top of page

Weekly Economic Roundup: Key Events and Insights [18th October 2024]

Mixed U.S. Data: Retail Sales Rise, Industrial Production Falls as Fed's Rate Cut Path Faces Uncertainty


Yesterday's retail sales and weekly employment figures from the U.S. fueled doubts about the pace of the Federal Reserve's interest rate cuts. Treasury yields rose by 7 to 10 basis points, and the U.S. dollar increased by more than 0.3%, but some of these gains were reversed as the initial reaction faded.


U.S. initial jobless claims unexpectedly fell after the previous week’s rise due to hurricanes impacting certain states. For the week ending October 11, claims dropped by 19,000 to 241,000, coming in below the consensus forecast of 260,000. Additionally, continuing claims for the week ending October 5 increased by 9,000 to 1.867 million compared to the revised figures from the previous week. This marks the highest level since the figures recorded in July.


The Helene and Milton hurricanes left many unable to work, and many affected individuals may not have filed claims yet, leaving the possibility open for more volatility in the data in the coming weeks.


On the other hand, U.S. retail sales, the engine of economic growth, rose more than expected in September, highlighting the resilience of consumer spending. The report from the U.S. Census Bureau showed that retail sales increased by 0.4%, following a 0.1% rise in August, surpassing economists' expectations of a 0.3% increase.


Moreover, the control group, which is considered a more accurate measure of consumer spending, rose by 0.7% following a 0.3% increase, marking the strongest growth in three months. This gauge excludes food services, automobile dealers, building materials stores, and gas stations. With the September figures now in, control group sales for the third quarter grew by 6.4% year-over-year, marking the strongest growth since the beginning of 2023.


While retail and employment data underscores the strength of the U.S. economy, another report revealed weakness in industrial production. Following a 0.3% increase in August, September's data showed a 0.3% contraction, greater than the expected 0.2% decline. However, this figure was likely influenced by temporary factors such as hurricanes and labor strikes.


After the latest data, the Atlanta Fed’s GDPNow model raised its forecast for U.S. economic growth in Q3 to 3.4%, up from 3.2% on October 9. The estimate for domestic investment growth fell from 3.3% to 3.1%, while the forecast for personal consumption expenditures growth rose from 3.1% to 3.6%. Such an increase in personal consumption would make Q3 the fastest-growing quarter of the year.


The latest data emphasized the ongoing strength of the U.S. economy, pushing back fears of an imminent slowdown. Although expectations for a 25 basis point rate cut at the Fed’s next meeting have remained relatively unchanged, the consensus that rate cuts will proceed at a slower pace is gaining traction.


Futures market data now price in a 41-basis-point easing over the November and December meetings. Besides, January contracts reflect expectations of a cumulative 59-basis-point cut, suggesting doubts that the Fed may pause at the January meeting, even if it proceeds with quarter-point cuts in the remaining two meetings of the year.


Recent inflation data, showing slower progress on inflation, combined with a strong labor market, solid wage growth, and resilient consumer spending, supports the growing doubts about the pace of rate cuts. Moreover, with less than three weeks remaining until the U.S. presidential election, this is another major factor supporting the doubts. The belief that both candidates may pursue policies that could fuel inflation is driving down rate-cut pricing.


These are pushing up long-term U.S. Treasury yields and strengthening the U.S. dollar. Markets will continue to assess the data coming at the end of this month ahead of the U.S. elections and the Fed meeting two days after.


Gold Hits Record High Amid Middle East Tensions and Fed Rate Uncertainty


Gold has surpassed the $2,700 mark and is trading near a record high of $2,712 per ounce amid escalating conflicts in the Middle East and expectations that the decline in U.S. inflation could slow.


Geopolitical tensions surged after Israel reported the killing of Hamas leader Yahya Sinwar, the Hamas leader who masterminded the Palestinian group's attack on Israel. Israeli Prime Minister Benjamin Netanyahu emphasized that they will continue fighting until all hostages taken by Hamas last year are released. This is driving up demand for gold as a safe haven.


On the other hand, data from the U.S. increases the likelihood that the Federal Reserve will slow the pace of its rate cuts. Typically, higher interest rates are negative for gold. However, political and economic uncertainties stemming from the upcoming U.S. elections, combined with geopolitical risks, are fueling safe-haven demand.


While markets are focused on developments in the Middle East, the strengthening U.S. dollar could trigger a pullback in gold prices.



ECB Cuts Rates for Third Time as Inflation Eases and Economic Risks Loom


Yesterday, markets closely followed the region’s inflation data just hours before the European Central Bank’s (ECB) rate cut decision. The preliminary reading of September’s consumer prices, released earlier in the month, showed that headline inflation had fallen from 2.2% to 1.8%, dropping below the target rate. However, final data released yesterday revised this figure down to 1.7%. The core indicator, which excludes volatile food and energy prices, also eased to 2.7%, in line with the preliminary reading.


