Earnings and Data trigger broad rally, Stocks rally, dollar drops

US stocks rallied after a strong round of earnings, a welcomed dip with core producer prices and a new cycle low with weekly jobless claims.  Investors remain committed to stocks as the current inflationary environment won’t likely trigger a rapid interest rate hiking schedule from the Fed.  Real yields will still remain in negative territory in the foreseeable future and that should provide a safety net for stocks. 

US Data

Wholesale producer prices delivered a smaller-than-expected increase of 0.5% for September and 8.6% year-over-year. The tentative easing of prices paid to US producers was impacted by 16.9% month-over-month decline in airline passenger services.  Commodity prices are still headed higher and since supply can’t keep up with demand, the next PPI report will likely post larger advances. 

Weekly jobless claims dropped to 293,000, a new cycle low, and a strong beat of the 320,000 level.  Falling below the 300,000 level is a big deal as it suggests we could see it back to the low 200,000 levels we saw pre-pandemic.  Continuing claims declined by 134,000 to 2.593 million.  The number of Americans participating in all unemployment insurance programs fell 523,426 to 3.65 million.  As families become more confident schools will remain open, the labor shortage problem could improve as more Americans will be incentivized and/or feel comfortable returning to the workforce. 

Earnings

The banks painted a strong and healthy picture of the US consumer.  During the pandemic, we were used to seeing JPMorgan results always impress, but this time Bank of America, Morgan Stanley, Citigroup, and even Wells Fargo delivered strong results.  Wall Street can’t turn negative on the economy after seeing reserve releases, moderating trading revenue, mixed loan growth, and a consumer willing to take on debt.

Dollar

The dollar rally is taking a break as Treasury yields decline.  Real yields are falling hard and that should keep the dollar vulnerable in the short-term.  Traders are now fully pricing in a Fed rate hike next year, but subsequent ones will lag what the other major central banks will be doing.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

Ed Moya

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya