US stocks suffered a third consecutive daily decline as the 'good-news-is-bad-news' trade persists with Tech weighing after lower-than-expected weekly jobless claims, which fell below the 2019 average.
Markets are underperforming as investors digest an upward revision to unit labour costs and a drop in initial jobless claims against consensus expectations for a slight increase. Both data points indicate strength in the labour market, which, together with robust growth in the US economy, could indicate some unease that the monetary policy stance could remain tighter for a bit longer.
Interestingly, while equities display a very defensive lean, 10-year US Treasury yields are down -- as compounding unsavoury higher-for-longer macro matters, global growth concerns are climbing back into the narrative with even the pessimists in Europe getting nervous; indeed, Europe’s economic heartland is in dire straits as German industrial production goes from bad to worse.
Conversely, recent economic data in the United States has surpassed expectations, leading many investors to believe that a soft landing is the most probable outcome. However, a broader perspective reveals the looming possibility of a US recession still lingers large.
The higher-for-longer interest rate narrative and the inevitable lag effect of monetary policy create uncertainty around the Federal Reserve's ability to steer its monetary policies precisely. As a result, the Fed's choices in risk management will play a significant role in determining the economy's ultimate trajectory. Inflation has spiked significantly above its target and could remain very sticky as Saudi Arabia pursues a balanced budget through higher oil prices. Therefore, it would be wise for the Fed to tighten its monetary policy more instead of less, or at least keep the screws tighter for longer.
Over the past year, the USD has shown a strong negative correlation with non-US equities. This means that non-US equities, especially Asia stocks, tend to perform poorly when the USD is strong. Unfortunately, the global growth outlook has not been great lately, which may make it challenging for non-US equities to perform well. Additionally, the recent increase in oil prices has benefited the US, a mega oil producer, while negatively impacting other significant regions. Given these circumstances, it's difficult to envision the dollar weakening significantly to veer this non-US equities correlation to a more positive tack.
The focus on Tech has been a key theme this week, with Goldman Sachs hosting their Communicopia + Tech conference in San Francisco.
The recent surge of interest in artificial intelligence within the equity markets underscores the immense potential for new avenues of growth and the profound influence that a captivating narrative can exert on shaping market expectations.
While the concept of AI isn't new, its allure has gained substantial momentum since the introduction of ChatGPT. This wave of enthusiasm has triggered a significant reevaluation of the technology sector, with a spotlight on the "early winners" - companies deeply committed to innovation and substantial investments in AI and those facilitating its commercialization.
Particularly noteworthy is that the technology sector has continued to perform despite rising interest rates. This starkly contrasts the scenario in 2022 when escalating interest rates, driven by surging inflation, caused a decline in the technology sector due to its "long duration" nature, which makes it sensitive to upward adjustments in discount rates.
And to be clear, much of the recent market angst and stronger dollar is coming from easing bets in 2024 being scaled back rather than any expectations that the Federal Reserve will hike again this year. With investors factoring in substantially higher future growth rates from AI, perhaps this counterbalances the impact of higher for longer, so long as the market remains in the Fed pause camp, that is.
SPI Asset Management provides forex, commodities, and global indices analysis, in a timely and accurate fashion on major economic trends, technical analysis, and worldwide events that impact different asset classes and investors.
Our publications are for general information purposes only. It is not investment advice or a solicitation to buy or sell securities.
Opinions are the authors — not necessarily SPI Asset Management its officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.
Recommended Content
Editors’ Picks
![EUR/USD stays below 1.1100, looks to post weekly losses](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/EURUSD/european-euro-coin-on-top-of-american-dollar-bill-11292130_XtraSmall.jpg)
EUR/USD stays below 1.1100, looks to post weekly losses
EUR/USD continues to trade in a narrow range below 1.1100 and remains on track to end the week in negative territory. Earlier in the day, monthly PCE inflation data from the US came in line with the market expectation, failing to trigger a reaction.
![GBP/USD struggles to find a foothold, trades near 1.3150](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/GBPUSD/iStock-157771037_XtraSmall.jpg)
GBP/USD struggles to find a foothold, trades near 1.3150
GBP/USD stays on the back foot and trades in negative territory at around 1.3150 on Friday. The US Dollar holds its ground following the July PCE inflation data and doesn't allow the pair to stage a rebound heading into the weekend.
![Gold retreats toward $2,500 ahead of the weekend](https://editorial.fxstreet.com/images/Markets/Commodities/Metals/Gold/gold-bars-50657756_XtraSmall.jpg)
Gold retreats toward $2,500 ahead of the weekend
Gold stays under modest bearish pressure and declines toward $2,500 in the American session on Friday. The 10-year US Treasury bond yield edges higher toward 3.9% after US PCE inflation data, causing XAU/USD to stretch lower.
![Week ahead – Investors brace for NFP amid Fed rate cut speculation](https://editorial.fxstreet.com/images/Macroeconomics/EconomicIndicator/Employment/NFP/america-back-to-work-gm178972493-25143312_XtraSmall.jpg)
Week ahead – Investors brace for NFP amid Fed rate cut speculation
Here comes another NFP week, with investors eagerly awaiting the results as they try to discern the size and pace of the Fed’s forthcoming rate cuts. The weaker than expected July numbers triggered market turbulence, instilling fears about a potential recession in the US.
![Easing Eurozone inflation to back an ECB rate cut in September](https://editorial.fxstreet.com/images/Macroeconomics/Countries/Europe/Eurozone_countries/Eurozone/eu-flags-flying-at-the-european-commission-building-brussels-belgium-24759579_XtraSmall.jpg)
Easing Eurozone inflation to back an ECB rate cut in September Premium
Eurostat will publish the preliminary estimate of the August Eurozone Harmonized Index of Consumer Prices on Friday, and the anticipated outcome will back up the case for another European Central Bank interest rate cut when policymakers meet in September.
![Moneta Markets review 2024: All you need to know](https://editorial.fxstreet.com/images/IT/Testing/Review/FXSBadgeCertifiedBackg_XtraSmall.png)
Moneta Markets review 2024: All you need to know
VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.