Another Safe Haven Crumbles as Economy Makes Sharp Rebound

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Another Safe Haven Crumbles as Economy Makes Sharp Rebound

U.S. economic data just staged a sharp rebound, seeming to give optimists more reason for hope into the holidays.

A flurry of reports before Thanksgiving more than doubled the fourth quarter’s growth rate, according to the Atlanta Federal Reserve.

It started on Tuesday when October’s new-home sales rocketed 32 percent from a year earlier. The Commerce Department’s annualized reading of 733,000 crushed the 709,000 estimate.

Then today, durable-orders rose by 0.6 percent. That was a big surprise to economists projecting a 0.8 percent decline. Aircraft, machinery and computers drove the gain.

This could be important because the trade war with China was allegedly thwarting business investment. Strategists also warned about a “manufacturing recession” following surge of factory growth two years ago.

Atlanta Fed's GDPNow estimate. Notice the sharp rise in green line on right.
Atlanta Fed’s GDPNow estimate. Notice the sharp rise in green line on right.

GDP Revised Higher

Another big report on Wednesday undermined those fears: Third-quarter gross domestic product (GDP) was unexpectedly revised higher thanks to business investment. Again, did those fears sweeping markets over the summer make sense?

Additionally, the GDP revision showed higher consumer spending and lower government spending. That’s another positive sign for the economy overall.

Initial jobless claims were also lower than expected for the first time in three weeks. It’s “good” news because fewer Americans found themselves out of work.

Another data point on Wednesday may suggest a brighter future: Pending home sales (different from “new” home sales) badly missed expectations. The reason was a lack of inventory, which means new houses still need to be built. That, in turn, means more jobs and spending in 2020. Will housing have a bright spring?

Japanese Yen Futures (@JY), daily chart.
Japanese Yen Futures (@JY), daily chart.

Japanese Yen Dropping

Put all those positives together and the stock market’s drift to new record highs makes more sense. Other indicators of fear, like Cboe’s volatility index ($VIX) and gold, have staggered.

But the Japanese yen could be the most interesting. Futures on the Asian currency (@JY) closed at their lowest level since May and are pushing the bottom of a five-year range. Traders may want to watch for a potential breakdown.

Remember the yen is a “safe haven” because Japan has low interest rates and is politically stable. Investors have a history of selling it when times are good and buying it at times of fear.

In conclusion, markets never go straight up and they often have profit-taking after good news. But the latest flurry of news seems to confirm an optimistic stance. It could give the bulls more ammunition as the holidays approach.

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