WEEKLY MARKET RECAP: December 11 – December 15, 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.

The U.S. economy grew at an impressive 5.2% annualized rate in 3Q23, a sharp acceleration compared to last quarter. Many of the underlying details looked strong, as consumption, private inventories, single-family homebuilding and government spending all contributed to growth. On the other hand, weaker equipment spending and a modestly widening trade deficit helped pare back gains. While the continued resilience of the U.S. economy is welcomed, this strength will be difficult to maintain. In the months ahead, a weaker consumer, tighter financial conditions and slower business spending should weigh on growth.

The November Jobs report showed healthy job gains, but provided further evidence that the labor market is coming more into balance. Nonfarm payrolls rose by 199K, beating expectations of 180K but below this year’s average. Importantly, auto workers returning from strike provided a 30K boost to this figure, while revisions removed 35K in gains from the prior two months. In the household survey, the unemployment rate slipped to 3.7% and 532K new workers joined the labor force. Wage growth came in slightly hotter than expected, rising 0.4% m/m and 4.0% y/y, but continues on an overall slide. Overall, this report should have little impact on Fed policy at the December meeting.

The October CPI report was cooler than expected, providing further confirmation that disinflation is well underway. Headline CPI was unchanged on the month and up 3.2% y/y, while Core CPI rose by 0.2% m/m and 4.0% y/y. In the details, energy was a big detractor with gas prices down 5% while shelter continues to account for the majority of overall inflation. Core goods inflation was very soft with new and used car prices falling. Services ex-shelter and energy remains elevated due to outsized increases in car insurance, while medical services will recede as a driver of disinflation in the coming year. Similarly, PCE inflation showed continued progress, with the headline and core measures easing to 3.0% y/y and 3.5% y/y, respectively. Overall, continued disinflation progress should keep the Fed on pause and keep yields off their highs.

Thanks for reading! Have a great weekend.        

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