North American News
Nasdaq Turns Bearish as Consumer Crunch Takes Its Toll on Market Close
- Closing changes in the main North American bourses
Nvidia’s Sharp Decline Marks Ugly Reversal for Nasdaq, Exposing Technical Weakness
The Nasdaq Composite witnessed a significant decline of 1.9% on the back of Nvidia’s striking reversal, which saw it plummet over 3% from its recent highs. The stock’s chart displays a concerning technical pattern with a prominent outside day, further exacerbated by the fact that this drop occurred despite ostensibly positive news. Delving into the market’s dynamics, a closer look at the day’s victors and casualties unveils the underlying narrative.
Among these, Dollar Tree emerges as the Nasdaq’s laggard, experiencing a steep 12.9% fall. This decline was spurred by the company’s announcement indicating a shift in consumer spending towards essential items, indicating potential economic fragility, particularly at the lower end of the spectrum. This trend aligns with observations from other retailers who have also signaled similar concerns.
Closing changes for the main indexes:
- S&P 500 down 60 points, or 1.4%
- Nasdaq Comp -1.9%
- Russell 2000 -1.1%
- DJIA -1.1%
Atlanta Fed GDPNow continues to sizzle as it bumps up to 5.9% from 5.8%
- More strength in the Atlanta Fed tracker
“After recent releases from the US Census Bureau and the National Association of Realtors, the nowcast of third-quarter real gross private domestic investment growth increased from 11.4 percent to 12.3 percent,” the Atlanta Fed said.
US Treasury sells $8 billion of indexed 30 year bonds at a high yield of 1.97%
- US sells $8 billion of 30 year TIPS
The U.S. Treasury sold $8 billion of indexed TIPS bonds at a high yield of 1.97%
- Bid to cover came in at 2.42X versus 2.38X last
- Tail: +2 bps
- Dealers 4.3% versus 9.9% previously
- Directs: 19.6% versus 14.1% last
- Indirects 76.2% versus 76.7% last.
US initial jobless claims 230K vs 240K estimate
- US initial jobless claims and continuing claims for the current week
- Prior week 239K revised to 240K
- Initial jobless claims 230K vs 240K estimate
- 4-week moving average initial jobless claims 236.75K vs 234.50K last week .
- Continuing claims 1,702M vs 1.708M estimate
- Prior week continuing jobless claims 1.716M revised to 1.711M
- 4-week moving average for continuing jobless claims 1.6973M vs 1.692M last week.
- The largest increases in initial claims for the week ending August 12 were in Virginia (+940), Iowa (+860), Illinois
- (+769), Hawaii (+664), and Arkansas (+388),
- The largest decreases were in California (-3,959), Texas (-1,641),
- Pennsylvania (-1,155), Michigan (-1,129), and New York (-963)
“The split between the Fed hawks and doves continues to grow”
An analyst at Brown Brothers Harriman on the split at the Federal Reserve:
The split between the Fed hawks and doves continues to grow.
Boeing says manufacturing quality issue on the 737 Max will cause delivery delays
- Boeing says its not an immediate flight safety issue
Boeing has identified a potentially widespread manufacturing quality issue on the 737 Max
- Boeing says it does not consider the issue to be an immediate threat to the safety of flight for the in-service fleet
- However, the company is at a minimum planning for near-term delivery delays for some 737 Max aircraft
US July durable goods orders -5.2% vs -4.0% expected
- US July 2023 durable goods orders data
- Prior was +4.6%
- Non-defense capital goods orders ex-air +0.1% vs +0.1% expected
- Prior non-defense capital goods orders ex-air +0.1% (revised to -0.4%)
- Ex transport +0.5% vs 0.2% expected
- Ex defense -5.4% vs +6.0% prior
JP Morgan says Artificial Intelligence (AI) will not save the US economy from a recession
The head of JP Morgan’s of US equity and quantitative strategy appeared overnight on CNBC in an interview.
- He said advances in AI will not be enough to avert a US recession.
- Says AI will drive “massive productivity gains for the broader economy”, but placed a timeline on this in around 3 to 4 years … “Not in the next 12 months.”
