Markets:
- Gold up $3 to $1922
- WTI crude oil up 65-cents to $87.31
- US 10-year yields up 13 bps to 4.84%
- S&P 500 flat, Nasdaq -0.3%
- AUD leads, CAD lags
The retail sales report highlighted — once again — that you can’t underestimate the spending power of the US consumer. The data was followed by a wave of US dollar strength, bonds selling and equity weakness. It was all unfolding just about as you would expect but then it shifted.
The dollar selling reversed and equities bounced. It’s not clear at all why it shifted, though some were watching the political drama unfold in Washington and others were watching the Middle East. USD/JPY might have been a factor as it rose to 149.85 and that might have been too close for comfort to the 150.00 level. Still, the dollar selling was widespread even as pricing for Fed cuts next year fell to 54 bps and broader yields stayed near the highs.
USD/CAD was particularly notable as it surged on both US retail sales and a soft Canadian CPI report, highlighting that the BOC is probably done with rate hikes. After a 70-pip jump, the pair gave it all back over the next 90 minutes and stayed low, even as oil prices initial fell (they rebounded into settlement and beyond).
That pair highlights how fundamental moves aren’t lasting and just how tricky this market is. Biden is headed to Israel tomorrow and Xi will meet with Putin, so politics has everyone nervous but the bond market isn’t waiting around. A message of austerity is starting to seep in as 10-year yields now trade within 4 bps of the cycle high while 5s broke out today. Hopefully that’s a symptom of higher-for-longer due to a strong economy but the more pundits yell that it’s because deficits are out of control, the more that perception becomes reality (and who is to say they’re wrong).