US Close: Stocks embrace dovish Fed and BOE hold, US Data

The best trade in town was the Nasdaq after dovish messages from the Fed and BOE sent bond yields sharply lower.  Qualcomm’s earnings and guidance suggests the chip shortage is alleviating, with expectations for the second half of next year to have supply and demand be aligned.  The news in the chip space was not all positive as Qorvo continues to struggle with supply challenges.

The House may also be inching closer to voting on the social spending and climate package tonight.

Stocks got the best outcome this week, a dovish taper announcement, and a massive reset of tightening expectations abroad, thank you ECB and BOE.

US Data

Weekly jobless claims continue to head in the direction, delivering a new post-pandemic low at 269,000.  The economy is heading in the right direction and despite vaccine mandates, the labor market recovery continues.  Continuing claims declined to 2.105 million from a revised 2.239 million.

The eye-catching economic release of the day was Q3 productivity, which declined at 5.0% annualized rate, worse than the -3.1% consensus estimate, and the worst drop since 1981.

BOE

The BOE policy decision did not sit well with many currency traders, bankers, and anyone who was listening to the recent communication from the bank.  The BOE decision was the main event of the week, as the Fed taper announcement was already telegraphed.  With a 7-2 vote, interest rates were kept on hold at 0.1%, disappointing many that expected the BOE to hike by 15bps.  The vote on rates should have been closer, but it seems the BOE is more concerned about slowing growth than the surge with inflation.  The five-year rate fell 20 basis points to 0.627%, reminding traders of the volatility seen during Brexit, while the British pound dropped over 200 pips to 1.3484.

BOE rate hike bets got pushed back to February, with traders still eyeing 1% next November.  Currency traders will closely watch the 1.34 level to see if that holds, because if it doesn’t bearish momentum could target 1.3150.

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