Dollar Hits Two-Year High Again

The American economy has shown resilience, underpinned by strong consumer spending and robust export activityRecent data reveals that in the third quarter, the nation's real GDP growth accelerated, with the annualized quarterly revision adjusted upward to 3.1%. Moreover, US home sales unexpectedly surged in November, with annual sales exceeding four million units for the first time in six months - representing the steepest year-on-year increase in three yearsThis surge is also reflected in rising home prices, which are hitting new all-time highsThe number of first-time unemployment claims dropped more than anticipated last week, reinforcing expectations that the Federal Reserve may slow its pace of interest rate cuts.

In contrast, Japan's central bank has opted to postpone interest rate increases into DecemberBank of Japan Governor Kazuo Ueda has cited significant uncertainty regarding both the economy and inflation while monitoring the upcoming "Shunto" wage negotiations that typically occur in spring

Conversely, the Japanese yen fell sharply, dipping below 158 yen to the dollarIndia also faces currency challenges, with the rupee breaking past an exchange rate of 85 against the dollar - a historic low that prompted the Reserve Bank of India to intervene by selling off dollarsIn Indonesia, the central bank has similarly stepped in to support the strength of the rupiahOn a different note, Brazil's real saw a 2.4% increase against the dollar, bolstered by central bank interventions in the currency market.

The Bank of England, as widely expected, refrained from cutting interest rates, but forecasts suggest that inflation could continue to rise in the short termWithin the bank, there are notable divisions, with three officials advocating for a 25 basis point rate cutTraders have heightened their bets on interest rate reductions, anticipating three cuts in the following year amounting to a total of 61 basis points

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This is an increase from previous expectations of less than 50 basis pointsThe two-year British bond yield fell, while the pound depreciatedMeanwhile, in Sweden, the central bank reduced rates by 25 basis points, leading to a 0.83% drop in the Swedish krona, while Norway opted to maintain its interest rates, resulting in a 0.40% appreciation of the Norwegian kroneIn Mexico, the central bank lowered rates by a similar margin.

On Wall Street, US stocks had a rocky session, initially climbing before sliding to settle near daily lowsThe Dow Jones Industrial Average crept slightly upward by 0.04%, marking an end to a historic ten-day decline unseen since the 1970sVarious sectors displayed mixed performance; utilities, financials, and technology stocks triumphed, while real estate, materials, and energy stocks trailed behindBoeing's shares rose by 2.56%, taking the lead among Dow components, while Micron Technology plummeted more than 16% on disappointing quarterly outlooks

The three major US stock indices ended primarily in the redThe S&P 500 slipped by 5.08 points, a decline of 0.09%, concluding at 5867.08 points, while the Dow nibbled up by 15.37 points to reach 42342.24 pointsThe technology-heavy Nasdaq fell by 19.92 points, marking a decrease of 0.10% at 19372.77 pointsFor the Russell 2000 index, reflecting small-cap stocks that tend to be more sensitive to economic shifts, a drop of 0.45% was noted.

The VIX, or the fear index, fell by 12.78%, settling at 24.09. The Dow broke its streak of the longest consecutive declines in 50 years, and among the 11 sectors of the S&P, most ended the day lowerThe real estate sector retreated by 1.69%, materials by 1.07%, and energy by 0.99%. Though consumer staples fell by 0.74%, healthcare by 0.73%, telecommunications by 0.11%, and industrials by 0.1%, consumer discretionary sectors saw a minor increase of 0.08%. The technology sector rose by 0.19%, financials gained 0.4%, and utilities improved by 0.48%. In the tech roster, the so-called "Seven Sisters" of technology experienced fluctuating fortunes

Tesla dipped by 0.9%, while Amazon gained 1.26%, and reports indicated that Apple is considering integrating AI models from Tencent and ByteDance into iPhones sold in China.

However, the semiconductor sector trended lower, with the Philadelphia semiconductor index falling by 1.56%, and the industry ETF, SOXX, declined by 1.68%. Stocks of Nvidia advanced by 1.37%, while Micron saw a sharp downturn of 16.18%. In sharp contrast, various AI concept stocks faced declines; Palantir rose by 3.78%, Oracle by 2.04%, and CrowdStrike by 0.53%, yet others like BigBear.ai collapsed by 9.9%, and Serve Robotics fell by 5.52%.

European markets mirrored the downturn, influenced by a hawkish US Federal Reserve policy stance, leading to an overall significant drop in stock valuesThe pan-European STOXX 600 index fell by 1.51%, marking the largest single-day decline in five weeksEvery sector in Europe registered losses, notably technology, which fell by 2.44%, alongside real estate, energy, media, and financial sectors, all dropping by more than 2%. The German DAX 30 index and the French CAC 40 index saw downticks of 1.35% and 1.22%, respectively, while Italy's FTSE MIB suffered a decrease of 1.78%.

The 10-year US Treasury yield saw an uptick of about six basis points, with the 2/10 year yield spread briefly exceeding 27 basis points, signaling market concerns over future economic performance

Meanwhile, the yield on two-year British bonds dipped by 4 basis points during the Bank of England's decision dayAs for US Treasuries, at market close, the yield on the benchmark 10-year treasury increased by 5.82 basis points to 4.5722%, trading in a range of 4.5%-4.5923% and approaching its peak from late AprilLong-term yields continue to climb as short-term yields decline.

In foreign exchange markets, the US dollar index maintained gains from the previous Federal Reserve meeting, climbing to a two-year high as the yen tumbled toward 158. The pound saw a drop exceeding 0.5%, and the offshore Chinese yuan briefly dipped below 7.32 yuan, marking a 15-month lowThe Australian and New Zealand dollars reached two-year lows, while the Canadian dollar approached its four-and-a-half-year nadirThe Bloomberg dollar index also rose by 0.21%. Market sentiment remains bullish for the dollar, with expectations that the euro might fall below parity and the yen could descend to 160.

In international markets, oil prices took a downward turn as central bankers expressed caution over loosening monetary policy, creating a wave of anxiety about weaker demand forecasts for next year

The WTI crude oil fell below $70 per barrel, dropping nearly 0.95% to $69.91. Similarly, Brent crude futures declined by 0.51% to settle at $72.88 per barrel, although natural gas futures in the US gained over 6% to reach $3.5840 per million BTUs.

Amid these market adjustments, gold soared before retreating, oscillating with fluctuations in demandGold prices at the COMEX rose by 0.08% to $2610.1 per ounce, while silver took a hit, seeing its futures plunge over 4%. Copper and other industrial metals followed suit with declines as market adjustments continuedMeanwhile, cocoa futures in New York plummeted by over 6% from record highs, while trade analysts cautioned that global coffee supply could fall short by 850,000 bags in the 2025-2026 crop yearThis looming deficit may persist due to a sharp production drop in Brazil and Vietnam, despite increases from Colombia's coffee exports this year.