Flattening Yield Curve Takes Toll on Dollar

The dollar recedes as the yield curve flattens despite upbeat US economic figures and China's optimistic data.

Key factors for today

• Dollar overshadowed by flattening yield curve.
• US Retail Sales and GDP revision lead to reduced debt issuance.
• China's buoyant economic data fuels optimism.
• WTI Oil prices climb due to API draw and tensions in the Israeli-Hamas region.
• Resolution at Chevron LNG supported by Australian union deal.

Market movers

• Dollar slightly lower; EUR/USD nudges up from $1.056 to $1.0578.
• Gold edges up, trading above $1923 an ounce with resistance at $1953.
• WTI Oil approaches $90, finding support at $87.20.
• AUD/USD gains, moving to 0.6376 with a sight set on 64 cents.

Economic calendar

• GB Inflation Rate
• ECB President Lagarde Speech
• EA Inflation Rate
• US Housing Starts
• EIA Crude Oil Stocks Change
• Fed Waller Speech
• Fed Bowman Speech
• Fed Harker Speech

The big news

Dollar Dampened by Flattening Yield Curve

In an unexpected turn of events, recent economic markers have seen the dollar losing its sheen, overshadowed by short-dated yields that have rocketed to record peaks, following an impressive performance in US Retail Sales. These sales have seen a remarkable jump, propelling from a modest 0.3% to an impressive 0.7%, coupled with a promising surge in the US GDP forecast, which soared from 5.1% to a robust 5.4%. These metrics should have ideally upended the dollar's fortunes, but they ran counter to the influences of the yield curve that surprisingly took a downturn. This unexpected flatlining has investors recalibrating their strategies, seemingly leaning towards a reduced bond term premium, a direct consequence of diminished debt issuance.

China's Economic Resilience Shines, Despite Underlying Concerns

China emerges as a bastion of economic resilience. The nation's Q3 GDP growth has eclipsed prior estimations, clocking a robust 4.9% year-on-year growth, comfortably surpassing the 4.4% projections. The quarterly figures too witnessed an uptick, mounting to 1.3%. These heartening statistics are a testament to the efficacy of the recent stimulative measures rolled out by the People's Bank of China (PBOC), aimed squarely at bolstering the national economic fabric. However, it's not all smooth sailing. Looming large over the economic landscape is the spectre of debt default. Country Garden, a titan in the realm of private property development in China, finds itself precariously perched, grappling with the looming peril of offshore debt default, casting a shadow over the economic recovery.

Commodity Markets Abuzz with Movements in Crude

Steering the spotlight towards the commodities market reveals a sector rife with activity. The US crude inventories have shrunk significantly, with a notable descent by 4.38 million barrels, a sharp contrast to the anticipated 1.26 million. This dip, though substantial on its own, is further accentuated by brewing geopolitical strife, throwing the market dynamics into a state of flux. WTI Oil prices have responded, climbing steadily, fuelled by apprehensions of supply disruptions in the wake of fresh military aggressions in the Gaza region. On a different note, there's a wave of relief at Chevron's LNG, thanks to a landmark agreement on pay and conditions, brought to fruition through the concerted efforts of the Australian union alliance. This critical accord has diffused the standoff, circumventing the looming threat of renewed strikes, thereby injecting a sense of stability into the European gas markets.