Russell 2000 leads US stocks, Gold hits another all-time high

The Russell 2000 was again the strongest US index, continuing a trend evident for two months. Gold prices touched $2,082.5 per ounce this morning, buoyed by a mixture of risk aversion and the anticipation of lower interest rates. This morning’s economic data showed strong durable goods demand and a modest decline in a key inflation gauge, the ‘PCE deflator’, generally supporting rate cuts early next year.

TODAY’S MAJOR NEWS

Economic data support rate reductions

Treasury yields rallied on the better-than-expected durable goods data and favorable PCE inflation data. Economic data like this boosts market’s optimism for rate cuts, now pricing 80% odds of a first Fed rate cut by March, with to 150 basis points of cuts by the end of 2024. We are now seeing deflation in the goods sector, but with inflation still entrenched in the services and shelter sectors the Fed’s path is by no means straightforward.

Durable goods orders rise strongly, pointing to a rebound in business sentiment

• Durable goods orders rose a robust 5.4% month-on-month in November, more than double the forecast 2.4%, and contrasting sharpy with the 5.1% contraction seen in October – and that number was revised upward as well
• Durable goods orders minus transportation orders rose 0.5% month-on-month, notably higher than the 0.2% expected, and in contrast to the downwardly revised 0.3% contraction seen in October
• Core capital goods orders, a measure of business sentiment, rose 0.8% month-on-month, compared to the forecast 0.1%, and better than the downwardly revised 0.6% contraction seen in November

Personal Consumption Expenditures (PCE) price index shows inflation slowing

• Today’s PCE price index number suggest that we’re winning the inflation battle with inflation, up 2.6% year-on-year, down from analyst expectations of 2.9%, and below 2.9% last month
• The core PCE price index, a focus for the Fed, was up 3.2% year-on-year in November, less than analyst expectations of 3.4%, and in line with last month
• The core PCE price index, excluding the more volatile food and energy prices, rose 0.1% month-on-month in November, below analyst expectations of 0.2%, but matching last month’s pace
• Personal income rose 0.4% month-on-month in November, as forecast, and above the upwardly revised October reading of 0.3%
• Personal consumption expenditures rose 0.2% month-on-month in November, below expectations of 0.3% growth, but up from 0.1% growth the previous month

TODAY’S MAJOR MARKETS

Russell 2000continues to leads market rally

• The Russell 2000 was up 1.0% in morning trade, with the S&P 500 and Nasdaq unchanged. In the past two months the cyclical small cap R2K is up 23%, outpacing the S&P 500 and Nasdaq which were up 15% and 18% respectively
• The Nikkei 225 and FTSE 100 were flat overnight, while the DAX was up 0.2%
• The VIX, Wall Street’s fear index, was up modestly at 13.7

Bonds and Dollar weaker

• Bonds turned weaker after an early rally, with 10-year TIPS index-linked yields at 1.72%, with 2- and 10-year yields rising to 4.35% and 3.90%, respectively
• The dollar index slipped 0.2% to 101.7
• Versus the dollar, the Yen and Euro were flat, while Sterling was up 0.2%

Gold hits another all-time high

• Oil prices fell 0.2% to $73.8 per barrel
• Gold prices rose 1.1% to $2,073 per ounce, having touched a new all-time high of $2,082.5, while Silver prices were up 0.5% at $24.7 per ounce
• The grain and oilseed sector was mixed to higher in quiet trade

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

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