North American News
Nasdaq Extends Losses, Declining for the Third Consecutive Day
- Nasdaq Records 3rd Consecutive Day of Consistent Declines, Ranging Between -1.14% to -1.17%
Continued Downturn: Major US Stock Indices Extend 3-Day Skid, Nasdaq Leads with Nearly -1.15% Loss, Marking 3rd Consecutive Day in Red. Weekly Performance Reveals Nasdaq’s Slide of -2.40%, Heading for 3rd Consecutive Weekly Decline. S&P Index Echoes Pattern, Poised for 3rd Straight Weekly Drop at -2.10%.
The final numbers for the day are showing:
- Dow Industrial Average -290.93 points or -0.84% at 34474.84
- S&P index is down -33.95 points or -0.77% at 4370.37
- NASDAQ index is down -157.71 points or -1.17% at 13316.92
- Russell 2000 is down -21.46 points or -1.15% at 1850.05
For the trading month, with a little over 1/2 of the month over, the major indices are all lower:
- Dow is down -3.05% which represents the largest decline since May your
- S&P index is down -4.76% which represents the largest monthly decline since December.
- NASDAQ index is down -7.17% which is also the largest monthly decline since December
US yields have come off their highs into the close.
- 2 year yield is at 4.938% after reaching 5.002% earlier
- 10 year yield is at 4.384% after reaching a new 2023 high at 4.328%.
- 30 year yield is at 4.392% after reaching a new 2023 high at 4.426%
US initial jobless claims 239K vs 240K estimate
- US initial jobless claims for the week ending August 12
- Prior was 248K revise marginally higher to 250K
- Initial jobless claims 239K vs 240k estimate
- 4-week moving average of initial jobless claims 234.25K versus prior week of 231.50K
- Continuing claims 1.716M vs 1.700M estimate
- 4-week moving average of continuing claims 1.693M vs 1.701M last week
- The largest increases in initial claims for the week ending August 5 were in Ohio (+5,406), California (+2,363), Texas (+2,237), New Jersey (+1,622), and Connecticut (+1,288),
- The largest decreases in initial claims were in Missouri (-781), Florida (-410), Iowa (-335), Arkansas (-198), and Kentucky (-79).
US mortgages could hit 8% says Realtor economist
Mortgage interest rate remarks from Lawrence Yun’s chief economist at the National Association of Realtors in the US.
He outlined a couple of scenarios:
- If the Fed says inflation is contained, then mortgage rates are likely to slide down to about 6% by year-end
- If the Fed continues to be aggressive and raises rates again, then mortgages could hit 8%
These were contained in a Wall Street Journal article (gated)
Morgan Stanley says Fed Reserve Chair Powell will keep his options open at Jackson Hole
Global Chief Economist at Morgan Stanley Seth Carpenter on Federal Reserve Chair Powell at the Kansas City Jackson Hole gathering coming up.
- Says Powell will likely discuss future policy direction at the event
- Thinks Powell won’t promise any immediate changes
- But Powell might sound more cautious about the economy’s direction
- By doing this the Fed keeps its flexibility to raise interest rates if needed
US mortgage rates reach highest levels in over 20 years
- Freddie Mac rate reaches 7.09%
US mortgage rates hit the highest level in 20 years.
- The average mortgage rate increased to 7.09% as reported by Freddie Mac.
- A year ago the rate was around 5%.
- The Federal Reserve’s high-rate policies have most directly impacted the housing market, causing a decline in refinancing and purchase activity.
- This decline has negatively affected mortgage lenders, resulting in numerous layoffs in the industry and a drag on economic growth.
10-Year Treasury Yields Approach November 2023 Highs, Merely 1 Basis Point Below
- Long end yields up another 6 basis points
The blowout in bonds is the only thing that really matters in markets right now.
US yields from 5-30 years are up 6-7 basis points today and at the highs of the day. US 20-year yields are up 6.5 bps today to 4.61%, which is nearing the high of 4.67% from last October.
