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01/11/2024 - 08:40 UTCThe dollar declined further against most major currencies on Thursday, with the dollar index down for a fourth consecutive session ahead of key employment data on Friday that could determine the Federal Reserve’s monetary policy path forward. Meanwhile, Thursday’s data signaled a continued easing of inflation, reinforcing expectations of a 25-basis-point Fed rate cut next week. Despite a slight increase in consumer spending during September, the core Personal Consumption Expenditures Price Index remained below the Fed's 2% inflation target.
A bearish sentiment prevailed on Wall Street on Thursday, leading to sharp declines in all three major indices. The US 30, the US 500 and the US tech 100 all closed in the red on Thursday, with declines of 0.90%, 1.53%, and 1.72%, respectively. This negative performance was driven by a combination of factors, including weaker-than-expected earnings from tech giants Meta Platforms and Microsoft, and a slowdown in annual inflation to 2.1% from an upwardly revised 2.3% in August.
Meta Platforms Inc. (META) shares plummeted over 4% after the company reported weaker-than-expected user growth in Q3, coupled with increased spending plans. Despite better-than-anticipated earnings and revenue, Wedbush analysts expressed concerns about the potential impact of increased 2025 investments on near-term margins.
Microsoft Corporation (MSFT) stock also took a significant hit, falling nearly 6%, as weaker-than-expected guidance overshadowed strong Q1 fiscal results. While Oppenheimer analysts downplayed the significance of the weaker guidance, investors remained cautious about decelerating Azure growth and increased capital expenditures.
On the energy front, WTI and Brent surged on Thursday, as Israeli intelligence suggested that Iran is preparing to attack Israel with a large number of drones and ballistic missiles from Iraqi territory in the coming days, possibly before the U.S. presidential election on Nov. 5, Axios reported on Thursday, citing two unidentified Israeli sources.
Market participants may see some price action later today as several key economic indicators are released. These include U.S. non-farm payrolls, the US unemployment rate, average hourly earnings and the ISM Manufacturing PMI.
The EUR/USD pair extended its rally on Thursday ending the session 0.24% higher, supported by a weaker U.S. Dollar (USD). Traders are closely watching the upcoming U.S. Nonfarm Payrolls (NFP) data, which is set for release later today.
On Thursday, the U.S. Bureau of Economic Analysis (BEA) reported a 2.1% annual rise in the Personal Consumption Expenditures (PCE) Price Index for September, in line with forecasts and slightly lower than August’s 2.2%. The core PCE, which excludes food and energy, held steady at 2.7% year-over-year, slightly above the 2.6% expected.
Attention will now turn to the U.S. employment figures, including the NFP, unemployment rate, and average hourly earnings.
Meanwhile, the European Central Bank (ECB) reiterated its cautious, data-dependent approach to rate policy as inflationary pressures persist.
Gold prices retreated from record highs on Thursday, as traders were unable to leverage declining U.S. Treasury bond yields.
Investor caution is intensifying ahead of the U.S. Presidential Election on November 5. The Federal Reserve's preferred inflation measure, the Core PCE Price Index, coupled with robust employment data, has pressured gold prices lower.
In the Middle East, geopolitical tensions remain high despite talks of a ceasefire in Lebanon. Bullion traders are now eyeing the U.S. Nonfarm Payrolls report, with a 95% likelihood priced in for a 25-basis-point Fed rate cut next week.
Oil prices rose significantly on Thursday following reports that Iran may be preparing to launch an attack on Israel from Iraqi territory. This potential escalation in Middle Eastern tensions has heightened concerns about potential disruptions to oil supplies.
The Axios report, citing two Israeli sources, indicated that Israeli intelligence believes Iran could strike in the coming days, possibly before the U.S. presidential election on November 5. The attack, expected to involve drones and ballistic missiles launched from Iraq, may be conducted through Iranian-aligned militias in Iraq. This strategy could be Tehran's attempt to avoid direct retaliation on Iranian soil.
Meanwhile, in China, manufacturing activity—the largest oil importer globally—showed growth in October for the first time in six months, suggesting that recent stimulus efforts are beginning to stabilize demand.
U.S. stock markets closed lower on Thursday as major indexes felt the impact of rising artificial intelligence (AI) investments by top technology firms, which could weigh on future earnings.
Shares of Meta Platforms, the parent company of Facebook, dropped 4.29%, while Microsoft fell 6.16%. Despite both companies beating earnings expectations in reports released Wednesday after market close, their emphasis on increased AI spending raised concerns.
On the economic front, the Personal Consumption Expenditures (PCE) price index—considered a key inflation gauge by the Federal Reserve—rose by 0.2% in September, meeting expectations. The core annual figure, however, came in slightly above forecast at 2.7%, with consumer spending showing a modest increase. After the report, markets held firm on expectations for a 25-basis-point rate cut at the Fed’s upcoming November 6–7 meeting.
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