North American News
S&P 500 Records Second Consecutive Monthly Drop of Over 1% as Broader Market Sentiment Weighs Heavily
- S&P 500 finishes down 1.15%
S&P 500 Witnesses Significant Retreat, Sliding by 1.15% and Closing at 4437; Marking its Second Consecutive Monthly Drop of 1% in August, Breaking a Remarkable Streak Maintained Since March; Home Depot Defies Volatility, Managing to Secure a 0.6% Increase Amidst Whipsaw Trading Conditions; The Financial Sector Bears the Brunt of Market Concerns, as Fitch’s Ominous Warning of Potential Credit Rating Downgrades Triggers a 3.3% Decline in the KRE Regional Bank Index, Mirrored by Comparable Losses in Larger Banking Entities
Elsewhere, tech and small cap stocks largely matched the decline in the S&P 500:
- Nasdaq Comp -1.1%
- DJIA -1.0%
- Russell 2000 -1.2%
Atlanta Fed GDPNow sees 3Q growth at 5.0% up from 4.1% last
- Big jump and strong growth for the 3Q growth
In their own words:
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2023 is 5.0 percent on August 15, up from 4.1 percent on August 8.After recent releases from the US Census Bureau, the US Bureau of Labor Statistics, and the US Department of the Treasury’s Bureau of the Fiscal Service, increases in the nowcasts of third-quarter real personal consumption expenditures growth and third-quarter real gross private domestic investment growth from 3.2 percent and 8.1 percent, respectively, to 4.4 percent and 8.8 percent were slightly offset by a decrease in the nowcast of third-quarter real government spending growth from 2.7 percent to 2.5 percent.
US July retail sales +0.7% versus +0.4% expected
- US July 2023 retail sales data
- Prior was +0.2% (revised to +0.3%)
Details:
- Retail sales m/m +0.7% versus +0.4% expected
- Ex-autos +1.0% versus +0.4% expected.
- Prior ex autos +0.2%
- Control group +1.0% versus +0.5% expected
- Prior control group +0.6% (revised to +0.5%)
- Retail sales ex gas and autos +1.0%.Prior month +0.3% (revised to +0.4%)
- retail sales total $696.4 billion vs $689.5 billion prior
There is plenty to worry about in the global economy but the US consumer isn’t one of those things. Sales were up 2.3% y/y in July, though that’s not adjusted for prices. Furniture and electronics sales continue to be soft but that’s because so much of that spending was pulled forward during the pandemic.
US July import prices +0.4% vs +0.2% expected
- US import prices and export prices for July 2023
- Prior was -0.2%
- Export prices +0.7% vs +0.2% expected
- Prior export prices -0.9%
- Import prices -4.4% y/y vs -6.1% prior
US Treas Sec Yellen says US inflation is falling, wary of slowing China growth spillover
Remarks from US Treasury Secretary Yellen crossed the news wires. Nothing surprising in her remarks. Take the inflation one with a grain of salt. She is correct that inflation is coming down but the easy gains may have passed.
- Says inflation is coming down, a very large share of Americans feel good about their personal situation
- China development, Russia’s war in Ukraine pose uncertainty for global economy
- Says she feels good about US economy overall
- There remains a risk of recession in the United States
- US job market very strong
- China’s slowing growth could have spillover to US will have largest impact on Asian neighbours
Fed’s Kashkari: I feel good about progress on inflation but it’s still too high
- Minneapolis Fed President Neel Kashkari participates in a moderated Q&A
- We have been surprised by the economy’s resilience
- Question is whether we have done enough or need to do more
- On average the banking system is stable and well capitalized
- The March banking event was a wake-up call for banks
- Housing market resilient has been one of the biggest surprises
- We underbuilt in housing and there’s a structural deficit
- The last couple inflation readings have been positive
- I want to see convincing evidence that inflation is on its way to 2%
- We need to avoid 1970s style outcome where we stop hiking too soon
- We’re a long way from cutting rates because core is still close to 4%
- At some point next year the Fed may need to lower rates
- Economy keeps exceeding expectations
- I’m not seeing any signs of a crisis in China, it’s something we’re watching
US Empire Fed manufacturing index for August -19.0 vs -1.00 estimate
- New York Fed Manufacturing survey for August 2023
- Prior 1.1
Details:
- New orders -19.9 versus 3.3 last month.