Eyes are particularly attuned to the 10-year and the potential to hit 4.50%. They’re up 6.6 bps to 4.32% today and just shy of the November high of 4.33%.
August US Philly Fed manufacturing index +12.0 vs -10.0 expected
- Philadelphia-area manufacturing data
- Philly Fed business index +12.0 vs -10.0 expected
- First positive reading since last August
- Prior was -13.5
- six-month index +3.9 versus +29.1 last month
- capital expenditures index -4.5 versus +8.6 last month
- employment index -6 versus -1 last month
- price paid index +20.8 versus +9.5 last month
- new orders index +16.0 versus -15.9 last month
US Leading index -0.4%% vs -0.4% estimate
- US Leading index up for the 16th consecutive month
For the news stations, the leading index fell for the 16th consecutive month. The index fell -0.4% vs -0.4% expectations. Last month the index fell -0.7%.
Heads up: The infamous Jackson Hole symposium will be taking place next week
- The event will be held on 24 to 26 August
This year, the symposium will carry the theme of “Structural Shifts in the Global Economy”. In 2022, the theme was “Reassessing Constraints on the Economy and Policy”. As always is the case, the agenda and list of participants will only be finalised in the days leading up to the event.
Commodities
Gold Plummets: Prices Tumble to Lowest Mark Since March
- Gold down $6 to $1885
Gold has sold off steadily for two weeks and today broke through the June lows to the worst levels since March 14.
The gold move is a mirror image of Treasury yields as the risk-free rate for 10-years in the US nears cycle highs at 4.30% while gold continues to yield 0%. That’s a powerful difference for investors and treasury managers with long investment horizons.
Technically though, today’s break of the June lows makes it more likely we retrace the entire March move, which was predicated on the bank rout and belief the Fed was near a peak. Given strong US data, the timeline for Fed cuts is being pushed out and rising oil prices are also boosting the outlook for inflation. I would expect to see strong buying in the $1820-$1830 range but not before. If anything, we could be closing in on an ugly breakdown.
US crude oil futures settle at $80.39
- Settlement prices up $1.01 or 1.27%
The price of WTI crude oil futures is settling up $1.01 or 1.27% at $80.39. The high price they reached $81.08. The low price was at $78.95. At session lows, the price tested a targeted support area at $79.00.
Recall, that last week the price moved above a swing area between $82.43 and $83.44. However momentum cannot be sustained, and the price started to rotate back to the downside.
US weekly EIA natural gas storage change +35 bcf vs +34 bcf expected
- Weekly US natural gas inventory data
- Prior was +29 bcf
EU News
EUR/USD slips further from 1.0900 amid risk-aversion, strong USD
- Global market sentiment is cautious, with equities declining and bond yields rising, as investors anticipate further monetary tightening by central banks.
- July’s Fed minutes reveal a unanimous decision for a rate hike but growing caution among board members about potential over-tightening.
- US data: Initial Jobless Claims slightly better than expected at 239K; Philadelphia Fed Manufacturing Index for August shows improvement.
- Eurozone reports a trade surplus of €23B, surpassing expectations.Upcoming data includes July’s Harmonized Index of Consumer Prices (HICP).
EUR/USD registers modest losses for the fifth straight day, widening its distance from the 1.0900 figure amid a risk-off impulse spurred by the Federal Reserve (Fed) meeting minutes, as well as woes of China’s economic slowdown.
Eurozone June trade balance €23.0 billion vs -€0.3 billion prior
- Latest data released by Eurostat – 17 August 2023
- Prior -€0.3 billion
The seasonally adjusted trade balance came in at a surplus of €12.5 billion, but came as exports were down 0.5% on the month while imports slumped harder by 5.6% on the month. The latter in particular remains a function of a further improvement in energy price developments in the region, much compared to last year.
BoE hesitations to fight inflation risks would be disastrous for Sterling – Commerzbank
The Pound rose after the publication of inflation data on Wednesday. Economists at Commerzbank analyze GBP outlook.