Later in the day, during its October monetary policy meeting, the ECB cut rates by a quarter point for the third time this year, aiming to support the region’s faltering economy in light of the sharp drop in inflation. As a result, the deposit facility rate was lowered to 3.25%, while the main refinancing operations and marginal lending facility rates were reduced to 3.4% and 3.65%, respectively.


The statement accompanying the decision noted that the inflation decline is on track but is expected to rise again towards the end of the year before falling back toward the target next year. The Governing Council emphasized that rates will remain restrictive for as long as necessary.


Market observers closely followed ECB President Christine Lagarde’s press conference for more clues on the bank’s future path. Lagarde noted that downside risks to inflation outweigh upward threats, and while growth risks remain to the downside, a recession is unlikely. However, she declined to comment on when and how quickly interest rates might be reduced.


Following the decision, market bets on further rate cuts increased. Despite Lagarde’s reluctance to offer comments, the fact that a second consecutive rate cut was made after there had been no indication of any cuts just weeks ago has led markets to expect more aggressive easing.


Futures market data now price a 20% chance of a half-point cut at the year’s final meeting in December. While some economists view this pricing as exaggerated, they also note that downside risks to the region's economy and the accelerating disinflation process make such a move not impossible. As expectations for more aggressive rate cuts from the ECB grow, pressure on the euro is likely to intensify.



China’s Growth Slows Despite Strong Industrial Output and Retail Sales Gains


China's economic growth in the third quarter exceeded economists' forecasts of 4.5%, but the slowdown continued.


A report released by the National Bureau of Statistics showed that China’s economy grew by 4.6% year-over-year in the July-September period. This marks a decline from the 4.7% growth in the second quarter and is the slowest pace since March 2023. Additionally, the figure indicates that growth for the first nine months has fallen to 4.8%, further from the 5% target.


On the other hand, industrial production significantly exceeded the expected 4.6% increase, growing by 5.4%. Retail sales, a measure of consumer spending, rose by 3.2% following a 2.1% increase in the previous period, beating the 2.5% forecast. Meanwhile, the real estate sector continued to shrink, with a 10.1% decline.


Economists welcomed the improvements in key indicators following the stimulus measures, but they emphasized the need for caution due to the continued slowdown in growth. Considering the increasingly complex external environment calls for additional fiscal stimulus aimed at boosting consumer spending are growing in order to ensure a sustainable economic recovery.

DUHANI

Register Address​:

43 Great George Street, 

St Great George, 

Roseau, Dominica

Email:

support@duhanicapital.com

Physical Address​:

Rruga Pavaresia, 

Nd:129 H.5, Ap/27, 

Durres Albania

Telephone:


+355 524 20144​

Disclaimer: This website is owned and operated by Duhani Capital Ltd., prepared in compliance with applicable regulations. It is not intended for distribution, use, or account opening by any individual or entity in jurisdictions where such actions are restricted or prohibited by law, regulation, or internal policies.

Risk Warning: Trading Foreign Exchange (‘Forex’) and Contracts for Difference (‘CFDs’) involves a high level of risk due to leverage, which can amplify both gains and losses. These products may not be suitable for all investors, as you may lose your entire invested capital. It is essential to trade only with capital you are prepared to lose. Before engaging in trading, ensure that you fully understand the risks involved, consider your investment objectives, and seek independent advice if necessary. Please note that Duhani Capital Ltd. operates on an execution-only basis and does not provide financial advice or recommendations.

 

Restricted Jurisdictions: This website and its services are not intended for individuals residing in or legal entities based in the following jurisdictions, including but not limited to: USA, Malaysia, Cuba, North Korea, Lebanon, Libya, Mali, Myanmar (Burma), Nicaragua, Crimea region, Sevastopol, Somalia, Sudan, South Sudan, Syria, Venezuela, Yemen, Zimbabwe, Japan, and Iran.

 

Company and Licensing: Duhani Capital Ltd. is incorporated in Dominica and operates in partnership with Financial Master Management Ltd. for trading and dealing in Forex & CFDs. Financial Master Management Ltd. holds the exclusive Master Financial Dealer License (License No: 2023/C0010-0004).

FinCEN Registration: Duhani Capital Ltd. is registered as a Money Services Business (MSB) under the Financial Crimes Enforcement Network (FinCEN), Registration Number: 31000280238735.

Copyright © 2024 Duhani Capital Ltd.

  • Facebook
  • Instagram
  • X
  • LinkedIn
bottom of page