Round up of today’s market news

North American News

US Stocks End on a Sour Note as Market Faces Sharp Decline

• Major indices close at lows for the day

Market Gloom Deepens: NASDAQ Takes a Tumble of Over 1%, Amplifying the Day’s Dismal Closure for US Stocks

• Dow Industrial Average fell -180.67 points or -0.52% at 34765.73
• S&P index fell -33.53 points or -0.76% at 4404.32
• NASDAQ index fell -156.43 points or -1.15% at 13474.62
• Russell 2000 fell -24.23 points or -1.28% at 1871.51

The biggest laggard in the Dow was:

• Intel fell -3.57%. They called off a proposed merger with Tower Semiconductor as China scuttled the merger
• Walgreens fell -1.43%
• Caterpillar fell -1.06%
• Procter & Gamble fell -1.04%
• Boeing fell -1.01%

The biggest gainer for the Dow was Travelers with a gain of 1.19%. Other winners included:

• Home Depot +0.28%
• Merck +0.09%
• Walmart +0.05%
• Verizon +0.03%

After the close of Cisco announced earnings:

• EPS came in at $1.14 versus $1.06 expected
• Revenues came in at $15.2 billion versus $15.05 billion expected

Despite the beat Cisco shares are trading down -1.36%.

Summary of FOMC meeting: Most thought inflation risks could require additional rate hikes

• Fed’s kept rates unchanged

The Federal Reserve meeting minutes of 4 the July 2023 meeting:

• Uncertainty of U.S. economic outlook remains elevated; future Federal Reserve policy decisions to be driven by the totality of data from the July 25-26 meeting.
• Most participants said inflation risks could require further interest rate hikes.
• A number of participants warned of risks of accidentally tightening policy too much.
• A couple of participants favored holding interest rates steady at the July meeting.
• A number of participants saw economic risks becoming more balanced.
• Most participants saw continued ‘significant’ upside inflation risks.
• Participants said inflation was ‘unacceptably high,’ and more evidence is needed to be confident that price pressures are ebbing.
• Participants said a gradual slowdown in economic activity appeared to be happening.
• Participants still saw below-trend growth and a softer labor market as necessary for restoring economic balance.
• Amid uncertainty about monetary policy lags, participants said rate hikes are working as intended.
• The banking system is ‘sound and resilient,’ but tighter credit conditions are likely to weigh on the economy.
• Staff no longer see the economy entering a mild recession this year and now predict below-trend growth in 2024 and 2025.
• Participants said the labor market is still ‘very tight,’ although signs are emerging that labor demand is in better balance.

Looking at the Participant’s views on current conditions and economic outlook and organizing by conviction showed:

1. Unanimous Views:

• Economic activity has been expanding at a moderate pace.
• The U.S. banking system is sound and resilient.
• The extent of the effects of tighter credit conditions on economic activity, hiring, and inflation remains uncertain.
• All participants agreed on the continuation of reducing the Federal Reserve’s securities holdings.

2. Majority/Many Participants:

• Real GDP growth showed resilience and momentum.
• A gradual slowdown in economic activity is in progress due to monetary policy tightening.
• Monetary policy tightening is working as intended.
• Inflation remains above the Committee’s 2% objective.
• Almost all participants judged it appropriate to raise the target range for the federal funds rate at the meeting.
• Most participants saw significant upside risks to inflation.

3. Some Participants:

• Observed that recent increases in home prices suggest the housing sector’s response to monetary policy may have peaked.
• Commented on conditions that could lead to higher or lower economic activity in the business sector.
• Noted that significant disinflationary pressures had yet to become apparent in core services excluding housing.
• Emphasized the need for banks to be ready to use Federal Reserve liquidity facilities.
• Commented on the continued downside risks to economic activity and upside risks to the unemployment rate.

4. A Few/Several Participants:

• Commented on the vulnerabilities of the CRE market and the ongoing weakness of manufacturing output.
• Observed that growth in payrolls had slowed but continued to exceed values consistent with an unchanged unemployment rate.
• Commented that significant disinflationary pressures were not yet apparent in core services excluding housing.
• Noted the susceptibility of some nonbank financial institutions to runs or instability.
• A couple of participants favored leaving the target range for the federal funds rate unchanged or could have supported such a proposal.