- Says there are “so many” other headwinds to the economy to worry about
Goldman Sachs preview Federal Reserve Chair Powell speech coming up Friday at Jackson Hole
Federal Reserve Chair Powell will deliver his speech at Jackson Hole on Friday, 25 August. Scheduled for 10.05 am US Eastern time.
This summary of a Goldman Sachs note:
According to Goldman Sachs, this year’s speech is expected to tread familiar ground, albeit with some critical updates.
1. Persistent Focus on Inflation: • The Federal Reserve remains concerned about bringing inflation back down to its target level.Powell’s speech is likely to elaborate on this ongoing focus.
2. A More Reassuring Backdrop: • Unlike last year, when Powell warned of the ‘pain’ that would be involved in reducing inflation, the current economic climate is significantly more reassuring.The possibility of a soft landing—i.e., reducing inflation without causing a recession—seems much more attainable now.
3. Commitment to See the Job Through:
Goldman Sachs anticipates that Powell will send a message of commitment. The Fed is determined to address inflation effectively, and the speech will likely underscore this resolve.
KC Fed August manufacturing index +12 vs -20 prior
- Big jump in the KC Fed
- Prior was -20
- Composite index 0 vs -11 prior
Comments in the survey:
“Obviously at a macro level inflation is way down, but in our little corner of the world it is still a huge threat. Lots of volatility and uncertainty. Some items way down, other items way up. Commodities in general are just not as predictable as they used to be.”
“Our hourly billing rates are still below what most industries charge. With demand continuing to increaseand outpacing labor supply, we will continue to increase our rates.”
“Companies are literally buying jobs just to keep crews busy cause there are so many gaps in the backlog, but you don’t dare pare down or lay off on your skilled labor cause you won’t ever get them back.” “American manufacturers are being forced into a much more difficult position competitively with huge labor cost increases against foreign competitors.”
“We are seeing some abatement with wages, however our medical premiums are increasing for next renewal cycle in September. The quality of available workforce is still a challenge.”
“We are seeing some softening in the market.”
“The tooling industry faces significant challenges due to low-cost imports from China and India. We are going to struggle to keep highly trained staff due to pressure on wages caused by reduced margins necessary to stay competitive with those who are paying much less for similar skill set.”
Fed’s Collins: At this stage it’s appropriate to be patient
- Comments from Collins
- Doesn’t think it’s helpful to designate a pre-set path
- We may be near a place where we can hold rates
- It’s likely that we will need to hold for a substantial period of time
- More Fed rate hikes are possible
- Hasn’t seen as much progress as hoped in core-services ex-housing
- Housing is a big challenge for the economy
- Mindful about how an easing in inflation would affect the policy stance
US Treasury’s Adeyemo: Chinese economy is showing weakness that has global implications
- The engine of global growth is sputtering
- Says he is closely monitoring the Chinese economy
- US is probably best prepared to deal with the headwinds created by Chinese economic weakness
- Concerned about developing economies and those in Asia and Europe that are reliant on Chinese economy for growth
Fed’s Harker: The low income consumer is clearly slowing down
- Comments from Harker on CNBC
- We are seeing an uptick in labor productivity
- The low income consumer is clearly slowing down
- Consumer credit card delinquencies are starting to tick up
- Repeats that they probably have done enough on interest rates, wants to see where demand settles out
- Student loans won’t have a big economic effect but it will be a psychological effect
- I want to see softening in the labor market, notably in the services sector
- At this point, I see the Fed holding steady this year while next year is data driven
- Need to see inflation falling before would be willing to cut rates.
Former St Louis Fed President Bullard says we are in a higher-rate regime
- Bullard may have stepped down from the St Louis Fed but he still loves the camera
Some highlights of his interview with Bloomberg:
- “I think the probabilities are that we are in a new regime that will be a higher interest-rate regime”
- “Inflation is above target today.Core inflation is likely to be sticky and come down rather slowly.”
- “The biggest question now is the re-acceleration in the economy” (he cited GDPNow)
- “This reacceleration could put upward pressure on inflation, stem the disinflation that we’re seeing and instead delay plans for the Fed to change policy.”
