USD Slips Below 200-DMA Despite Rebound in Yields: A Weekly Market Analysis
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USD slips below 200-DMA despite rebound in yields
By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank
Last week ended on a positive note where the US equities advanced to fresh highs since summer on a holiday shortened trading week. The S&P500 gained for the 4th consecutive week and closed the week near 4560, the rate-sensitive and technology heavy Nasdaq 100 extended gains beyond the summer peak, and hit an almost 2-year high, while the VIX index, which is known as Wall Street's fear gauge, or the volatility index, slumped to the lowest levels since January 2020. The belief that the Federal Reserve (Fed) is done hiking the interest rates, and the rapidly falling US long-term yields are at the source of this optimism – especially after the latest CPI update in the US printed a softer-than-expected number, suggesting that inflation in the US fell to 3.2% last month. This week, investors will find out if the Fed's favourite inflation gauge, the PCE index, tells the same story. The PCE index is expected to have fallen from 3.4% to 3.1% in October, and core PCE may have eased from 3.7% to 3.5% during the same month. Anything less than soothing could lead to some more correction in the US long-term yields. The 10-year yield jumped to 4.50% early Monday, though the positive pressure slowed above 4.50%.
News that the Black Friday spending jumped 7.5% this year to hit a record high of $9.8 billion certainly reminds investors that consumer spending in the US remains strong. The latter gives a strong support to the US economy, which in return gives a solid confidence to the Fed that keeping the rates high for long is not necessarily a bad idea. Today, the sales continue with Cyber Monday deals.
Yet the holiday shoppers' enthusiasm is less visible on the financial markets this Monday. The US futures are down, along with their Asian peers on the back of a rebound in US yields, the nearly 8% slump in Chinese industrial profits in October and news that children in China are suffering from respiratory infections – which spurs speculation that it could be a new strain of Covid. Chinese authorities say that it's simply a mix of known respiratory diseases. But you know, once bitten, twice shy.