5. General Observations:

• Participants discussed the uncertainty about the effects of monetary policy on the economy.U.S. economic outlook remains elevated; future Federal Reserve policy decisions to be driven by the totality of data from the July 25-26 meeting.
• They stressed the need for more data to be confident about the path of inflation.inflation risks could require further interest rate hikes.
• Participants emphasized the importance of clear communication about the Committee’s approach.
• They discussed risk-management considerations for future policy decisions.interest rates steady at the July meeting.

US July housing starts 1.452m vs 1.448m expected

• US July 2023 housing starts data

• Prior was 1.434m (revised to 1.398m)
• Starts +3.9% vs -11.7% prior
• Building permits 1.442m vs 1.463m expected
• Permits +0.1% vs -3.7% prior

Atlanta Fed Q3 GDPNow tracker raised to a sizzling 5.8% from 5.0%

• The Atlanta Fed tracker hits the highest so far

It’s early in the quarter but the trend is unmistakable as the Atlanta Fed tracker continues to point to strong growth in Q3. In the latest update, the GDPNow measure was boosted to 5.8% from 5.0%.

“After this morning’s housing starts report from the US Census Bureau and industrial production report from the Federal Reserve Board of Governors, the nowcasts of third-quarter real personal consumption expenditures growth and third-quarter real gross private domestic investment growth increased from 4.4 percent and 8.8 percent, respectively, to 4.8 percent and 11.4 percent,” the release said.

Target: US comp trends softened in late-May and June before a meaningful recovery in July

• Comments from US retailer Target as TGT stock climbed 6% in the pre-market

Target shares are up 6.2% in the pre-market despite cutting its full-year sales and profit forecast. It’s Q2 revenue fell short of estimates but earnings beat.

The company now sees full-year earnings of $7-8 versus $7.75-$8.75 previously.

“As we look at the consumer landscape today, we recognize the consumer is still challenged by the levels of inflation that they’re seeing in food and beverage and household essentials,” said CEO Brian Cornell. “So that’s absorbing a much bigger portion of their budget.”

US July retail sales numbers reported yesterday beat estimates but spending has been moving from goods to services all year on the exit from covid. Target said comp sales fell 5.4% y/y.

The company also highlighted rising problems with theft and a backlash to its pride collection, which Cornell said had a ‘material’ impact on sales.

US-based analyst sees year end S&P 500 as high as 4850

A beefed up equity market forecast via a note from Jefferies Group, a US investment bank/financial services company headquartered in New York City.

In summary, the equity researchers boosted their year-end target for the benchmark index, citing easing inflation, positive economic surprises and fading earnings downgrades:

• Our new base case for the S&P 500 year-end target is 4500 (previously 4050)
• Our bull case of 4850 (previously 4650) assumes FY24 EPS witness almost no cuts and PE of 20x.
• bear case of 3500 remains the same factoring in a dotcom like recession

July US industrial production +1.0% vs +0.3% expected

• US July industrial production data

• Prior was -0.5% (revised to -0.8%)
• Capacity utilization +79.3% vs 79.1% expected
• Manufacturing output +0.5% vs 0.0% expected
• Prior manufacturing output -0.3% (revised to -0.5%)

US MBA mortgage applications w.e. 11 August -0.8% vs -3.1% prior

• Latest data from the Mortgage Bankers Association for the week ending 11 August 2023

• Prior -3.1%
• Market index 193.0 vs 194.5 prior
• Purchase index 149.5 vs 149.9 prior
• Refinance index 408.4 vs 416.1 prior
• 30-year mortgage rate 7.16% vs 7.09% prior

Wells Fargo see firming US inflation in the second half of 2023, FOMC to hike rates

Wells Fargo Investment Institute has boosted its forecast for Fed Funds, citing

• “Our expectations for firming inflation in the second half of 2023 and sustained weakening trends in the U.S. economy lead us to revise our U.S. economic forecasts to predict somewhat higher 2023 inflation and to shift the bottom of the economic cycle to early 2024,”

Its terminal rate forecast range is now 5.5% to 5.75%

Canada wholesale trade for June -2.8% versus -4.2% expected

• Canada wholesale trade for June 2023

• Prior month 3.5% revised to 2.9%
• Wholesale sales (excluding certain categories) dropped -2.8% to $80.5 billion versus expectations for a decline of -4.2%
• May’s increase was the largest since June 2020.
• Most subsectors reported a decline in sales.
• The drop in sales was primarily driven by the miscellaneous, machinery, equipment and supplies, and the motor vehicle subsectors.
• These subsectors had seen a sales surge in May.
• Year-over-year, wholesale sales (with exclusions) decreased by -0.4% compared to June 2022.
• Data on petroleum products and oilseed and grain remain available in tables but are excluded from monthly analysis until historical data is ready.
• Constant dollar sales (with exclusions) declined by -3.7% in June 2023.

