The US dollar rose supported by higher yields. For the third coupon auction this week, demand was less than ideal. Yesterday was the 2 and 5 year auction. Today was a 7 year note.
For the trading week, the 10-year yield did not come close to 15 basis points while the 2-year yield rose by 3 basis points. This resulted in the 2-10-year spread rising to -35.9 basis points from -47.9 basis points on Friday.
The Richmond Fed Manufacturing Index moved to 0 from -7 previously.
The Fed released its Beige Book (prepared by the Dallas Fed) today. The report appears to be leaning more towards the slowing side, but with growth, employment and prices continuing to expand/rise.
From early April to mid-May, the report said national economic activity expanded, although conditions varied across industries and regions. Most regions saw slight or modest growth, and two regions reported no change. Retail spending was stable to slightly elevated, characterized by lower discretionary spending and increased price sensitivity. Car sales were nearly flat, with some manufacturers offering incentives. The travel and tourism sector strengthened, although expectations for the hospitality sector for the summer were mixed. Demand for non-financial services increased, while transportation services showed mixed results. There was strong demand for nonprofit and community services, and manufacturing activity was generally stable, except for declines in two regions. Lending growth was constrained by tight credit standards and high interest rates. Demand for housing rose modestly, and single-family construction increased despite higher rates affecting sales. Commercial real estate conditions have eased. Energy activity remained stable, and agricultural reports were mixed, with drought conditions easing but concerns about farm finances persisting. Overall expectations have become more pessimistic due to increased uncertainty and increased downside risks.
Regarding prices, overall trends in the United States rose modestly, but consumer opposition to these increases resulted in lower profit margins for companies. To attract customers, retailers offered discounts. Despite some decline in the prices of some construction materials and raw materials for manufacturing, input costs, especially insurance, continued to rise. Modest price growth is expected in the near term.
Finally, US employment rose slightly overall, with eight regions recording modest job gains and four regions noticing any change. Labor availability has improved, although some industries still face shortages. Employee turnover decreased, giving employers more bargaining power. Hiring plans were mixed, with some regions anticipating modest job gains and others pulling back due to weak business demand and economic uncertainty. Wage growth remained moderate, with some regions seeing modest increases and a return to pre-pandemic levels.
At the end of the day, the US dollar ends the day as the strongest among the major currencies. While the Australian dollar and the Canadian dollar are the weakest. With the Swiss Franc and Japanese Yen also leaning to the upside, there was more risk-off sentiment in trading today.
The dollar is the strongest. The Australian dollar is the weakest
US stocks support this idea with declines in all major indices:
- The Dow Jones Industrial Average fell for the fourth time in five trading days (one day was up 0.01%). It was seven days ago when the Dow Jones Industrial Average closed at 40,003. Today the index fell -411.32 points or -1.06% to 38441.55 (-1561.45 or -3.9%).
- The S&P index fell by -39.07 points, or -0.74%, to 5,266.96 points.
- The Nasdaq fell -99.30 points, or -0.55%, to 16,920.58. They came a day after closing above 17,000 for the first time since 17,032.
As mentioned, yields were a major catalyst for the dollar's rise and the stock market's fall:
- The two-year yield is 4.974%, +1.8 basis points
- The 5-year yield is 4.64%, +6.1 basis points
- 10-year yield 4.615%, +7.4 basis points
- The 30-year yield is 4.735%, +8.0 basis points
Consider some major currency pairs:
- EUR/USD is trading below its 100-day moving average at 1.08099. The 200-day moving average at 1.0784 is the next major target, which if broken will increase the bearish bias.
- USDJPY is trading at its highest level since May 2 at 157.70. The May high comes just below the 158.00 level. luggage and interference that the price is lower on that day
- GBPUSD is testing a swing level at 1.2700. A break below this level would target the swing zone between 1.2674 and 1.2686, followed by a 38.2% retracement of the up move from the May low at 1.26642.
Thank you for your support today. I wish everyone good luck in the new trading day.