- Shipments -12.3 versus 13.4 last month.
- Prices paid 25.2 versus 16.7 last month
- Employment -1.4 versus 4.7 last month.
- Prices received 12.6 versus 3.9 last month.
- Inventories -9.7 versus -10.8 last month.
Six-month forward
- Six-month outlook 19.9 versus 14.3 last month
- new orders 28.1 versus 11.0 last month.
- Shipments 29.6 versus 12.0 last month.
- Prices paid 37.9 versus 26.5 last month.
- Prices received 18.4 verse 22.5 last month.
- Number of employees 24.9 versus 13.2 last month
Goldman Sachs expects support for risk assets in the months ahead from rates, oil prices
- Goldman Sachs is tipping only a 20% chance of a US recession in the next 12 months
Goldman Sachs relatively rosy view on the US economy, DM central banks’ outlook, rates, oil and risk assets:
- Although most forecasters still predict a recession, we think the runway for a soft landing is in sight.
- US economic activity remains resilient,
- the labor market rebalancing is making progress,
- and the recent CPI and PCE data suggest that disinflation may now be running slightly ahead of schedule.
- While DM hiking cycles are in their final innings—and the Fed is likely done—our rate views remain mostly hawkish to the forwards as we expect central banks to cut only gradually toward neutral in the absence of a recession.
- We expect both long-term rates and oil prices to stabilize around their new, higher levels, helping risk assets regain their footing in the coming months.
Former Dallas Federal Reserve President Kaplan expects FOMC interest rate cuts in 2024
- Kaplan say he expects an on-hold decision at the September Federal Open Market Committee (FOMC) meeting
Kaplan was speaking in a US media interview on his outlook for the US economy and Federal Reserve monetary policy.
He expects the FOMC will leave Fed Funds unchanged at the September meeting (on the 19th and 20th). As for rate cuts on the way:
- I think an estimate that by the middle of next year, they’ll feel that it’s appropriate to cut rates isn’t unreasonable
- I don’t know if it’ll turn out that way. But that’s as good as expectation is any I think at this point
UAW announces preparations for strike authorization votes to be held next week
- UAW takes steps towards a strike
The 150,000 members of the United Auto Workers could be headed towards a strike. The union announced preparations for votes to be held next week by members at GM, Ford and Stellantis.
A strike would hit industrial production hard and this could be an arduous one given the competitive pressures in the auto industry and the rapidly rising cost of living.
Canada July CPI 3.3% YoY versus 3.0% expected
- Details of Canada’s CPI for the month of July 2023
- Prior month 2.8%
- CPI MoM 0.6% vs 0.3% estimate
- Prior MoM 0.1%
- CPI YoY 3.3% vs 3.0% expected
- gasoline prices fell -12.9% year on year versus -21.6 last month.
Core measures
- BOC Core YoY 3.2% versus 3.2% last month
- BOC Core MoM 0.5% vs. -0.1% last month
- Median 3.7% versus 3.9% last month
- Trim 3.6% vs 3.7% last month
- Common 4.8% vs 5.1% last month
Highlights of the report:
- Consumer Price Index (CPI) for July
- Rose 3.3% year over year, up from 2.8% in June.
- Increase mainly due to base-year effect in gasoline prices.
- Excluding gasoline, CPI rose 4.1% (from 4.0% in June).
- Electricity Prices in Alberta
- Increased by 127.8% year over year in July.
- Excluding energy, CPI slowed to 4.2% from 4.4% in June.
- Mortgage Interest Cost Index
- Increased by 30.6% year over year.
- Largest contributor to headline inflation.