Details show:

• Miscellaneous subsector sales decreased by -7.3% to $10.3 billion in June.
  • Four of seven industry groups saw a monthly increase.
  • The agricultural products industry group’s sales dropped -19.4% to $3.3 billion in June, affecting the overall subsector.
  • This decline followed a sales surge in May due to confirmed deliveries and seasonal demand.
• Machinery, equipment and supplies subsector sales fell -4.2% to $17.8 billion in June.
  • This followed a significant rise in May, the largest since June 2020.
  • Most industry groups reported a monthly sales decline in June 2023.
  • The other machinery, equipment and supplies industry group saw a decrease of -8.9% to $4.2 billion.
  • The construction, forestry, mining, and industrial machinery group dropped -6.0% to $5.9 billion.
  • Both groups had a sales surge in May due to high equipment demand.
• Motor vehicle, parts and accessories subsector sales went down 3.1% to $13.2 billion in June.
  • The motor vehicles industry group’s sales decreased by -4.3% to $10.6 billion.
  • This decline followed a record sales high in May for this subsector.

• Inventories in June:
  • Wholesale inventories (with exclusions) decreased by -1.2% to $127.7 billion.
  • This was the third inventory decline in 2023.
  • Four out of seven subsectors reported a drop in inventories.
  • The machinery, equipment, and supplies subsector saw the largest decline (-2.6% to $36.9 billion).
  • The building material and supplies subsector decreased by -2.0% to $23.3 billion.
  • The inventory-to-sales ratio rose from 1.54 in May to 1.59 in June, indicating a longer time to exhaust inventories at current sales levels.
• Wholesale Sales in Q2 2023:
  • Wholesale sales (with exclusions) fell by -2.0% to $243.9 billion, largely due to June’s sales drop.
  • The miscellaneous subsector had the most significant quarterly sales decline, dropping -10.4% to $31.8 billion.
  • The food and beverage subsector decreased by -3.0% to $44.5 billion.
  • Compared to Q2 2022, the wholesale sector’s quarterly sales grew by +1.2% in Q2 2023.

Canada July housing starts 255K vs 240K expected

• Canadian housing starts from the CMHC for July 2023
• Prior was 281.4K (revised to 283.5K)
• Multi-urban starts -12% m/m
• Single-detached starts -4% m/m

Commodities

Gold dips to 7-week low beneath $1,900 after FOMC minutes

• Fed officials unanimously aim to achieve the 2% inflation target, but divisions emerge on the path forward.
• Gold reacts with a sharp drop, testing the S1 daily pivot point, while US Treasury yields and the greenback see upward movement.
• Key levels to watch include the $1,900 psychological mark and the 50-hour Moving Average at $1,904.34

Gold price treads water after the latest Federal Reserve’s meeting minutes showed board officials were split between raising rates or keeping them unchanged at the July meeting. After the data release, XAU/USD trades volatile, hit a fresh 7-week low at $1,895.48 and is seesawing at around the $1,900-$1,890 area.

Crude futures settle at $79.38

• Down -$1.61 or -1.99%

• Crude oil settles at $79.38
• Down -$1.61 or -1.99%
• The high price reached $81.43.
• The low price reached $79.28

There is support near the $79 level. Move below that level and it would open the door for further downside potential. The swing high from July 14 comes in at $77.30 and would be a downside target.

Find support against the $79 level would give buyers more confidence to push back toward the $82.43 – $83.44 swing area.

EIA US weekly oil inventories -5960K vs -2320K expected

• US weekly US oil inventories

• Prior crude +5851K
• Gasoline -261K vs -1260K expected
• Distillates +296K vs -473K expected
• Refinery utilization +0.9% vs +0.4% expected
• Production estimate 12.7 mbpd vs 12.6 mbpd prior
• Impld mogas demand: 8.85 mbpd vs 9.30 mbpd prior

EU News

European equity close: Italian stocks lag

• Closing changes for the main European bourses

• Stoxx 600 -0.1%
• German DAX +0.1%
• FTSE 100 -0.2%
• French CAC -0.1%
• Italy MIB -0.9%
• Spain IBEX +0.1%

Eurozone Q2 GDP second estimate +0.3% vs +0.3% q/q prelim

• Latest data released by Eurostat – 16 August 2023

This matches the initial estimates and is a bit of a surprise given how downbeat the recent data is. Eurostat does note that there could be an outlier though, with Irish GDP jumping by 3.3% – driven by the taxation reasons, which is seeing an oversized impact among big foreign companies located in the country. 