- “There is some talk about base effects fading and going in the other way in the second half of the year so we’ll see how that goes”
Commodities
UBS say “Higher gold prices are delayed, not canceled”. Year-end forecast is USD 1,950
UBS on the headwinds for gold (UBS refer to these as ‘short-term’):
- surprisingly resilient US economic data & concerns over the Federal Reserve’s likely response
- fed fund futures … markets are pricing roughly even chances of another rate hike by November
- has pushed both nominal and real US yields higher, adding to dollar strength and undermining gold’s near-term appeal
UBS say these factors don’t erode the portfolio case for gold, and that “Higher gold prices are delayed, not canceled.”
- the next potential leg up in prices will in part be driven by an anticipated revival in demand for exchange-traded funds (ETFs)
- A rise in ETF gold buying typically occurs just ahead of a US easing cycle—the timing of which we anticipate will become clearer by year-end as we get more data and the Fed decisions are behind us.
- Gold has also historically performed well when the USD softens, and we see another round of dollar weakness over the next 6–12 months.
- Gold still looks attractive to us as a longer-term portfolio hedge—especially in the context of an uncertain global growth outlook, volatile equity market dynamics, and unsettled geopolitics.
And conclude:
- So, with US recession risks now fading and dollar strength back, we have cut our year-end gold forecast slightly to USD 1,950/oz and downgraded the precious metal to neutral within our global strategy.
WTI crude oil futures settle at $79.05
- Up $0.16 or 0.20%
The price of WTI crude futures are settling at $79.05.That’s up $0.16 or 0.20%. The high price today reached the $79.28. The low price was at $77.59.
The $79 level remains a key barometer for buyers and sellers on the downside the swing high going back to July 14 came in at $77.30. The low price tag within $0.29 of that level. Move below $77.30 and traders will look to target the 200-hour moving average $76.39.The 100 hour moving average at $75.45.
US weekly EIA natural gas storage + 18 bcf vs +33 bcf expected
- Weekly oil inventories from the EIA
- Prior was +35 bcf
EU News
European close: Ugly reversal
- Closing changes in the main European bourses
- Stoxx 600 +0.4%
- German DAX -0.65%
- UK FTSE 100 +0.2%
- French CAC -0.4%
- Italy MIB -0.5%
- Spain IBEX +0.1%
France August business confidence 99 vs 100 prior
- Latest data released by INSEE – 24 August 2023
- Prior 100
- Manufacturing confidence 96
- Prior 100; revised to 101
- Services confidence 100
- Prior 102
UK August retailing reported sales -44 vs -25 prior
- Latest data released by CBI – 24 August 2023
This is not a good look as UK retail sales is seen falling in August at its quickest pace since March 2021. Adding to the misery is that retail stores continue to see a tough time in the month ahead, with the expectations reading still deeply negative at -21 (although an improvement to the -32 reading last month). The quarterly business situation balance also falls to its lowest this year at -14 now, down from +6 in May.
ECB’s Centeno: We have to be cautious at the next meeting
- Comments from Centeno
- Transmission of policy is up and running
- ECB has been data dependent on decisions
- Plenty of data still to come ahead of September decision
- Downside risks to the economy have materialized
Other News
Kyle Bass says investing China is a bad idea now, “profits are not going to westerners”
Kyle Bass is founder and principal of Hayman Capital Management, and he is not keen in sinking investment capital into China at present.
He spoke with financial media in the US on Wednesday, highlights:
- China is allocating resources to state-owned enterprises
- China is moving away from a market-based approach and moving to a party-based approach
- All the profits are going to management and the party. It’s not going to westerners
- Western companies face a swath of legal uncertainties, referring to China’s expanded counter-espionage law, making it difficult to know what is permissible
Apart from market and legal considerations, there is also the war worry:
- “Quite literally since 2017, [Xi Jinping has] told you that his life’s mission is the reunification of China and Taiwan,”
- Xi is already 70 years old and thus a Chinese invasion of Taiwan will happen “sooner rather than later.”
