Russell 2000 has second thoughts on Fed rate cuts

The Russell 2000 was off 1.7% in the morning session as traders had second thoughts about the Fed’s appetite for interest rate cuts, which had driven a four-day rally. Bond markets stabilized after a significant yield fall, and dollar weakness persisted. The government is now funded through January 19th. Still, Wall Street is focused on today’s bigger-than-expected rise in weekly jobless claims, raising concerns about the health of the US economy.  Oil was off 3.7% as the market digested yesterday's data that showed oil stocks being rebuilt and fears of a slowing world economy.

TODAY’S MAJOR NEWS

Unemployment claims finally rise, signaling softer jobs market

First-time claims for unemployment benefits are finally showing signs of a softening jobs market, necessary for bringing down wage inflation sufficiently to hit the Federal Reserve’s 2% inflation target. It’s not enough of a softening yet, but Wall Street will undoubtedly see it as a move in the right direction. Job data and wage growth remain top of mind for the Fed.

• First-time claims rose to 231,000 in the week ending November 11, above the expected 222,000 and up from 218,000 in the previous week
• The four-week moving average to 220,250 claims, up from 212,500 the previous week
• Continuing claims for the week ending November 4 rose by another 32,000 during the week to 1.865 million, which is the highest level for continuing claims since November 27, 2021
• The four-week moving average for continuing claims rose by 34,500 to 1.823 million

Big box retailers sound a cautious note

Two of the largest retailers in the US issued a cautious note in their quarterly reports. Walmart and Target gave generally better-than-expected earnings; same-store sales were slightly better than expected, but the future outlook was cautious. "In our research, themes like uncertainty, caution, and management of budgets are top of mind," said Target chairman and CEO Brian Cornell. "Consumers are still bringing up pressures like higher interest rates, increased credit card debt, and reduced savings rates have left them with less discretionary income, forcing them to make trade-offs." Walmart shares fell 7%, while Target was down 1%.

When Joe met Xi, little of substance was agreed

The long-anticipated meeting between Xi Jinping and Joe Biden came yesterday with little fanfare or apparent progress. Still, markets welcomed the fact that they were talking. The leaders of the world’s top two powers agreed to resume top-level military dialogue to avoid an accidental war due to miscommunication, which is a big positive, and there was some consensus on cooperating on curbing drug trafficking. No progress was announced on anything that would suggest a turn in trade policy or investments in China – things that are causing long-term pain for China’s economy – or any breakthroughs in the tensions over Taiwan.

TODAY’S MAJOR MARKETS

Cyclical Russell 2000 leads sell-off

• The Russell 2000 fell 1.6%, reversing an eight percent three-day gain, with the Nasdaq off 0.3% and the S&P 500 off 0.1%
• Foreign equity markets caught Wall Street’s change of mood, with the FTSE 100 off 0.9% and the Nikkei 225 off 0.3%, but the Dax was up 0.5%
• The VIX, Wall Street’s fear index, was unchanged at 14.2 (the year’s low was 13.0)

Bonds yields and the dollar largely unchanged

• 2- and 10-year yields fell modestly to 4.84% and 4.45%, respectively
• The dollar index was down 0.2% to 104.2
• Versus the dollar, the Yen was up 0.6%, the Euro 0.3% and Sterling 0.2%,

Oil sell-off accelerates

• Oil prices fell 3.7% to $73.4 per barrel as traders assessed weaker demand from a slowing world economy
• Gold prices were up 1.1% at $1,985 per ounce, while Silver rose 2.1% to $24.0 per ounce
• The grain and oilseed markets were also negatively impacted, with additional selling pressure for soybeans based on wetter forecasts for dry areas of Center-West Brazil as we head into early next week

Analysis by Arlan Suderman, Chief Commodities Economist: [email protected]

Market outlook by Paul Walton, Financial Writer: [email protected]