UK July CPI +6.8% vs +6.8% y/y expected

• Latest data released by ONS – 16 August 2023
• Prior +7.9%
• Core CPI +6.9% vs +6.8% y/y expected
• Prior +6.9%

Eurozone June industrial production +0.5% vs -0.1% m/m expected

• Latest data released by Eurostat – 16 August 2023
• Prior +0.2%; revised to 0.0%

This is a welcome beat and looking at the breakdown, it is largely driven by a rebound in energy production (+0.5%) which fell by over 2% in May. Meanwhile, there were falls observed in intermediate goods (-0.9%), capital goods (-0.7%), durable consumer goods (-0.1%) and non-durable consumer goods (-1.1%).

Other News

China’s Zhongrong misses dozens of payments as fallout spreads

Newswire headline, not good news from China:

• China’s Zhongrong misses dozens of payments as fallout spreads
• Two clients of Zhongrong International Trust said the firm delayed payment of maturing wealth products.

China House Prices in July fell m/m and y/y

• One of the biggest fall in house price in a month on record

China House Prices in July

• -3.9% m/m (prior 0%)
  • this is one of the biggest monthly declines on record
• -0.1% y/y (prior 0%)

Among China’s 70 major cities:

Accelerated moves from the US to cut research ties with China over security concerns

The Wall Street Journal carries the report on some U.S. lawmakers pushing to let a landmark agreement to cooperate on science and technology, signed in 1979 and renewed routinely since, expire this month.

• Rep. Mike Gallagher (R., Wis.), the chairman of a congressional select committee on China, is leading a push to let the U.S.-China Science and Technology Agreement expire. First signed shortly after the two countries established diplomatic relations, it has been renewed around every five years since.
• In a letter to Secretary of State Antony Blinken in June, Gallagher and nine other Republican representatives argued that the U.S. is aiding China’s military modernization through the agreement.

link to the article (gated)

China says will strengthen policy coordination in order to meet growth target

• Remarks via state media, after a cabinet meeting was held

• To strengthen coordination of various policies to boost growth
• To continue to expand policy room to bolster consumption, promote investment
• Will make greater efforts to attract and utilise foreign investment
• To fend off major risks

PBOC-backed paper: Recent yuan fluctuations are normal

• Paper says yuan pressure to ease in H2
• Expectations on the yuan exchange rate are stable

There is some growing angst about the decline in the yuan, particularly as a reason not to ease further. One reason to float this paper might be to tell Chinese people not to worry about the currency. If that’s the case, it would be dovish and stimulative. The calls for more China economic support are growing.

Reserve Bank of New Zealand leave cash rate unchanged at 5.5%, as widely expected

RBNZ Monetary Policy Review and official cash rate announcement. OCR remains at 5.5% as basically unanimously expected.

RBNZ forecasts:

• Official cash rate at 5.54% in December 2023 (vs. prior at 5.5%)
• Official cash rate at 5.57% in September 2024 (vs. prior at 5.43%)
• TWI NZD at around 71.0% in September 2024 (vs. prior at 71.5%)
• Annual CPI 2.7% by September 2024 (vs. prior at 2.7%)
• Official cash rate at 5.5% in December 2024 (vs. prior at 5.3%)
• Official cash rate at 3.38% in September 2026

From the Bank:

• The current level of interest rates is constraining spending and hence inflation pressure, as anticipated and required
• Committee agreed that the OCR needs to stay at restrictive levels for the foreseeable future
• New Zealand economy is evolving broadly as anticipated
• Headline inflationand inflation expectations have declined, but measures of coreinflation remain too high
• In the near term, there is a risk that activity and inflation measures do not slow as much as expected
• Committee is confident that with interest rates remaining at a restrictive levelfor some time, consumer price inflation will return to within its target range of 1 to 3% per annum

Minutes from the Reserve Bank of New Zealand meeting:

• Committee noted inflation is still expected to decline within the target band by the second half of 2024
• Committee agreed that the risks around the inflation projection remain balanced
• Committee noted that the estimate of the nominal neutral OCR has increased by 25 basis points to 2.25% within the projections, consistent with the Reserve Bank’s indicator suite

RBNZ Governor Orr says the higher OCR track is not forward guidance

RBNZ Governor Orr’s press conference following the Bank’s policy statement earlier.