- All-items excluding mortgage interest cost index rose 2.4% in July.
- Monthly CPI Movement
- Increased by 0.6% in July, up from 0.1% in June.
- Mainly due to higher prices for travel tours in peak travel month.
- Seasonally adjusted monthly CPI rose 0.5%.
- Energy Products
- Year over year decline in energy prices was smaller in July (-8.2%) than in June (-14.6%).
- Gasoline prices fell 12.9% year over year in July.
- Electricity prices increased faster in July (+11.7%) than in June (+5.8%).
- Natural gas prices fell 15.7% year over year in July.
- Travel-Related Services
- Prices slowed or declined compared to July 2022.
- Traveller accommodation prices increased 4.2% year over year.
- Prices for travel tours declined by 1.2%.
- Airfares decreased by 12.7% year over year.
- Grocery Prices
- Grew at a slower pace, rising 8.5% in July (from 9.1% in June).
- Fresh fruit prices rose 4.1% in July.
- Bakery products increased by 9.8% year over year in July.
Canada June manufacturing sales -1.7% vs -2.0% expected
- Canada June 2023 manufacturing sales data
- Prior was +1.2%
Commodities
Silver Bulls step in and help clear daily losses
- XAG/USD found support at a daily low of $22.20, then recovered towards $22.55, trading flat.
- US retail sales came in higher than expected.
- Despite robust data, the USD consolidates and limits Silver’s losses.
On Tuesday, silver cleared daily gains and its losses were limited by the USD consolidating its previous day’s gains. Focus now shifts to the July meeting’s Federal Open Market Committee (FOMC) minutes.
WTI crude oil loses $1.52 to settle at a one-week low
- Oil down for the second straight day
Data today showed the US consumer is strong and normally that would be good news for oil but it’s China that’s currently the concern. The PBOC surprised with a rate cut today but it was coupled with disturbingly-slow economic data and that’s what is dragging down the oil market.
WTI crude oil settled lower by $1.52 to $80.99. It’s the first close below $81 since Aug 2 and the intraday low of $80.40 is the worst level in a week. Post-settlement, it has made some progress and is trading at $81.08.
New Zealand GDT price index -7.4%
- Sharp fall in dairy prices
- New Zealand globaldairytrade price index -7.4%
- Avg price at USD$2875
- Whole milk powder -10.9%
Signs of euphoria in Brent, WTI oil forecasts – but challenges ahead to cap the price
A snippet from BMO on the revision higher for oil price projections,:
- Expect the drumbeat of $90 or $100 predictions to pick up in the coming weeks
- Reaching these levels, at least temporarily, is not a tall order given Crude Oil is the most intensely speculated commodity, which helps explain its high degree of price volatility
but, analysts at the bank remain unconvinced:
- The price of crude oil has some solid wind in its sails, but it still has many challenges ahead.
- As a result, we remain comfortable with our current WTI projections of $78 for the whole of 2023 (or $81 in H2) and $80 in 2024 but acknowledge that the balance of risks has tilted more to the upside
EU News
European equity close: UK stocks lead the way lower while Italy bucks the trend
- So much for that windfall tax
Closing changes today:
- Stoxx 600 -1.0%
- German DAX -0.9%
- FTSE 100 -1.6%
- French CAC -1.1%
- Italy MIB +0.6%
- Spain IBEX -0.9%
Germany August ZEW survey current conditions -71.3 vs -63.0 expected
- Latest data released by ZEW – 15 August 2023
- Prior -59.5
- Expectations -12.3 vs -14.7 expected
- Prior -14.7
Switzerland July producer and import prices -0.1% vs 0.0% m/m prior
- Latest data released by the Federal Statistics Office – 15 August 2023
- Prior 0.0%
- Producer and import prices -0.6% y/y
- Prior -0.6%
UK July payrolls change 97k vs -9k prior
- Latest data released by ONS – 15 August 2023
- Prior -9k; revised to 47k
- June ILO unemployment rate 4.2% vs 4.0% expected
- Prior 4.0%
- June employment change -66k vs 75k
- Prior 102k
- June average weekly earnings +8.2% vs +7.3% 3m/y expected
- Prior +6.9%; revised to +7.2%
- June average weekly earnings (ex bonus) +7.8% vs +7.4% 3m/y expected
- Prior +7.3%; revised to +7.5%
Other News
People’s Bank of China set MLF rate at 2.5%, big cut from prior 2.65%
There were little expectations for a rate cut from the PBOC on this, so quite the surprise.
