The dollar is being undercut by risks to the Federal Reserve’s independence, a growing US budget deficit, fiscal profligacy, and widening political polarization. In addition, the dollar is weighed down by speculation that the US might coordinate FX intervention with Japan to boost the yen, which would dovetail with Mr. Trump’s apparent view that a weak dollar is good for the US as a stimulus to US exports. The yen rose to a 2.75-month high against the dollar on Tuesday as US authorities reportedly contacted ...

The dollar index (DXY00) today fell to a new 4-month low and is down -0.61%. The dollar is being undercut by speculation that the US might coordinate FX intervention with Japan to boost the yen, which would dovetail with Mr. Trump's apparent view that a weak dollar is good for the US as a stimulus to US exports.  US authorities reportedly contacted market participants last Friday to check dollar/yen prices, a possible precursor to intervention. More News from Barchart The dollar is also being undercut ...

Consumer Sentiment - The University of Michigan consumer sentiment survey indicates a decline in consumer expectations, with the index at 49, below the contractionary threshold of 50 [2][4] - Current conditions index is reported at 52.3, significantly lower than the expected 59.2, reflecting a deteriorating sentiment [3][4] - One-year inflation expectations have increased slightly to 4.7% from 4.6%, suggesting growing concerns about rising prices among consumers [3][4] Market Impact - The decline in consumer sentiment is contributing to market pressure, particularly in the technology and communication services sectors [5] - Despite the overall pessimism, individuals with substantial stock portfolios are feeling somewhat more optimistic, possibly influenced by the timing of the survey release before the upcoming election [5] Commodity Market - Mixed signals are observed in the commodity market, with oil prices showing a slight increase while industrial metals are experiencing a pullback due to concerns over China's export contraction [8][9] - The U.S. government has added critical minerals like uranium, silver, and copper to its list, which may positively impact U.S.-based mining companies [11][12] Geopolitical Factors - Hungary's Prime Minister Victor Orban is set to meet with former President Trump, with discussions likely to include energy deals, particularly regarding Russian oil and natural gas [14][15] - The geopolitical dynamics surrounding Hungary's energy imports could introduce risks to the market, especially in the context of the Russia-Ukraine conflict [16] Technical Analysis - The S&P 500 is testing its 50-day moving average, a critical support level that has not been broken since before the tariff tensions [18][21] - Increased put activity suggests a cautious market outlook, but a potential rebound could occur if support levels hold [20][21] Legislative Developments - Senator Thun is expected to vote on a package to reopen the government, which may influence market sentiment positively if concessions are made [22][23] - Airlines like United Airlines are seeing stock price recoveries, indicating potential market uplift from favorable news regarding government negotiations [23]

Economic Indicators - The dollar index (DXY00) decreased by -0.30% today, influenced by a significant rise in US job cuts, which surged +175% year-over-year in October, marking the largest increase in 22 years [1][2] - Year-to-date job cuts in the US have surpassed 1 million, the highest since the pandemic, with employers announcing the fewest hiring plans since 2011 [2] Federal Reserve Outlook - The ongoing US government shutdown is exerting pressure on the dollar, with expectations that prolonged shutdowns could lead to further interest rate cuts by the Federal Reserve [1] - Market sentiment indicates a 69% probability that the Federal Open Market Committee (FOMC) will reduce the fed funds target range by 25 basis points at the upcoming meeting on December 9-10 [3] Eurozone Economic Performance - The euro (EUR/USD) increased by +0.35% today, supported by dollar weakness and positive comments from ECB Vice President Guindos regarding Eurozone growth [4] - Eurozone retail sales unexpectedly fell -0.1% month-over-month in September, contrary to expectations of a +0.2% increase, while German industrial production rose +1.3% month-over-month, below the anticipated +3.0% [5] Central Bank Divergence - The divergence in central bank policies is favorable for the euro, as the European Central Bank (ECB) is perceived to be nearing the end of its rate-cutting cycle, while the Fed is expected to implement several more rate cuts by the end of 2026 [5] - ECB Vice President Guindos expressed optimism about the European economy's resilience and noted positive trends in inflation, particularly in service prices [6]

Group 1 - The US dollar index has risen above the 100 mark, reaching a three-month high, while international spot gold has experienced a decline, briefly falling below $3930 per ounce before rebounding above $3950 per ounce [1] - Silver prices saw a daily drop of nearly 2%, approaching $47 per ounce, but the decline has since moderated [1] Group 2 - Analyst Rhona O'Connell from StoneX indicated that gold is losing some of its bubble, reflecting concerns over the independence of the Federal Reserve, the possibility of stagflation, and potential geopolitical risks [3] - The US government shutdown may become the longest in history, leading to a pause in the release of official economic data, prompting investors to focus on unofficial reports, including the upcoming ADP national employment data [3] - Federal Reserve officials have differing views on how to address the current data gap, with some suggesting that the risk of a weakening labor market outweighs the risk of rising inflation, while others advocate for significant rate cuts [3] Group 3 - Traders are assessing whether the upward trend in gold prices will resume, with Federal Reserve policy being a key factor influencing the outlook [4] - There is a risk that the Federal Reserve may attempt to downplay expectations for rate cuts, as the probability of a December rate cut has decreased since last week [4] - The recent comments from Federal Reserve Chairman Jerome Powell cautioning against assuming further rate cuts in December aim to temper market expectations for monetary easing [4] - Uncertainty surrounding the implementation details of China's new gold tax policy may cast a shadow over the demand outlook for gold [4]