China announces suspension of all aquatic products from Japan
- The ban will begin immediately and will apply to imports of all aquatic products originating from
In case you were wondering what this relates to, it is due to Japan moving forward with their decision to release the treated radioactive water from the Fukushima power plant into the ocean – which also starts today. The move has received plenty of backlash in the international community as the optics looks terrible, but the science behind it is actually rather sound.
China has cut the number of economic statistics it publishes by more than 50%
Since China’s President Xi came to power in late 2012 China has reduced the number of economic statistics it publishes by more than 50%.
China has been, rightfully, criticised for this.
However, UBS adds, China is not alone, pointing the finger at the US:
- The US is not blameless either. Underfunding statistical agencies has contributed to a decline in US data quality—fewer than half the companies asked provide data for non-farm payrolls. With the biggest structural upheaval in 250 years, the inability to understand economies in real time is dangerous.
UBS could point the finger at many other others on this issue also.
Australian bank CEO says Australia unlikely to enter recession, housing market holding up
CEO of one of Australia’s ‘big four’ banks, National Australia Bank, says Australia is not likely to enter a recession.
He cites the housing market having held up more strongly than expected after the Reserve Bank of Australia interest rate rises.
South Korea’s central bank held its benchmark rate unchanged at 3.5% today
The Bank of Korea held its benchmark policy rate at 3.5%, itsbeen unchanged since the start of the year.
- The decision today was in line with expectations of surveyed economists, all 43 were expecting no change to the BoK base rate.
Bank of Korea Governor Rhee comments after the decision:
- Thursday’s rate decision was unanimous
- Household debt increase in last couple months was faster than expected
- Will manage household debt with micro measures first
- May consider macro policy to tackle household debt, but not for now
- 6 members wanted to keep door open for one more hike
- Uncertainty is very high regarding US monetary policy
- Its too early to discuss a rate cut
- Don’t want to rule out the possibility of a rate cut within this year
North Korea says its satellite launch failed, will try again in October
North Korea launched a satellite in the early AM. It says the launch failed at the third stage and it plans another launch in ocot.
ICYMI – Hundreds of ships stuck after Turkey closed Strait due to fires
Bloomberg had the report that
Hundreds of ships were left unable to move between the Black Sea and the Aegean after Turkey closed the Dardanelles Strait to clear the area for planes fighting nearby forest fires.
- Around 300 vessels
- The Coastal Safety Directorate said the Dardanelles will remain closed until at least Thursday to allow firefighter planes to operate.
Cryptocurrency News
Grayscale faces litigation for GBTC mismanagement; same product it wants converted to spot BTC ETF
- Grayscale is facing a lawsuit for conflict of interest claims and allegations of Bitcoin Trust mismanaging, citing “exorbitant” management fees.
- Alameda Research and other funds, comprising shareholders, are pushing for litigation, seeking customers’ crypto funds redemption.
- According to the plaintiff, Grayscale has violated its “contractual and fiduciary duties to Alameda and other trust investors.”
Grayscale Investment LLC, touted as the leading digital currency asset manager, is facing a lawsuit from its own shareholders, who call out the firm for mismanaging the Grayscale Bitcoin Trust (GBTC) as well as claims of conflict of interest.
Grayscale faces lawsuit for GBTC mismanagement
Grayscale shareholders, comprising the sister firm of FTX exchange, Alameda Research, and funds such as like Fir Tree Partners, Saba Capital, Owl Creek Asset Management, UTXO Management, and Aristides Capital, have brought a lawsuit to the asset manager’s doorstep filed in the Chancery Court of Delaware.
SEC v. Ripple: Attorneys leave SEC side, both groups add new lawyers
Multiple attorneys have moved in and out of the lawsuit between Ripple Labs, its executives and the United States Securities and Exchange Commission, as signified by court filings on Aug. 23.
The latest motions filed were requesting permission to withdraw attorneys Richard Best and Robert MacDonald Moye from the trial, with the former having the motion immediately granted due to extended medical leave.Moye’s withdrawal is still pending a decision from Judge Analisa Torres.
Earlier the same day, a motion was filed for attorney Pascale Guerrier to be dismissed from the case.
This request was also promptly granted by the judge.
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