PBOC inject 401bn yuan via a one-year MLF at 2.5%
- 400bn yuan of MLF are maturing today
- thus net MLF injection is 1bn yuan
The PBOC has also cut the 7 day reverse repo rate to 1.8% from prior 1.9%.
The PBOC’s MLF rate is a benchmark interest rate that banks in China can use to borrow funds from the People’s Bank of China for a period of 6 months to 1 year, medium-term liquidity to commercial banks.
The rate is typically announced on the 15th of each month.
The interest rate on the MLF loans is typically higher than the benchmark lending rate, which encourages banks to use the facility only when they face a shortage of funds.
Current LPR rates are:
- 3.55% for the one year
- 4.20% for the five year
PBOC announces cuts to standing lending facility rates
- This will come into effect immediately today
The overnight standing lending facility (SLF) rate is cut by 10 bps to 2.65% while the 7-day and 1-month SLF rates are cut by 10 bps each as well to 2.80% and 3.15% respectively.
ICYMI: China with three rate cuts in one day to try and bolster the economy
- A show of support from Beijing and the PBOC
The question is, are these measures enough to turn the tide in the economy? I don’t think so.
Domestic demand is dead in China and that is the more serious concern in my view. Helping to ease pressure on credit conditions is welcome but there needs to be more. Xi certainly needs to bring the good ol’ bazooka to the table.
Chinese state banks have been intervening to buy yuan
- Seen selling USD/yuan circa 7.28
State banks in China slamming USD/yuan in an intervention response to prop up the local currency.
Bloomberg says the banks have been seen in the market.
China July Industrial production +3.7% y/y (expected 4.5%) & Retail sales +2.5% (4.8%)
- China industrial production and retail sales data
China industrial production and retail sales data for July 2023.Big misses for both.
China’s National Bureau of Statistics (NBS) have commented on the results, in blunt terms from Chinese authorities:
- Economy continues to recovery in July
- The foundation for economic recovery needs to be cemented
- Boost to domestic demand is needed, domestic demand is not sufficient
JP Morgan warning on China property sector developments: “may set off a vicious cycle”
JP Morgan analysts have warned that missed payments by a major Chinese shadow lender may trigger a “vicious cycle” for property developers’ financing and more delinquencies for trust products.
ITCMI, this is in relation to missed payments on multiple high-yield investment products:
- Three firms said late last Friday that they failed to receive payments on products issued by companies linked to Zhongzhi Enterprise Group, which has about one trillion yuan (S$187 billion) in assets under management.
JPM go on:
- Liquidity stress is intensifying for indebted developers and their non-bank creditors after a unit of Zhongzhi Enterprise Group Co., one of China’s largest private wealth managers. failed to deliver on-time payments for multiple products.
- About 2.8 trillion yuan ($386 billion), or 13% of China’s total trust assets may see rising default risks, given their exposure to the property industry and local government debt the report says
- Up to 80% of local government financing vehicles may not be able to repay their debt principals
- “The trust defaults may set off a vicious cycle on POE (privately-owned enterprise) developers’ onshore debt,” the analysts wrote. “This follows that rising concern of developer defaults weakens investment sentiment and, as a result, trust companies may not be able or willing to roll over existing real estate-related products.”
Australia data – ANZ Roy Morgan weekly consumer confidence 81.4 (prior 78.2)
Australian Weekly ANZ Roy Morgan Consumer Confidence survey comes in at an improved but still very weak 81.4.
