(Bloomberg) — A selloff in Treasuries strengthened the dollar and left equities mixed as new signs of economic vigor led traders to trim expectations for US rate cuts.
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Shares in Japan rose, helped along by a weaker yen, while equities in Australia and South Korea fell. US futures were flat after the S&P 500 retreated from an intraday record Thursday to end the session little changed.
Swaps traders further reduced bets on Federal Reserve rate cuts in the remaining two meetings of the year. Treasuries were steady after a Thursday jump in yields pushed an index of dollar strength higher for a fourth session to a level not seen since early August. Australian and New Zealand yields climbed in early Friday trading, tracking the moves.
The shift in forecasts reflected robust US retail sales in September that exceeded expectations, illustrating resilient consumer spending that continues to power the economy. The data followed a blowout jobs report and a hotter-than-estimated consumer inflation print released earlier this month that only reinforced the view the US is nowhere near a recession.
“There’s a narrow path toward a Fed pause in November, but it would likely require every notable economic report between now and then indicating a stronger-than-assumed US economy,” said Matthew Weller at Forex.com and City Index. “Regardless of what the Fed does in November though, the projected path for interest rates looking out into 2025 and beyond is higher than it’s been in weeks.”
In Asia, investors will firmly be focusing on China, with gross domestic product data for the third quarter expected to reveal the slowest pace of growth in six quarters. Home prices, industrial production and retail sales data are also set for release Friday, providing further clarity for investors grappling with the economic support measures unveiled in the prior weeks that have sent Chinese equities whipsawing.
Elsewhere in the region, headline inflation in Japan rose 2.5% as expected. The yen was moderately weaker after passing the psychological level of 150 per dollar Thursday, bringing the risk of official intervention back into focus.
In corporate news, US-listed shares in Taiwan Semiconductor Manufacturing Co. touched a record high after the chipmaker topped quarterly estimates and raised its target for 2024 revenue growth. The bullish outlook spread to Nvidia Corp shares, which rallied.
US Economy
A string of stronger-than-estimated data points sent the US version of Citigroup’s Economic Surprise Index to the highest since April. The gauge measures the difference between actual releases and analyst expectations.
The retail sales data released Thursday “highlight undeniable strength across the economy,” said Ellen Zentner at Morgan Stanley Wealth Management. “Strong data will encourage some pushback from Fed participants to cutting again in November, but Chair Jerome Powell is unlikely to be swayed from forging ahead with steady, quarter-point moves.”
Jeff Roach at LPL Research says strong consumer spending in September suggests economic growth in the previous quarter was solidly above trend. Looking ahead, investors need to monitor any signs that the unemployed are finding it more difficult to earn a paycheck.
“Retail sales came in well above expectations and continue to defy the weak economy thesis,” said Quincy Krosby at LPL Financial. “The implications for monetary policy center on whether the Fed worries that the renewed strength in the economy fuels an uptick in inflation, although expectations remain that there will be a 25 basis-point cut at the next meeting.”
In commodities, gold climbed to a fresh record amid ongoing tensions in the Middle East, while West Texas Intermediate, the US crude price, edged higher to trade around at almost $71 per dollar.
Key events this week:
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China GDP, Friday
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US housing starts, Friday
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Fed’s Christopher Waller, Neel Kashkari speak, Friday
Some of the main moves in markets:
Stocks
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S&P 500 futures were little changed as of 9:19 a.m. Tokyo time
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Hang Seng futures fell 0.3%
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Japan’s Topix rose 0.6%
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Australia’s S&P/ASX 200 fell 0.7%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.0830
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The Japanese yen rose 0.1% to 150.04 per dollar
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The offshore yuan was little changed at 7.1348 per dollar
Cryptocurrencies
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Bitcoin rose 0.5% to $67,290.99
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Ether rose 0.2% to $2,601.45
Bonds
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The yield on 10-year Treasuries was little changed at 4.09%
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Japan’s 10-year yield advanced one basis point to 0.970%
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Australia’s 10-year yield advanced six basis points to 4.30%
Commodities
This story was produced with the assistance of Bloomberg Automation.
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