North American News
S&P closes lower for the 1st time in 3 days
- NASDAQ down for the 2nd consecutive day. Dow snaps a 5 day win streak
The S&P fell for the 1st time in 3 days. The Dow snapped a 5 day win streak. The Nasdaq is down for the 2nd consecutive day. Both the S&P and and NASDAQ are lower for the week. A decline this week will be the 1st after 4 straight weeks of gains.
Yesterday the S&P index tested its 200 day moving average to the upside, but closed below the level. Today the price gaped lower and although it rebounded toward unchanged after the FOMC meeting minutes, the price action reversed into the close and the pair is ending lower on the day.
A snapshot of the closing level shows:
- Dow industrial average -171.30 points or -0.50% at 33980.73
- S&P index -31.14 points or -0.72% at 4274.09
- NASDAQ index -164.42 points or -1.25% at 12938.13
- Russell 2000-33.215 points or -1.64% at 1987.31
Looking at the S&P sectors, 10 of 11 sectors were lower with energy as the only gainer (+0.8%). The biggest decliner was communications at -2.0%. Materials fell -1.4% in consumer discretionary fell -1.1%.
Rates moving higher soured the move in the stock market. The 10 year is up 8.5 basis points at 2.891%.
US sells 20-year bonds at 3.380% vs 3.355% WI
- US 20-year auction results
- Prior was 3.420%
- Bid to cover 2.30 vs 2.65 prior
US July advance retail sales 0.0% vs +0.1% expected
- July 2022 US retail sales data
- Prior was +1.0% (revised to +0.8%)
- Ex autos +0.4% vs -0.1% expected
- Prior ex autos +1.0%(revised to +0.9%)
- Control group +0.8% vs +0.6% expected
- Prior control group +0.8%(revised to +0.7%)
- Ex autos and gas +0.7% vs +0.7% prior
- Retail sales % y/y unadjusted for inflation +10.1% vs +8.4% prior
- Sales y/y ex gasoline stations unadjusted for inflation +7.8% vs +5.1% prior
Economist expectations ranged from -0.3% to +0.9%.
Commodities
Gold bids sparked by benign FOMC minutes
- Gold has spiked on the back of the FOMC minutes.
- Bears, however, have moved in fading the kneee-jerk reaction.
- The Jackson Hole symposium presents an additional avenue for the Fed to push back against the dovish narrative.
The gold price has rallied on the minutes from the Federal Reserve’s July 26-27 policy meeting that, while not shedding much light on just how aggressive they expect to be, there was not an explicit message that rate hikes will be as aggressive in Sepement. For that reason alone, US futures are pricing in a higher probability of a 50 bps hike for Sep after these minutes to around a 60% chance.
The US dollar was lower as a consequence with the DXY dropping 37 points to 106.385. The 10-year yield was under pressure, dropping 0.8% to 2.888% and well off the 2.919% highs for the day. The 2-year yield dropped by nearly 1.4%. This enabled the yellow metal to recover some ground in a knee-jerk reaction.
Key notes from the Fed minutes
- Fed minutes: All participants at July 26-27 policy meeting agreed 75-basis-point interest rate hike was appropriate.
- Some participants said the policy rate would have to reach a ‘sufficiently restrictive’ level to control inflation and remain there ‘for some time.
- Participants ‘concurred’ that future rate hikes would depend on incoming information, and judged that ‘at some point’ it would be appropriate to slow the pace of increases.
- Participants agreed there was ‘little evidence inflation pressures were subsiding and that it would take a considerable time for the situation to be resolved.
- Participants ’emphasized’ that slowdown in demand would ‘play an important role in reducing inflation.
- Participants noted recent readings on inflation expectations were ‘consistent’ with long-run expectations anchored at 2%.
- Participants said the strength of the labour market suggests economic activity is stronger than implied by weak Q2, raising the possibility of upward GDP revision.
Is this the start of the pain trade in gold?
Analysts at TD Securities explained that ”while money manager length in gold hovering near multi-year lows, we are still anticipating a capitulation event in gold driven by the unwind of a massively bloated position held by a few proprietary trading shops and family offices.”
”A small breadth of these traders is holding nearly twice their average position size, accumulated during the pandemic, which does not appear to be associated with a Fed narrative or a recessionary view. As gold prices trade towards their pandemic-era entry levels, this complacent length is increasingly at risk for capitulation.”
”The Jackson Hole symposium presents an additional avenue for the Fed to push back against the dovish narrative.”
US weekly crude oil inventories -7056K vs -275K expected
- Weekly US oil inventory data for the week ending August 12
- Prior was +5458K
- Gasoline -4642K vs -1096K expected
- Distillates +766K vs +440K expected
- Refinery utilization % vs -0.2% expected
- SPR draw of 3.4m vs 5.3m prior
- Implied gasoline demand 9.35m vs 9.12m last week
This is bullish stuff and it’s a hint at what would be happening to inventories if the SPR release wasn’t ongoing. I’m not sure why the pace of the release has slowed but there might be some delivery issues.
EU News
European equity close: Dax falls 2%
- Rough day in European stocks, especially Germany
Closing changes:
- Stoxx 600 -1.0%
- German DAX -2.1%
- UK FTSE 100 -0.3%
- French CAC -1.0%
- Italy MIB -1.1%
- Spain IBEX -0.7%
Other News
Goldman Sachs cuts China 2022 GDP forecast to 3.0% from 3.3%
- China rapidly slowing
China cut rates this week by 10 bps but that’s like pointing a garden hose to a tire fire.
The housing market and credit impulse are all very poor. This looks desperate.
Next thing you know, everyone will buy all the houses and we’ll be back to real communism.
Also from Goldman Sachs:
our subjective probability that the economy enters a recession in the next 12 months is the highest in the eurozone (60%) and the UK (35%) followed by the US (30%), Canada (30%), and Australia (25%).
Cryptocurrency News
Bitcoin and high yield debt don’t bode well for equity markets
- Two areas to watch
Two good indicators of underlying market sentiment are bitcoin and the high yield market. Both have diverged from the recent exhuberance in equities and pose a warning.
Bitcoin is down five days in a row and the selling is intensifying.
The high-yield ETF is also selling off and nearing the August lows. Volume is low but that price action is concerning.