U.S. stocks rose for the third consecutive day on Tuesday after data showed softer-than-expected retail sales and weakening consumer confidence.
Retail sales increased 0.2% in September after an unrevised 0.6% gain in August. Economists polled by Reuters had forecast retail sales would increase by 0.4%. The data was a bit stale, as the report was delayed by the 43-day U.S. government shutdown. But negative vibes were also evident in the latest Conference Board's consumer confidence index, which dropped to 88.7, the lowest level since April.
Take these soft economic data points, combine them with the recent rise in the unemployment rate to 4.4%, add dovish statements from multiple Fed officials, and you appear to have the makings of a December rate cut. Fed funds futures are pricing in a roughly 80% probability of a 25-basis-point cut at the meeting on December 10, compared to essentially a coin flip one week ago.
Over in the UK, Rachel Reeves is set to release the long-awaited autumn budget, which is expected to include new tax increases, as the ruling Labour government attempts to stay within its own fiscal rules and maintain the confidence of financial markets. Sterling was fairly steady early on Wednesday, after four days of gains ahead of the big budget reveal.
In Japan, the yen initially rallied against the U.S. dollar as sources told Reuters that the Bank of Japan is preparing markets for a possible interest rate hike as soon as next month. But those gains have since been pared back.
Finally, oil prices hovered in a narrow range early on Wednesday. Both Brent crude and WTI settled down 89 cents on Tuesday after Ukrainian President Volodymyr Zelenskiy told European leaders that he was ready to advance a U.S.-backed framework for ending the war with Russia, with only a few points of disagreement remaining. Ultimately, an expected supply glut will likely keep a lid on prices in the oil market, while the potential ceasefire deal could see the floor drop lower.