The BoE will have to deliver
Inflation remained above expectations. Moreover, the core rate remained unchanged at 6.9%. That increases the likelihood that the BoE will hike key rates another two times until year-end. It might have to take further action in 2024 as well.
The market is confident that the BoE will take action, but it will have to deliver.
If, over the coming weeks, the market gets the impression that the BoE might hesitate after all to fight inflation risks in order not to dampen the economy too much, that would be disastrous for Sterling.
Other News
China reportedly told state banks to escalate yuan intervention this week
- The headline via Bloomberg
Well, it’s not like it had helped that much but the yuan did bounce back towards the closing stages of onshore trading today.
Unless something changes from a fundamental perspective, Chinese authorities will have to do more in order to keep the pressure off the domestic currency. For now, it could help to stem the bleeding but where’s the fiscal aid? How are things supposed to turn around for the economy? How long can they keep burying all the issues and keep propping up the yuan and local stocks?
PBOC says prudent monetary policy will be precise and forceful
- Remarks by the Chinese central bank in its Q2 monetary policy report
- Will keep liquidity reasonably ample
- Will keep yuan exchange rate basically stable
- Will fend off systemic financial risks
- Will keep prices basically stable
- Will adjust, optimise property policies in a timely manner
China’s aging population and smaller workforce to weigh on economic growth – Moody’s
- This is one of Xi’s biggest challenges as China’s leader in the bigger picture
It goes without saying that Japan is the leading example in this space and China is also looking to go down that path. In fact, so are a lot of countries. But when you have been on the path of surging economic growth over the past two decades, this sort of reality check will be painful and even more so as Xi is trying to solidify his legacy as China’s one and only leader.
$5bn acquisition of Israeli chip manufacturer by Intel has been called off, China said no
AP with this report on a deal between a US and Israeli firm scuttled by China.
- A $5.4 billion acquisition of Israeli chip manufacturer by Intel has been called off after China failed to sign off on the deal amid rising tensions with the United States.
- The deal required approval from a number of regulators worldwide, including those in China. Chinese regulators failed to approve the deal by a deadline Wednesday, even after Intel CEO Patrick Gelsinger traveled to China last month in a bid to win them over.
Australia July Jobs -14.6K (vs. +15K expected) & Jobless rate 3.7% (vs. 3.5% exp)
- Australian employment market report
A sad report from Australia. Outsized fall in full time employment is not encouraging.
The unemployment rate at 3.7% is still just off its nearly 5-decade low, but is back up at the level from May last year.
- underutilization rate is 10.1%, another indication of weakness, back to March 2022 highs
RBNZ Orr says Bank’s cash rate projections for next 2 years deviate little from 5.5%
Reserve Bank of New Zealand Governor Orr is speaking
- Says the Bank has time to watch and wait on interest rates
- There are too many uncertainties to provide forward guidance
- Is convinced the Bank is being restrictive with its policy over the next 1 to 2 years
New Zealand PPI data for Q2: Small index movement only
Producer Price Index data from New Zealand for Q2 2023, published by Statistics New Zealand (also known as Stats NZ).
PPI Outputs:
- The PPI Outputs measure the average prices received by New Zealand producers for goods and services they produce and sell.This could be to other businesses (intermediate consumption) or to final consumers.
- cover various industries such as agriculture, manufacturing, construction, and services, among others
- rising PPI Outputs index can indicate increasing inflationary pressure as producers are getting higher prices for their goods and services.However, they might not necessarily pass these increases on to consumers
PPI Inputs:
- The PPI Inputs, on the other hand, measure the average prices paid by New Zealand producers for their inputs — the raw materials, services, and capital goods they use to produce their goods and services.
- These inputs can be sourced domestically or imported.
- When the PPI Inputs index is rising, it suggests that producers are facing higher costs, which might eventually lead to higher prices for consumers if the producers pass these costs on through higher output prices.
Japan’s July exports -0.3% y/y (expected -0.8%) & Imports -13.5% y/y (expected -14.7%)
Trade balance data from Japan for July 2023, along with Machinery orders for June.
