EconoTicker

The NAHB Housing Market Index ticked up to 39 in December (in line with expectations) from 38 previously, signaling a modest improvement in homebuilder confidence but still indicating weak conditions overall, as the index remains well below the 50 expansion threshold.

Market impact: Mildly supportive for USD and U.S. growth sentiment at the margin; limited market reaction likely unless supported by stronger housing starts and sales data.

Markets are interpreting last week’s Fed communication as a reminder that the broad USD is “not out of the woods yet,” even as rate expectations stabilize into late-December. Fed funds futures imply a 75.6% probability the Fed holds rates at the January 28, 2026 meeting—unchanged from the prior day—based on the CME FedWatch framework.

Market impact: A steady-hold baseline can limit USD downside near term, but the dollar’s next leg will likely hinge on incoming U.S. data (especially labor and inflation) and whether it forces a repricing of the 2026 easing path.

The New York Fed’s Empire State Manufacturing Index fell sharply to -3.9 in December (vs 10.0 expected; 18.7 prior), flipping back into contraction territory and marking a significant downside surprise. The print suggests a rapid loss of momentum in regional factory activity, which could reinforce concerns about broader U.S. growth sensitivity to tighter financial conditions.

Market impact: Dovish for Fed pricing at the margin; supportive for Treasuries and mildly negative for USD and cyclical risk sentiment if confirmed by other regional surveys.

The Federal Reserve’s balance sheet edged up to $6.539 trillion, from $6.536 trillion previously, indicating marginal liquidity expansion.

At the same time, reserve balances with Federal Reserve Banks rose to $2.974 trillion, up from $2.878 trillion, pointing to higher excess reserves in the banking system.

The data suggests stable financial conditions, with no material shift in the pace of balance sheet normalization.

Market impact: Neutral for USD; minor balance sheet changes offer no strong policy signal.

U.S. Treasury auctions saw modest yield increases, indicating slightly higher government borrowing costs.

The 4-week bill cleared at 3.610%, down from 3.680%, while the 8-week bill settled at 3.610%, marginally below the prior 3.620%.

In contrast, the long-term 30-year bond auction saw yields rise to 4.773%, up from 4.694%, reflecting stronger term-premium demand and shifting rate expectations.

Market impact: Mixed for USD; stable short-term yields contrast with rising long-term yields, signaling uncertainty over the future rate path.

U.S. wholesale inventories increased 0.5% MoM in September, well above expectations of 0.1% and up from 0.0% previously, indicating inventory rebuilding across key distribution sectors.

Wholesale trade sales, however, fell 0.2% MoM, matching the prior month’s decline and signaling softer demand conditions.

The divergence between rising inventories and falling sales may point to a buildup of unsold goods, posing downside risks for production and restocking cycles.

Market impact: Slightly negative for USD; weakening sales alongside rising inventories suggests cooling demand momentum.

The U.S. trade deficit narrowed to $52.80B in September, significantly better than expectations of -62.50B and the prior -59.30B.

The improvement was driven by stronger outbound shipments, with exports rising to $289.30B, up from $280.80B previously.

Imports also increased slightly to $342.10B from $340.40B, but the growth was outpaced by export gains, leading to a smaller deficit.

The data suggests resilient external demand and a modest boost to GDP from net trade.

Market impact: Mildly supportive for USD; a narrower trade deficit points to stronger export momentum.

Initial jobless claims increased to 236K, above expectations of 220K and up sharply from 192K previously, indicating softening labor-market conditions.

Continuing claims, however, fell to 1.838M, below the expected 1.950M and the prior 1.937M, suggesting some stabilization in ongoing benefit demand.

The 4-week average of jobless claims rose slightly to 216.75K from 214.75K, reinforcing the gradual upward trend in layoffs.

Market impact: Slightly negative for USD; higher initial claims point to a cooler labor market, supporting expectations of a more dovish Fed stance.

U.S. employment costs rose modestly in the third quarter, signaling easing labor-market pressures. The Employment Cost Index increased 0.8% QoQ, slightly below expectations of 0.9%.

Wage growth also cooled, with employment wages rising 0.80%, down from 1.00% previously.

Employment benefits climbed 0.80%, up from 0.70%, showing modest upward pressure in non-wage compensation.

Overall, the data points to a gradual moderation in labor-cost inflation, supporting the narrative of cooling wage pressures ahead of the Federal Reserve’s policy decisions.

Market impact: Slightly dovish for USD; softer wage and cost growth may ease concerns about persistent inflation.

U.S. mortgage activity strengthened this week, with MBA mortgage applications rising 4.8% WoW, reversing last week’s 1.4% decline. The 30-year mortgage rate held nearly unchanged at 6.33%, compared with 6.32% previously.

The Mortgage Market Index climbed to 327.9 from 313.0, while the Refinance Index surged to 1,190.6 from 1,041.9, indicating renewed borrower interest as rates stabilize.

However, the Purchase Index slipped to 181.6 from 186.1, signaling ongoing affordability challenges in the housing market.

Market impact: Neutral for USD; steady rates support refinancing activity, but weak purchase demand highlights persistent housing-market strain.

Former Fed governor Kevin Warsh is scheduled to interview with President Donald Trump on Wednesday, according to the Wall Street Journal, which cited senior administration officials. Other candidates — including National Economic Council director Kevin Hassett — are also expected to meet the president in the coming days.

However, the WSJ noted that these meetings could be delayed or cancelled as Trump continues to deliberate on who will succeed Jerome Powell.

Markets have increasingly viewed Hassett as the frontrunner, given his alignment with Trump’s preference for lower interest rates.

Prediction platform Polymarket currently assigns a 73% probability that Trump will choose Hassett as the next Fed Chair. Powell’s term ends in May 2026.

Market impact: Slightly dovish for USD; rising odds of a rate-cut-leaning Fed chair heighten policy uncertainty and weigh on longer-term yield expectations.

A U.S. trade agreement reached with Indonesia in July is now in jeopardy, according to a U.S. official who said Jakarta has reneged on several commitments made under the deal. The official, speaking anonymously, did not specify which obligations were being questioned but warned the agreement could collapse if the issues are not resolved.

Indonesian officials responded on Wednesday, saying talks remain ongoing and that no specific points of dispute have emerged during negotiations, signaling an attempt to downplay tensions.

Market impact: Neutral to slightly negative for IDR; uncertainty surrounding the trade agreement introduces mild geopolitical and policy risk.