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Published: Apr 24, 2023, 14:49 UTC•1min read
U.S. dollar tested session lows as Treasury yields declined while gold moved back above the $1985 level.
Key Insights
- Dallas Fed Manufacturing Index declined from -15.7 to -23.4.
- Treasury yields moved lower as traders bet on a less hawkish Fed.
- Weaker dollar and lower Treasury yields pushed gold towards session highs.
Dallas Fed Manufacturing Index Missed Analyst Expectations
On April 24, the Federal Reserve Bank of Dallas released Dallas Fed Manufacturing Index report, which indicated that Dallas Fed Manufacturing Index declined from -15.7 in March to -23.4 in April, compared to analyst consensus of -14.6.
According to the report, “perceptions of broader business conditions worsened notably in April.” The production index declined from 2.5 to 0.9, while the new orders index increased from -14.6 to -9.6.
The report also noted that “future production index plummeted from 13.5 to 3.0, with the low reading signaling little output growth over the next six months.”
Treasury yields moved lower after the release of the Dallas Fed Manufacturing Index report as traders bet that Fed would be forced to be more dovish in order to provide additional support to the economy.
SP500 Declines Amid Recession Worries
SP500 declined from session highs as traders focused on recession risks. The Dallas Fed Manufacturing Index touched multi-month lows, indicating that the manufacturing segment remained under pressure.
U.S. Dollar Index tested session lows as Treasury yields declined. Forex traders continue to prepare for a less hawkish Fed, which is bearish for the U.S. dollar.
Gold moved back above the $1985 level after the release of the report. Weaker dollar and lower Treasury yields provided material support to gold markets.
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Wall Street markets were thrown off course Tuesday morning, as the SP500 pulled back sharply from session highs after the Dallas Federal Reserve’s Manufacturing Index dropped to multi-month lows.
The Dallas Federal Reserve’s Manufacturing Index, which measures business activity within the region, dropped to -6.3 in June — down from -3.3 in May. This marked the lowest reading since March and suggested that businesses in the region were still struggling to cope with the onset of the COVID-19 pandemic.
The disappointing data weighed heavily on stocks, causing the SP500 to reverse course from its earlier gains. The benchmark index had been up as much as 0.7% earlier in the session, but selling pressure due to the Dallas Fed news sent the index into negative territory, down 0.4% for the day.
The losses in equities were exacerbated by other negative headlines that came out in the morning, including a steep decline in New Home Sales for May. The housing sector had been one of the stronger areas of economic growth in recent months, but this report suggested that the recovery in the sector may be stalling.
The up-and-down day on Wall Street seemed to capture the broader investing sentiment, as market participants juggle a difficult balancing act between more good news on the coronavirus front and downside risk due to weak economic data. Investors will likely be keeping a close eye on both the Fed and the ongoing virus developments in the coming weeks, as they attempt to navigate the markets during these tumultuous times.
