US Economy Shows Strength Amidst Heightening Global Market Volatility: An In-Depth Analysis

US Economy Shows Strength Amidst Heightening Global Market Volatility: An In-Depth AnalysisThe US economy demonstrated strong resilience in the third quarter, with real GDP growth revised up to an annualized 3.1% quarter-over-quarter, driven primarily by robust consumer spending and exports

US Economy Shows Strength Amidst Heightening Global Market Volatility: An In-Depth Analysis

The US economy demonstrated strong resilience in the third quarter, with real GDP growth revised up to an annualized 3.1% quarter-over-quarter, driven primarily by robust consumer spending and exports. Concurrently, existing home sales unexpectedly surged in November, exceeding 4 million units at an annualized rate a three-year high with accelerating house price growth. A significant drop in initial jobless claims last week further solidified market expectations of a slower pace of Fed rate cuts. However, this positive economic data did not entirely quell global market volatility.

Markets displayed a mixed performance on Thursday. Large-cap tech stocks experienced a partial rebound, but small-cap stocks, bonds, and Bitcoin all declined, while Treasury yields and the US dollar continued their upward trajectory. This market reaction reflects investors' complex sentiment towards the future economic outlook, encompassing optimism about the US economy's resilience alongside concerns about tightening monetary policy and a global economic slowdown.

The Bank of Japan (BOJ) postponed a rate hike at its December meeting, with Governor Kazuo Ueda citing high uncertainty surrounding the economy and inflation, and closely monitoring next year's "Shunto" wage negotiations and the influence of Donald Trump. This decision led to a short-term plunge in the yen, reaching lows near 158. Simultaneously, the Indian rupee fell below 85 against the dollar, an all-time low, forcing the Reserve Bank of India to intervene by selling dollars. Indonesia's central bank also intervened to support the rupiah. In contrast, the Brazilian real appreciated by 2.4% against the dollar following central bank intervention.

The Bank of England (BoE) maintained interest rates at its December meeting, anticipating further upward pressure on inflation in the short term. However, significant internal divisions were evident, with three members advocating for a 25 basis point rate cut. Market traders increased bets on future rate cuts, anticipating three cuts totaling 61 basis points from the BoE next year. This expectation led to lower two-year gilt yields and a decline in the pound. Furthermore, the Riksbank (Swedish central bank) cut rates by 25 basis points, causing the Swedish krona to depreciate by 0.83%, while the Norges Bank (Norwegian central bank) held rates steady, resulting in a 0.40% appreciation of the Norwegian krone. Mexico's central bank also reduced rates by 25 basis points.

US political developments also influenced market sentiment. Trump stated his preference for a federal government shutdown if the debt ceiling issue remained unresolved. After the US market closed on Thursday, House Republicans announced an agreement on a continuing resolution to avoid a government shutdown starting the weekend. Trump voiced support for this short-term spending plan and pledged to cut at least hundreds of billions of dollars from federal spending next year.

After a brief rebound, US equities ultimately closed near their daily lows. The Dow Jones Industrial Average edged up 0.04%, ending its first ten-day losing streak since the 1970s; the S&P 500 fell 0.09%; and the Nasdaq Composite declined 0.10%. Sector performance was mixed, with utilities, financials, and technology outperforming, while real estate, materials, and energy lagged.

On the individual stock front, Boeing rose 2.56%, leading the Dow, fueled by a massive $36 billion order from Turkish low-cost carrier Pegasus Hava Tasimaciligi AS. Conversely, Micron Technology, with a disappointing quarterly outlook, plunged over 16%.

The "Magnificent Seven" tech stocks showed divergence. Tesla fell 0.9%; Meta dropped 0.27%; Microsoft declined 0.08%; Amazon rose 1.26%; Alphabet (Google) gained 0.06%; Apple climbed 0.7%; and Nvidia increased 1.37%. Reports surfaced that Apple is in preliminary talks with Tencent and ByteDance about incorporating their AI models into iPhones sold in China.

