The US 10-year benchmark yield jumped above 4.5% on Wednesday in reaction to several US economic data releases throughout the day. At the same time, the 2-year yield climbed toward 3.8%, indicating investors are getting ready for a somewhat hawkish Powell speech later in the day.
US GDP revised higher
The US recovery from the “non-recession recession” of H1, in which GDP was negative for two quarters, according to the Bureau of Economic Analysis (BEA)’s second estimate of Q3 GDP, was even greater than anticipated, with Q3 GDP raised up from 2.6% to 2.9%, above the 2.8% analyst expectations.
Furthermore, the BEA reported that the increase “primarily reflected a smaller decrease in private inventory investment, an upturn in government spending, and an acceleration in nonresidential fixed investment that were partly offset by a larger decrease in residential fixed investment and a deceleration in consumer spending. Imports turned down.”
But the whole increase in GDP was due to net trade, which in turn was propelled by exports of energy to Europe and weaponry to Ukraine, while a slowdown in the US economy reduced imports.
Finally, core PCE Q/Q increased from 4.5% in the first estimate to 4.6%, again above the 4.5% estimate, while the GDP Price Index came in at 4.3%, above the 4.1% forecast.
First cracks in the labor market
In other news, according to the US ADP report, employment increased by just 127,000, the fewest since January 2021. Expectations were for a 200,000+ print in November after a substantial increase in October (despite an aggressively tightening Fed).
Still, the US economy added 224,000 bartenders and servers in contrast to the 86,000 decline in the services sector employment and skyrocketing job losses in manufacturing.
“Turning points can be hard to capture in the labor market, but our data suggest that Federal Reserve tightening is having an impact on job creation and pay gains. In addition, companies are no longer in hyper-replacement mode. Fewer people are quitting, and the post-pandemic recovery is stabilizing.” Nela Richardson, ADP Chief Economist said.
Later today, the JOLTS job openings for October are due, along with pending home sales for October. The Federal Reserve’s Beige Book could also cause some volatility in the markets. Most notably, Jerome Powell, the chairman of the FOMC, will deliver his final remarks before the Fed enters a two-week blackout period on Saturday.
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The 10-year yield remains in a clear uptrend, meaning the price stays in a bear market. The next target for the yield should be at the current cycle highs near 4.85%. After that, the 5% threshold could be reached quickly.