• Rise in OCR track is not forward guidance, not a strong signal out the Bank’s next move
• Wary about too much on rates
• Is encouraged to see inflation fall
• Inflation is still too high
• The risk in the next few months is that activity could be stronger than expected
• Ready to work through noisy data in the near term
• There was not much talk of a rate cut, it was easy to reach consensus on the on hold decision
• We are very comfortable with where the cash rate is
• Still on a path to a soft landing

Australia data – twelfth consecutive negative print for the Leading Index growth rate

• Westpac Leading Index for July

Westpc’s main points:

• Leading Index growth rate lifts slightly to –0.6% in July from -0.67% in June.
• Twelfth month of negative prints, longest run in seven years (ex-COVID).
• Below-trend growth momentum set to extend into 2024.
• Some support from resilient labour market and end to rate rises.
• But significant hit coming from sharp falls in commodity prices.

Background info on the Westpac-Melbourne Institute Leading Index, published by Westpac Banking Corporation in conjunction with the Melbourne Institute of Applied Economic and Social Research.

• The main objective of this index is to signal the likely pace of economic activity relative to trend three to nine months into the future.
• The Leading Index is calculated based on a range of economic data, including components such as: S&P/ASX 200 index, employment indicators, dwelling approvals, commodity prices and the Australian yield spread (10-year Commonwealth Government Securities (CGS) yield minus the 90-day bank bill rate).

Japan data – Reuters Tankan shows Large Manufacturing and Non-manufacturing sentiment rise

Reuters Tankan data results:

• Large Manufacturing sentiment index +12 in August vs. +3 in July
  • seen at +14 in 3 month
• Non-manufacturing to +32 in August from +23 in July
  • first rise for this in 3 months
  • seen at +26 in 3 months

Snippets from the Reuters report:

Cryptocurrency News

Singapore police seize $1 billion in cash and cryptocurrencies used in money laundering

• Singapore Police Force announced the arrest of ten foreign nationals involved in the country’s biggest money laundering bust.
• They seized assets, including 94 real estate properties worth upwards of $800 million and $1 billion worth of cash and crypto assets.
• The country is moving into establishing crypto regulations, with the Monetary Authority of Singapore issuing a stablecoin regulatory framework on August 15.

Cryptocurrencies have been subject to much scrutiny due to their involvement in money laundering and other crimes. Even with the governments finding ways to curb their illicit use, they end up making headlines for the same reason, and Singapore witnessed a huge case regarding this earlier this week.

Singapore police bust crypto money launderers

The Singapore Police Force, in a Facebook post, announced that ten foreign nationals had been charged with forgery and money laundering. The announcement also stated over $1 billion worth of cash and crypto assets were seized in addition to multiple properties,

“Prohibition of disposal orders were issued against 94 properties and 50 vehicles, with a total estimated value of more than $815 million.”

Coinbase gets approval to offer crypto futures trading to eligible US customers

• Coinbase becomes the first crypto-native exchange to receive approval to roll out Bitcoin and Ethereum futures to eligible US customers, alongside spot trading. 
• The National Futures Association granted Coinbase approval to operate as a Futures Commission Merchant. 
• Coinbase’s Chief Legal Officer welcomed the decision while the SEC lawsuit is underway.

Coinbase, one of the largest cryptocurrency exchanges, said Wednesday that it has received regulatory approval to roll out crypto futures trading in the US, becoming the first crypto-native exchange to offer these services alongside crypto spot trading on its platform.

The approval, secured by the National Futures Association (NFA) – an entity overseen by the Commodity Futures Trading Commission (CFTC) – represents a key milestone for Coinbase in its path to offer regulated crypto trading to eligible US customers. It also comes at a time when the exchange faces a lawsuit from the US Securities & Exchange Commission (SEC).

Coinbase secures approval to offer Bitcoin, Ethereum futures 

The exchange had filed an application with the NFA in September 2021 to register as a futures commission merchant, a license that allows investors to buy and sell futures on Coinbase.

In a statement, Coinbase said that the approval represents “a critical milestone” for the company, which will become “the first crypto-native leader to directly offer traditional spot crypto trading alongside regulated and leveraged crypto futures.”

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