries have increased. According to a study from the nonpartisan Committee for a Responsible Federal Budget (CRFB), former President Donald Trump’s election pledges would add twice as much to the federal debt as Vice President Kamala Harris’ proposals, tainting the attractiveness of the Trump Trade. During Trump’s first term (2017-2020), the US federal debt increased from 76% to 98.7% of GDP before rising to a projected 99.6% during President Joe Biden’s term (2021-2024). In August 2023, Fitch Ratings cited the expected fiscal deterioration over the next three years for removing America’s second “AAA” debt rating. If neither the Democrats nor Republicans sweep the US elections, expect another political standoff to raise the federal debt ceiling, which was last suspended to January 2025.
Quote of the Day
“Tyranny naturally arises out of democracy.”
Plato
October 29 in history
IN 1929, the stock market crashed on Wall Street and triggered the Great Depression.
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