- Exports fell for the first time in 29 months
Exports to:
- China -13.4% y/y
- US +13.5% y/y
- EU +12.4% y/y
I think you can see the problem, right? China’s economic stumble out of COVID-zero reopening is impacting globally, not just locally.
Singapore July exports slump, NODX down 20% y/y
Singapore Non-oil Domestic Exports (NODX) for July 2023
-3.4% m/m
- Expected +1%, prior +5.4%
-20.2% y/y
- Expected -14.4%, prior -15.5%
Singapore Non-oil Domestic Exports (NODX) measures the value of goods exported from Singapore excluding oil and petroleum products.
- An important gauge of Singapore’s external trade performance, especially for the manufacturing and export sectors
- Covers a wide range of products, including electronics, chemicals, pharmaceuticals, machinery, precision engineering goods, and more
- Growth in NODX indicates an increase in exports, which can boost economic activity and contribute to GDP growth
- A decline in NODX suggests a slowdown in export demand and may signal weaker economic conditions
- Factors influencing NODX include global economic conditions, changes in international demand for Singaporean goods, fluctuations in exchange rates, shifts in global supply chains, and changes in government policies related to trade
Cryptocurrency News
Fed censors Farmington State Bank for breaching operational terms following $11.5 million deal with FTX Group
- The Federal Reserve has clamped down on Farmington State Bank, an affiliate of Sam Bankman-Fried’s FTX Group.
- The regulator is looking into an $11.5 million investment into the financier, injected by Alameda Research for a non-controlling stake.
- The bank is criticized for breaking operational terms to start dealing in crypto-related offerings.
The Federal Reserve has censored Washington-based Farmington State Bank, issuing a cease and desist order after the financier secretly violated terms of operation after jumping in bed with FTX Group’s Alameda Research in 2022.
Fed censors FTX-affiliate Farmington State Bank over Alameda Research ties
The Fed wants Farmington State Bank to close down after the financial institution went against the terms to start engaging in crypto-related activities. Based on the enforcement action, the bank discretely and without permission, forayed into the digital asset space to start “making dividends or capital distributions, dissipating cash assets and engaging in certain activities.”
In a joint enforcement action, therefore, the Fed and the Washington State Department of Financial Institutions are clamping down against Farmington for contravening its business plan to start crypto-related operations. Specifically, the bank is facilitating stablecoin issuance, which goes against the initial terms as stipulated by the Reserve Bank.
UK regulatory body mandates collection of information about cryptoasset transfers from September 1
- United Kingdom’s Financial Conduct Authority (FCA) will be enforcing the “Travel Rule” starting next month.
- The regulations set out by the Financial Action Task Force will mandate crypto businesses to collect, verify and share information about cryptoasset transfers.
- Of the 151 jurisdictions that responded to FATF’s 2023 Survey, less than half have implemented Travel Rule, leaving a huge gap in creating a money laundering-free environment.
The United Kingdom is making rapid advancements in setting up cryptocurrency regulations in the country. Moving forward, the citizens of the country dabbling in crypto asset transactions will be subjected to sharing their information with the government to ensure no illicit use of the digital currency is being conducted.
Crypto Travel Rule to come into effect in the United Kingdom
The Financial Conduct Authority (FCA) on August 17 announced that starting September 1, it would be enforcing the Travel Rule in the United Kingdom.The regulatory body will be implementing the rules set out by the Financial Action Task Force (FATF) to promote anti-money laundering and illicit use of crypto assets.
The FCA noted that in line with the FATF’s guidelines, crypto service providers will:
- Take all reasonable steps and exercise all due diligence to comply with the Travel Rule.
- Firms remain responsible for achieving compliance with the Travel Rule, even when using third-party suppliers.
- Fully comply with the Travel Rule when sending or receiving a cryptoasset transfer to a firm that is in the UK or any jurisdiction that has implemented the Travel Rule.
- Regularly review the implementation status of the Travel Rule in other jurisdictions and adapt business processes as appropriate.
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