WEEKLY MARKET RECAP: August 21 – August 25, 2023

Happy Friday, traders.

Welcome to our weekly market wrap, where we look back at these last five trading days with a focus on the market news, economic data and headlines that had the most impact on the financial market – and may continue to into the future for the US Dollar and other key correlated assets.

Most forecasters entered this year expecting a recession, but recently, economic growth has reaccelerated. In fact, the Atlanta Fed GDP Now model estimates that the U.S. economy will grow at a 5.8% saar this quarter. If realized, this would mark the fifth consecutive quarter of at or above-trend growth, highlighting the resiliency of this economy despite tighter monetary policy. The current estimate increased from 4.1% last week, driven by upside surprises on retail sales, housing starts and industrial production this week.

Retail sales handily beat expectations, gaining 0.7% m/m and 1.0% ex-autos. While a 1.9% m/m increase in online sales contributed the most, gains were broad-based. Elsewhere, industrial production jumped by a stronger-thanexpected 1.0% m/m due to strong auto production and sweltering temperatures driving up the demand for cooling. Manufacturing output also rose 0.5% m/m. However, excluding the sharp increase in motor vehicles and parts production, gains were a more modest 0.1%. Finally, the housing market showed continued signs of stabilization. Housing starts and permits rose by 3.9% and 0.1%, respectively, as gains in single-family more than offset declines in multi-family across both measures.

Importantly, 5.8% growth is not guaranteed. Since 2Q 2014 and excluding the onset of COVID, the GDP Now model has overestimated the final GDP print by an average of 0.8% at this point in previous quarters, and by 2.2% when the model was above 4%. Still, strong economic momentum suggests the U.S. should avoid a recession in 2023 and has helped push yields higher. However, risks remain for 2024 and unless robust growth can be sustained, yields may be near their peak. With the 10-year at 15-year highs, investors can add to duration and lock in attractive income, leaving them better positioned for when yields inevitably move lower.

Thanks for reading! Have a great weekend.        

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