North American News
US equity close: Not a pretty picture but off the lows
- Closing changes for the main North American markets
US equities touched a two-month low early on but recovered from the worst levels of the day to finish above the lows from Friday and Monday. That’s little comfort ahead of a pivotal Fed decision and with bonds slumping.
- S&P 500 -44 points, or 1.1%, to 3855
- Nasdaq -0.9%
- Russell 2000 -1.4%
- DJIA -1.0%
- Toronto TSX Comp -0.9%
The good news is that the best days of the year to own stocks are Fed decision days. Psychologically, people fear the worst and if there’s any silver of good news, it leads to some relief. The sun will come up on Thursday, no matter what Powell says tomorrow.
US treasury sells $12B of 20 year bonds at a high yield of 3.820%
- WI was at 3.833% at the time of the auction
- US treasury sells $12 billion of 20 year bonds at a high yield of 3.820%
- WI 3.833%
- Tail -1.3 BPs. Six-month average of -1.2 basis points
- bid to cover 2.65x vs 6 month average of 2.65X
- dealers 8.1% vs. six-month average 11.1%
- Direct 16.6% vs. six-month average of 18.5%
- Indirects 75.3% vs. six-month average of 70.4%
US August housing starts 1.575M vs. 1.445M estimate
- US housing starts and building permits for the month of August 2022
- Housing starts 1.575M vs 1.445M estimate.
- Building permits 1.517MM vs. 1.610M estimate.
- Housing starts were revised lower to 1.404M in July from 1.446M previously reported
- housing starts rose by 12.2% above the July revised figure but is 0.1% below the August 2021 rate of 1.576M.
- Building permits fell -10.0% below the July rate and is 14.4% below the August 2021 rate of 1.772M
- single-family housing starts came in at 935K +3.4% vs. July’s 904K number
- single-family building permits came in at 899K which is -3.5% vs. July.
- Housing completions in August came in at 1.342M. This is 5.4% below the revised July estimate of 1.419M
Atlanta Fed GDPNow 3Q tracker 0.3% vs 0.5% last
- Atlanta Fed GDPNow 3Q tracker
In their own words:
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2022 is 0.3 percent on September 20, down from 0.5 percent on September 15. After this morning’s housing starts report from the US Census Bureau, the nowcast of third-quarter residential investment growth decreased from -20.8 percent to -24.5 percent.
Commodities
Gold bears stay in control into the Fed
- Gold bears move in as the Fed two-day meeting gets underway.
- Bulls could see an opportunity from deeper down in the meantime.
The gold price edged lower on Tuesday as the US dollar and yields climbed in anticipation of the outcome of the two-day Federal Open Market Committee meeting that got underway today. At the time of writing, gold is trading at $1,664.30 down 0.68%, losing ground from the highs of $1,679.51 to a low for the day of $1,660.10, so far.
The opportunity cost of holding zero-yield precious metals has been removed by the sentiment surrounding this week’s slew of central banks meeting, with the Fed being the centerpiece event. At the same time, the greenback remains close to two-decade highs, making greenback-priced bullion more expensive for overseas buyers.
The US dollar has been particularly perky on Tuesday, trading near a two-decade high, as investors held firm on the expectation of another aggressive rate hike by the Federal Reserve. Rate futures traders are pricing in an 81% chance of a 75 basis point hike and a 19% probability of a 100 bps in tightening.
This is supporting US yields and the DXY index that is now not far from 110.79, a level hit earlier this month for the first time since June 2002. Risk-off sentiment has also contributed to a higher US dollar in the face of the aggressive tightening path that global banks are on as they try to contain uncomfortably high inflation.
Fed outlook
”We expect the FOMC to deliver its third consecutive 75bp rate hike, bringing the policy stance decidedly above its estimate of the longer-run neutral level,” analysts at TD Securities said.
”We also look for the Committee to provide more hawkish signals through the update of its economic projections and for Chair Powell to build on his Jackson Hole message.”
As far as Treasury yields go, the analysts said that they should respond to the ”size of the hike, the 2023/2024 dots, and Powell’s tone on further tightening. Given the hawkish market positioning, a “sell the rumor, buy the fact” reaction is possible.”
And for the greenback, they argued that a ”buy the rumor, sell the fact is a tempting play for the USD,” but the analysts say that they are wary that the messaging at this meeting will be more hawkish than usual.
”Neutral bias and reassess after.”
EU News
European equity close: Nearing the June lows
- Closing changes for the main European bourses
Yesterday’s reversal stoked some optimism but today was another rough day in Europe as PPI data hammered the bond market and added fears of an ugly stagflationary environment.
- Stoxx 600 -1.1%
- UK FTSE 100 -0.7%
- French CAC 40 -1.4%
- German DAX-1.0%
- Italy MIB -1.7%
- Spain IBEX -1.4%
Other News
GDT price index $4072, up 2.0%
- The GDP auction results
The Global Dairy Trade (GDT) prices at the auction came in at $4072. That is up 2.0%. The previous price came in at $4007 or 4.9%.
Whole milk powder prices came in at $3733 up 3.7% vs $3610 last.
Cryptocurrency News
Bitcoin back below $19000. MicroStrategy continues to buy
- Trades to a low of $18777 today
The price of Bitcoin is trading back below the $19000 level today with the price moving to an intraday low of $18777. The current price is at $18933.
Looking at the hourly chart above, the price yesterday and on Sunday reached up to test the 100 hour MA (blue line) and found sellers. It would take a move above that level to tilt the short term bias back to the upside from a technical perspective. Absent that and the sellers remain more in control. The 100 hour MA comes in at $19564 and moving lower.