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Strong Data Lifts Dollar

Matt Eidinger November 27, 2019

Americans (and Donald Trump) have much to be grateful for this Thanksgiving, with incoming data suggesting that the economy continues to perform well above expectations. Durable goods orders, revised gross domestic product numbers, and initial jobless claims data released this morning all managed to beat consensus market forecasts.

Durable goods orders rose 1.2% in October, well above market expectations that had been set closer to -0.2%. Numbers released by the Census Bureau show a $1.5 billion increase for the month – marking a steep rebound from September’s negative -1.4% print.

With defense-related products like ships and fighter aircraft excluded, capital goods orders (a widely-monitored proxy for business investment) rose 1.2% versus the -0.2% drop expected in financial markets. Overall civilian orders grew by just 0.1%, echoing a broader trend that has pushed growth in all durable goods down by -1% this year.

As per the Bureau of Economic Analysis, third-quarter gross domestic product growth was revised from the previously-reported 1.9% up to 2.1%, with increased consumer spending on both durable and non-durable goods and modest adjustments to spending on services helping to lift the headline. Personal consumption growth remained unchanged at 2.9%

Core personal consumption expenditures – the Federal Reserve’s preferred inflation measure – rose 2.1% in the third quarter after a 1.9% print in the second.

Underlining a continued bifurcation between the consumer and business sides of the economy, non-residential fixed investment (spending on equipment, buildings, and intellectual property) fell -2.7% after dropping -1% in the prior quarter.

Lastly, initial claims for unemployment benefits dropped 15,000 to 213,000 in the week ending November 23, pushing the four-week moving average to 219,800. Continuing claims fell 57,000 – underlining continued strength in the US job market.

Overall, the data suggest that the American economy remains heavily reliant on consumers, who seem largely unaware of – or largely unmoved by – the elevated levels of uncertainty that have derailed business investment.

This is translating into strength in the trade weighted dollar – which has moved up slightly in recent weeks. According to overnight index swap rates, money markets are becoming less eager to wager that the Fed will move to cut rates by mid-2020 – and some participants are pricing in a small chance that rates may rise 0.25% over the same time period.

This turkey isn’t cooked until it’s cooked. Happy Thanksgiving!

Matthew Eidinger
Fintech Specialist, Dealing Operations

 

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