ANZ mention that consumers’ inflation expectations eased by 0.2 percentage points to 5.2%
Australian wages data for Q2 +0.8% q/q (expected +1.0%)
Australian Wage price Index for Q2 2023
RBA minutes: credible path back to CPI target with cash rate staying at its present level
- Minutes of the Reserve Bank of Australia August 2023 policy meeting. The cash rate was left unchanged at this meeting.
Reserve Bank of Australia minutes, Headlines via Reuters
- Board considered raising rates by 25bp or holding steady
- Board agreed on case for holding rates steady was the stronger one
- Board saw a “credible path” back to the inflation target with cash rates at current 4.1%
- Board agreed it was possible some further tightening might be needed
- Need for further hike would depend on data, evolving assessment of risks
- Inflation heading in the right direction, though service inflation too high
- Consumption had slowed significantly even as the full effect of past tightening yet to be felt
- The labour market had been resilient, but early signs it might be at a turning point
- Board saw “plausible scenarios” where inflation took longer than acceptable to return to target
- Controlling persistent inflation would require more rate rises than otherwise
- Staff inflation forecast had assumed one more hike, rates notably lower than in other countries
- Rise in housing prices could mean financial conditions not as tight as assumed
Japan finance minister Suzuki says rapid FX moves are undesirable
- It’s been a while since we got some verbal jawboning
- To respond appropriately to excessive moves
- Not targeting absolute FX levels when intervening
- Exchange rate should move stably reflecting fundamentals
Japan preliminary Q2 GDP +1.5% q/q (vs. expected +0.8%)
- Flash readings for Japanese economic growth in the April to June quarter of 2023
Huge beat for Japanese economic growth. Note the Deflator, it’s a measure of inflation and its jumped to +3.4%, well above Q1 and what was expected. The +3.4% q/q is its highest since Q1 of way back in 1981.
Russia’s central bank raises key interest rate from 8.5% to 12% in extraordinary meeting
- The meeting comes after the rouble fell past the 100 mark against the dollar yesterday
That’s a whopping 350 bps rate hike as Russia tries to stem the bleeding in the currency, which has been on a massive downtrend amid the economic fallout from the conflict with Ukraine.
Russia discusses return to capital controls to halt ruble drop
- Bloomberg report
Russia’s central bank launched a surprise rate hike this week but it failed to stem the slide in the ruble.
Cryptocurrency News
SEC delays decision on Grayscale’s GBTC to ETF conversion after Ark Invest remission
- US SEC has failed to provide a decision on Grayscale’s application to have its GBTC converted to an ETF.
- The asset manager’s disappointment comes only days after Cathie Wood’s Ark Invest suffered the same fate.
- As market participants continue to hold out hope, experts say such approvals may not happen under current presidential and SEC regimes.
The US Securities and Exchange Commission (SEC) has delayed yet another decision relating to spot Bitcoin Exchange Traded Funds (ETFs). The delay disappoints market players, as the market would do well with a catalyst right now, and ETFs are touted as the most likely impulse to drive the market.
SEC disappoints Grayscale asset manager with ETF approval delay
The US SEC is in no rush to approve spot BTC ETF applications, letting down the country as Europe just launched its first one spearheaded by Jacobi Asset Management on exchange Euronext Amsterdam. Contrary to expectation, the financial regulator has not issued a decision concerning Grayscale’s application to have its Bitcoin Investment Trus (GBTC) converted into an ETF.
The Grayscale Bitcoin ETF case decision could come as soon as Tuesday US time
The gist of the case is the US Securities and Exchange Commission (SEC) repeatedly rejecting Crypto investment firm Grayscale’s proposal to convert the Grayscale Bitcoin Trust into an ETF.
An approved ETF would mean crypto assets trading directly on traditional U.S. financial exchanges, which would be a boost for the class. The SEC has already allowed the launch of several bitcoin futures ETFs. Legal pundits are expecting the court decision sometime this week. There are murmurings it could come as soon as Tuesday.
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