Chip stocks generally declined, with the Philadelphia Semiconductor Index falling 1.56%. Micron Technology plummeted 16.18%, meeting first-quarter revenue expectations but providing a significantly weaker outlook for the next quarter. Other chipmakers, including Marvell Technology (up 3.64%), Wolfspeed (down 3.71%), Broadcom (down 2.37%), Intel (down 1.24%), Arm Holdings (down 3.27%), ON Semiconductor (down 0.2%), KLA Corporation (down 1.36%), Qualcomm (down 1.73%), and TSMC (down 0.47%), exhibited mixed performance.

AI-related stocks showed mixed results. Palantir gained 3.78%; Oracle rose 2.04%; CrowdStrike increased 0.53%; while BigBear.ai fell 9.9%; ServeRobotics dropped 5.52%; BullFrogAI declined 6.64%; AMD fell 3.07%; C3.ai plunged 10.68%; and Nvidia-backed SoundHoundAI decreased 9.55%.

Chinese stocks were mixed, with the Nasdaq Golden Dragon China Index ultimately closing down 0.06%. Among prominent Chinese stocks, Tencent Holdings ADR rose 3.03%; Li Auto gained 2.59%; New Oriental Education increased 2.09%; Bilibili climbed 1.86%; NIO rose 1.85%; Xpeng Motors gained 1.84%; Trip.com increased 1.48%; while Fangdd Network fell 3.5%; Baidu dropped 3.14%; JD.com declined 1.45%; Zhihu fell 1.36%; and Pinduoduo decreased 0.35%.

Bitcoin's price at one point fell 5%, dipping below $9,600, with cryptocurrency-related stocks generally declining. The cryptocurrency "meme stock" Uxin Limited surged 89.09%, while Riot Platforms fell 6.36%; Bitdeer Technologies dropped 6.49%; Canaan Inc. declined 10.81%; Coinbase fell 10.2%; BTCDigital decreased 10.82%; and MicroStrategy (MSTR), a significant Bitcoin holder, fell 6.63%.

Quantum computing stocks showed mixed results. Quantum Corporation (QMCO) fell 39.97%; Quantum Computing (QUBT) dropped 41.04%; D-Wave Quantum (QBTS) declined 28.91%; while Honeywell (HON) slightly increased by 0.01%.

Other notable stocks included Eli Lilly, which fell 0.94% after the FDA announced that there was no longer a shortage of semaglutide, the active ingredient in its weight-loss drug, causing Hims & Hers, a provider of generic weight-loss medication, to decline by nearly 8%; and FedEx, which climbed 13% after hours, exceeding expectations in its second-quarter earnings but lowering its full-year earnings per share guidance.

European stocks fell sharply, influenced by the hawkish stance of the Federal Reserve. The pan-European STOXX 600 index closed down 1.51%, its largest daily drop in five weeks, with all sectors declining, led by technology, which fell 2.44%. Real estate, energy, media, financials, and industrial sectors all fell more than 2%.

In the bond market, the 10-year Treasury yield increased by approximately 6 basis points; the 2/10-year Treasury yield curve briefly exceeded 27 basis points; longer-term German bund yields rose by around 6 basis points the day after the Fed rate cut; the two-year gilt yield fell by around 4 basis points on the day of the Bank of England decision, while longer-term gilt yields increased by over 4 basis points.

The US dollar index held onto its gains from the Fed rate cut day, reaching its highest level in over two years; the yen fell towards 158; the pound declined by over 0.5%; the offshore yuan briefly fell below 7.32, its lowest level in 15 months; the Australian and New Zealand dollars touched two-year lows; and the Canadian dollar fell to a four-and-a-half-year low. HSBC predicted that the dollar would remain strong, the euro could fall below parity, and the yen would weaken towards 160.

Oil prices fell on Thursday, primarily due to caution expressed by central banks in the US, Europe, and Asia regarding loose monetary policy, raising concerns that weaker economic activity could dampen oil demand next year. West Texas Intermediate (WTI) crude oil fell over 0.9%, dropping below $70; Brent crude declined 0.69%; and New York natural gas prices rose over 6%.

Gold prices initially rose but then fell back, with spot gold ultimately showing a slight increase; silver futures declined at one point by 5%; and gold futures fell approximately 2%.

London industrial metals were broadly down, with copper falling over 1.6%; nickel and tin fell over 2%; and New York cocoa prices declined.