Exploring Performance of USD, US Stocks Amid Rate Outlook in Eventful Week

Mohamed Hashad, Chief Market Strategist, Noor Capital.

The number of Jobless Claims increased to almost 1.8 million for this week on Thursday’s data, and this is not exactly encouraging. Yet, the US Dollar Index is 0.32% up, above the 104.60 mark at the time of writing.

Following a sharp decline, the dollar is maintaining modest gains on Thursday as the most recent Consumer Price Index (CPI) indicated that the disinflationary trend had resumed in April. With recent data showing some weakening in the economy on all fronts, the pieces are beginning to fit together, and the lower CPI put clarified the broader picture.

As signs of lowering inflation emerged, the markets popped the champagne cork, sending the S&P 500 to fresh all-time highs. Presidents Austan Goolsbee of the Federal Reserve Bank of Chicago and Neel Kashkari of the Federal Reserve Bank of Minneapolis, however, urged holding interest rates constant for a little bit longer.

Regarding economic data, the Philadelphia Fed Manufacturing Survey for May and the weekly Initial Jobless Claims are now complete. The last significant component will be the data on industrial production. Regarding the latter, recent reports of strong industrial output have come from Japan and the Eurozone, and a drop in US production could lead to more weakness in the US currency.

The following set of data on housing, jobs, and prices was released on Thursday:

From 1.467 million to 1.440 million building permits were issued in March.

From 1.287 million to 1.360 million, housing starts were made. For once, the weekly jobless claims were mixed. The initial jobless claims were up at 222,000, but they were fewer than the 232,000 from the previous week.

However, Continuing Claims increased from 1.781 million to 1.794 million this past week.

Additionally, the April import/export Price Index will be released. The latest Philadelphia Fed manufacturing index remained in positive territory for a fourth straight month, however activity weakened overall. In May, the index fell to 4.5 from 15.5 in April, coming in below the forecast of 7.7.

Next at 15:15 GMT are Industrial Production and Capacity Utilization. Prior to this, industrial production was 0.4% in March; in April, it is predicted to be 0.1%.

Before a number of Fed representatives are scheduled to speak, markets have time to process all of the aforementioned data:

Vice Chair of the Federal Reserve for Supervision Michael Barr is scheduled to speak before the Banking Committee of the US Senate. Patrick Harker, President of the Federal Reserve Bank of Philadelphia, will discuss the financial implications of healthcare and higher education.

Loretta Mester, president of the Federal Reserve Bank of Cleveland, will attend a luncheon hosted by the Wayne Economic Development Council. Raphael Bostic of the Fed takes part in a moderated discussion regarding the US economic prospects at a Jacksonville Business Journal event.

All speakers this Thursday are Federal Open Market Committee (FOMC) voters, except for Fed’s Harker. Tuesday morning marked the beginning of the Qatar World Economic Forum. Headlines from world leaders may come out throughout the week.

Just in front of the US Opening Bell, US equity futures are beginning to sway and are giving up their earlier modest gains. According to the CME Fedwatch Tool, there is a 91.6% chance that the fed fund rate won’t change in June. The methodology now projects a 51.4% possibility that rates will drop by 25 basis points from their current levels in September, which is a change in the odds.

The benchmark US Treasury Note is trading at about 4.35%, which is lower than it was earlier this month. The US CPI report on Wednesday shifted the narrative back towards disinflation, which resulted in a significant fall of the US dollar.