Group 1: Dollar Index and Economic Indicators - The dollar index (DXY00) reached a 2.75-month high, finishing up by +0.29% due to higher T-note yields and hawkish comments from Fed Chair Powell regarding interest rates [1] - The markets are pricing in a 72% chance of a 25 basis point cut in the fed funds target range at the upcoming FOMC meeting on December 9-10, with an overall expected rate cut of 82 basis points by the end of 2026 [3] Group 2: US-China Trade Relations - Easing US-Chinese trade tensions are seen as supportive for economic growth, following an agreement between President Trump and President Xi Jinping to extend a tariff truce and reduce trade barriers [1] Group 3: Eurozone Economic Performance - The euro fell to a 2-week low, down by -0.32%, influenced by the dollar's strength, but recovered after the ECB maintained interest rates and positive economic data emerged [4] - Eurozone Q3 GDP increased by +0.2% quarter-on-quarter and +1.3% year-on-year, surpassing expectations, while the economic sentiment indicator rose to a 2.5-year high of 96.8 [5] - German October CPI rose by +0.3% month-on-month and +2.3% year-on-year, exceeding expectations [6]

Economic Indicators - The September US CPI report showed a monthly increase of +0.3% and a yearly increase of +3.0%, which was slightly below market expectations of +0.4% m/m and +3.1% y/y [2] - The core CPI for September also rose by +0.2% m/m and +3.0% y/y, again slightly weaker than the expected +0.3% m/m and +3.1% y/y [2] - The final-August University of Michigan US consumer sentiment index fell by -1.4 points to 53.6, weaker than the expected drop to 54.5 [3] Market Reactions - The dollar index ended the day little changed, influenced by the weaker-than-expected CPI report and a -0.6 basis point decline in the US 10-year T-note yield [1] - The markets are pricing in a 97% chance of a -25 basis point rate cut at the next FOMC meeting on October 28-29 due to the ongoing US government shutdown [4] Eurozone Indicators - The preliminary-October HCOB Eurozone manufacturing PMI rose by +0.2 points to 50.0, exceeding expectations for no change at 49.8 [5] - The preliminary-October HCOB Eurozone services PMI increased by +1.3 points to 52.6, stronger than the anticipated decline to 51.2 [5]

Group 1: Dollar Index and Economic Indicators - The dollar index (DXY00) rose by +0.04% as it anticipates the US CPI report for September, supported by a rise in existing US home sales to a 7-month high [1] - Existing home sales in the US increased by +1.5% month-over-month to 4.06 million, aligning with market expectations [3] - The markets are pricing in a 99% chance of a -25 basis point rate cut at the next FOMC meeting on October 28-29 [3] Group 2: Euro and Economic Conditions - The EUR/USD rose by +0.06% as the euro recovered from overnight losses, supported by an unexpected rise in the Eurozone October consumer confidence indicator to an 8-month high [4] - The Eurozone October consumer confidence indicator increased by +0.7 to -14.2, surpassing expectations of a decline to -15.0 [5] - Swaps are pricing in a 1% chance of a -25 basis point rate cut by the ECB at the October 30 policy meeting [5] Group 3: Yen and Japanese Monetary Policy - The USD/JPY rose by +0.37% as the yen fell to a 1.5-week low due to concerns that new Japanese Prime Minister Takaichi may advocate a less hawkish monetary policy [6] - Higher T-note yields negatively impacted the yen, contributing to its decline [6]

Core Viewpoint - The S&P 500 Index has recovered half of its recent losses, indicating some relief for equity bulls despite ongoing trade tensions and market volatility [1][4]. Market Sentiment - The volatility curve has shown signs of inversion, suggesting that near-term uncertainty is currently more pronounced than concerns about the longer term [2][3]. - The S&P 500 is close to its all-time high, indicating that the current market setup differs from previous periods of stress, with the recent trade spat acting as a catalyst for profit-taking rather than a fundamental concern [4]. Derivatives Market Insights - The spike in near-term derivatives pricing may indicate that speculative excess has been temporarily removed from the market, with traders expecting more turbulence ahead [5]. - The inversion of the VIX curve could be interpreted as a positive sign for stock bulls in the absence of unexpected developments [6]. Cautionary Perspectives - Some analysts express caution, interpreting the inversion as a sign of anxiety regarding high equity valuations, economic concerns, and potential selling pressure due to ongoing trade issues and a government shutdown [7].

Core Viewpoint - Wall Street strategists caution dip buyers that further market volatility may occur despite signals from China and the US indicating a willingness to engage in trade talks [1][2]. Market Performance - The S&P 500 Index increased by 1.6% on Monday, recovering more than half of the losses from Friday, which were driven by renewed tariff tensions [2][6]. - The S&P 500 experienced a 2.7% decline on Friday after President Trump threatened a 100% tariff on goods imported from China, disrupting a period of market stability [6]. Market Sentiment and Predictions - Analysts from firms such as Morgan Stanley, Evercore ISI, and JPMorgan Chase & Co. predict short-term market skittishness due to high valuations and potential economic impacts from the US government shutdown and trade uncertainties [2][4]. - Paisley Nardini from Simplify Asset Management noted that political and fiscal news, along with Federal Reserve policy, is likely to increase market volatility in the latter months of 2025, highlighting the current market's fragility [3]. Correction Risks - Michael Wilson from Morgan Stanley indicated that while pullbacks may present long-term buying opportunities, the S&P 500 is at risk of a correction in the short term, potentially dropping to 5,800 if US-China trade tensions remain unresolved before a November deadline [4]. - Andrew Tyler from JPMorgan expressed concerns about near-term weakness, emphasizing the need for caution due to high equity valuations and uncertain trade negotiations [5].