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The Greenback Surges Again and Its DXY Index Is Approaching the Pivotal 100

Senior Economist

Interactive Brokers

The greenback is surging again in response to yesterday’s release of minutes from the Fed’s September meeting that depict division among policymakers regarding the expected number of rate cuts in the next few meetings. Treasuries are slipping against this backdrop, as Wall Street places the probability of a quarter-point trim in December at 80%. An October trimming of the key benchmark is essentially in the bag at 95% and equity investors are now focusing on how many subsequent reductions will occur. Meanwhile, the US government shutdown, on its ninth day, continues to cloud the rationale for investment decisions and monetary policy expectations, and our IBKR prediction market participants believe there’s a higher chance than not of a reopening on the 23rd of this month. Amidst a lack of economic data, however, corporate earnings are starting to arrive before the season heats up on Tuesday. This morning’s results from Delta Airlines were well received, as the company pointed to resilient consumers that bolstered a profit beat. The company also provided strong guidance, including margin expansion through 2026. In trading action, all 11 major equity sectors are retreating and bitcoin is also being hit by the risk-off sentiment. Conversely, the commodity complex is largely bullish across the majors, excluding gold and natural gas. Volatility protection instruments are catching bids on heavier hedging demand while forecast contracts additionally see interest.

AI Is Focal Point for Investors

The AI theme has dominated stock market returns in the past few years because the technology is growing bottom lines and expanding earnings multiples. As a result, investors are looking for additional information about current levels of AI profitability and expectations for future earnings. Capital expenditure prospects as well as whether the outlays will pay off in the long run are also a critical topic for investors. There’s been talk on Wall Street regarding potential froth in risk-assets that could generate significant volatility if AI investments fail to deliver against the backdrop of elevated earnings estimates. Meanwhile, the lengthier the government shutdown goes, the weaker short-term economic conditions will become, in my view, and that is currently a more front-and-center danger. But the good news is that pro-growth government policies coinciding with a friendly business environment are likely to justify a bullish outlook.

International Roundup

Australian Consumers Inflation Outlook Climbs

Consumers in Australia anticipate that overall prices will grow 4.8% in the coming 12 months, according to the October Melbourne Institute Inflation Expectations Index. The result is up from 4.7% in September and is the highest print since June’s 5% result.

Monthly Decline in Japan Tool Orders Reverses

After slipping 6.4% month over month (m/m) in July, orders for tools climbed 14.7% in Japan last month, according to the Japan Machine Tool Builders Association (JMTBA). Sales also picked up relative to the year-ago period with September logging a 9.9% year-over-year (y/y) jump compared to the 8.5% August increase. At a time of increased global trade uncertainty following efforts by the US to increase onshoring, Japanese tool providers experienced a 13% y/y increase in foreign orders with domestic purchases expanding only 3%.

UK Residential Markets Continues to Weaken

The UK’s residential real estate market languished for a third-consecutive month in September despite some metrics improving modestly, according to the Royal Institution of Chartered Surveyors (RICS). In a RICS survey of property professionals, 19% of respondents reported a decline in buyers, marking the third consecutive month of sinking demand. The organization’s price balance gauge, which tracks the percentage of price increases and declines, was -15 last month, slightly better than -18 in August. Nevertheless, the negative number implies that more prices have sunk than have climbed. In another metric, demand for leases remained stable while the number of landlords listing rental properties has hit the lowest level since early 2020, prompting RICS to predict that rental costs will climb 3% during the coming 12 months. Broadly speaking, landlords have been selling properties in response to increases in borrowing costs and other expenses. Proposed legislation to increase tenant rights is also believed to have motivated property owners to sell. In other recent developments, the Institute of Chartered Accountants found business confidence in the third quarter hit its lowest level in three years

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