Markets continue to search for further signals that may reinforce expectations that the Fed’s monetary tightening path is coming to an end. On Wednesday, we also received more signals, albeit contradictory in their outcome.
Labor market showed some strength on Wednesday, with a lower-than-expected weekly initial unemployment claims of 209 thousand claims, which was significantly lower than the previous expected and revised reading and less than the average of the previous four weeks.
The labor market had shown us a series of previous data that indicated a return to weakness, which in turn reinforced the hypothesis that the Fed will not raise interest rates again this year in light of the decline in employment.
Today’s unemployment claims figures were against that hypothesis, which prompted Treasury bond yields to rebound from the lowest levels two months ago, which in turn had declined under pressure from weak inflation numbers as well.
On the other hand, today’s durable goods orders data may bring back some negative sentiment about the future of the US economy and its ability to hold together in the face of the difficult credit environment, as new orders declined by 5.4% last month compared to September of the same year. Excluding volatile transfer items, the new reading was flat, unchanged on a monthly basis.
While the greatest pressure was due to the sharp decline in orders for non-defense capital goods, which fell by more than 15%.
This decline seems somewhat significant, and I think it reflects the continued concerns of business owners about the future of the US economy, despite the stream of positive economic data that we have witnessed in recent months, in addition to the positive earnings results of companies in most of them, and despite expectations of achieving soft landing of inflation without pushing the economy into recession, which has become highly unlikely.