As a result of economic worries, Asian shares traded lower on Thursday, while Nasdaq 100 futures also dropped due to surging Treasury yields, which ended a two-day rally for the major averages. Likewise, the Russell 2000 suffered steep declines, with the latest Beige Book indicating rising mortgage rates and high house prices are weakening demand. There was a decline in retail spending, reflecting a decrease in discretionary spending.
Growing concerns about the future also slowed the demand for loans. At the same time, the US economy continues to show signs of weakening demand while the job market remains strong. Consequently, today's weekly jobless claims are expected to rise slightly to 230K.
In addition, we will also get to hear from three other Fed speakers, Federal Reserve governors Philip Jefferson, Lisa Cook, and Michelle Bowman.
Political Uncertainty Weighs On GBP
Political uncertainty is continuing in the UK to affect the country. In her yesterday's address to fellow lawmakers in the House of Commons, Prime Minister Liz Truss said she would prefer to be a fighter over a quitter. However, there is increasing pressure on her to resign. As a result of the resignation of Home Secretary Suella Braverman, her weak government has been dealt another blow and is in a more critical state.
The GBP/USD currency pair continues to hover near the weekly low throughout the Asian session on Thursday. The uncertainty surrounding the UK political situation and a bullish USD continue to act as headwinds for the pair. For a bearish break to be confirmed, the price needs to remain below the 1.1200 mark for an extended period. There is a likelihood that the GBP/USD will decline further over the next few days due to a light calendar. However, the political jitters in the UK could keep bears optimistic.
In contrast, the odds seem to be in favor of the US dollar on the other hand. Accordingly, we could expect to see a 75 basis point increase in US yields in November and a further 75 basis point increase in December, but in the meantime, we will find the 10-year yield and 2-year yield back to levels that were last seen in October 2007.
As a result of the bounce off a two-week low yesterday, the US Dollar Index (DXY) has been able to return to the 113.00 threshold. Furthermore, the Federal Reserve's hawkish stance led to the greenback's relative strength versus the six major currencies.
Strong Dollar Weighs On Gold
(XAU/USD) hit a new monthly low near $1,626 during Thursday's mid-Asian session. As a result, gold failed to maintain its two-day recovery the previous day, leading to a drop which was the most in a fortnight, as sour sentiment helped bolster US Treasury yields to underpin the dollar's recovery.
Additionally, a rise in open interest and an increase in volume also contributed to the decrease in price. Further downside looks to be in store now, with immediate contention at the year's low to date, which is $1,614 per troy ounce.
Today's Events
As investors assess continuing economic uncertainty, European markets are heading for a negative open on Thursday. Several regional markets closed slightly lower on Wednesday afternoon as traders digested the latest inflation data for the UK and the EU and assessed expectations about the hike in interest rates and recession fears.
On Thursday, investors will look at the latest German PPI numbers on the data front in Europe. It is clear that inflation is far from abating in Europe's largest economy. The numbers show that buyers are adjusting their prices accordingly.
Despite rising to a record 45.8% on an annual basis in August, and with the expectation that it will fall to 44.7% in September, monthly PPI is still predicted to rise by a modest 1.3%, which is down from an equally elevated 7.9% in August.
Philadelphia Fed's manufacturing index and data from the housing market are among today's most relevant highlights. The Philadelphia manufacturing index is expected to improve but remain below zero. That means Philadelphia's general conditions are still deteriorating.