Round up of today’s market news

North American News

US Stock Markets Attempt Late Recovery but Struggle

Today’s trading session witnessed a heavy day of options expirations with approximately $2.7 trillion worth of options set to expire, including $555 billion in single stocks. This marked the largest-ever July month expiration and highlights the significant influence of the options market at present. The week has been challenging for the Nasdaq index, marking its worst week since April. Despite attempts at a late bounce, US stock markets have struggled to recover during today’s trading session.

Closing Numbers:

• S&P 500 -0.7%
• Nasdaq Comp -0.8%
• Dow Jones -0.9%
• Russell 2000 -0.6%

FEDS Note: Global Implications of Brighter U.S. Productivity Prospects

• Evaluating Forecast Performance of Market-based Measures of Inflation Expectations in Europe
• Has the Inflation Process Become More Persistent? Evidence from the Major Advanced Economies
• Global Implications of Brighter U.S. Productivity Prospects
• Small-Dollar Loans in the U.S.: Evidence from Credit Bureau Data

Fed’s Williams: Central banks must own the inflation-control mission

• Comments from the NY Fed chair

• Fed remains committed to achieving the 2% inflation target
• Price stability is key to financial stability
• Longer run trends affecting R-star are still in place

Crowdstrike CEO: Many customers rebooting systems, could be some time for some to recover

• The global IT outage wreaks havoc

The Crowdstrike outage is continuing and we have some details from the CEO who spoke with NBC:

• Says only Microsoft operating system is affected
• We are working with every customer to bring them back online
• Issue has been resolved, now issue is recovering systems

Fed’s Daly sees inflation data improving, but says not at target yet

• Preemptive or urgent policy actions risk making mistakes

Federal Reserve Bank of San Francisco President Mary Daly participating in a ‘fireside chat’ at a conference:

• Recent data has been really good
• Economy is not there yet on inflation
• Labor market is coming back into balance
• Risks on both side for monetary policy choices
• Fed remains data dependant for monetary policy
• Preemptive or urgent policy actions risk making mistakes
• We are not at price stability yet

UBS boost their end year S&P 500 target to 5900

• UBS raise their end 2024 target

UBS increasing their year-end price target to 5,900 for the S&P 500.

• previously at 5,600
• And their June 2025 target to 6,200

Canada industrial product prices for June 0.0% vs 0.2% expected

• Canada IPPI and RMPI prices for June 2024

• Prior IPPI prices 0.0% revised to 0.2%
• IPPI prices 0.0% versus 0.2% expected
• IPPI prices YoY 2.8%
• Raw material price index -1.4% versus -0.7% expected. Prior month -1.5%
• RMPI YoY +7.5%

Details of IPPI prices:

• Prices for meat, fish, and dairy products: +2.4%. That was the largest contributor. 4th straight increase
  • Fresh and frozen beef and veal: +5.6%
  • Fresh and frozen pork: +4.6%
• Prices for pulp and paper products: +1.7%
  • Wood pulp: +2.9%
• Prices for primary non-ferrous metal products: -0.4%
  • Unwrought nickel and nickel alloys: -10.3%
  • Unwrought copper and copper alloys: -4.5%
• Prices for energy and petroleum products: -0.4%
  • Finished motor gasoline: -3.5%
  • Diesel: +3.3%

Canada May retail sales -0.8% vs -0.6% expected

• Canada retail sales data for May 2024 and preliminary June data

• Prior was +0.7% (revised to +0.6%)
• Ex autos -1.3% vs -0.5% expected
• Prior ex-autos +1.8% (revised to +1.7%)
• Ex autos and gasoline -1.4% vs +1.4% prior
• Largest decrease in sales was at food and beverage retailers (-1.9%)
• Lower sales in May were also reported at building material and garden equipment and supplies dealers (-2.7%) and general merchandise retailers (-1.0%)
• Preliminary June data -0.3% m/m

Commodities

Gold Drops Below $2400 in Heavy Selling

Precious metals encounter difficulties as commodities plummet

Precious metals are struggling today. Contrary to what one might expect – global computer crashes leading to an increase in gold prices – commodities across the board are taking a hit due to profit-taking.

Gold is down nearly 2%, and silver is down by 3.3% as this week’s breakout fails, leaving it down for the week. If we close out like this, it could lead to a worrying weekly candle. It’s difficult to pinpoint the cause of these falls from a fundamental perspective since the Wall Street Journal suggests that the Fed should be cutting rates in July. A delay would result in heavier cuts later and increased dollar weakness – both factors expected to boost gold prices.

Oil Market Struggles as Macro Deteriorates and Chinese Stimulus Hopes Fade

The oil market has experienced a rough week, with the macroeconomic environment deteriorating further and hopes for Chinese stimulus measures fading away. Additionally, data from Russia and OPEC show surprising drops in exports. This situation has led to significant volatility in the market, including a substantial rise on Wednesday followed by a more substantial decline today. WTI crude oil settled at $80.34 on Friday, which is its lowest settlement since June 17th.

On an intraday basis, crude remains within its recent range but just barely. Next week, market participants will be closely watching China for potential post-plenum stimulus plans; however, it may not be sufficient to significantly boost the oil market. Instead, focus will shift towards US GDP data and regular inventory numbers, which have been relatively supportive thus far.

Baker Hughes Rig Count: U.S. +2 to 586

U.S. Rig Count is up 2 from last week to 586 with oil rigs down 1 to 477, gas rigs up 3 to 103 and miscellaneous rigs unchanged at 6.

U.S. Rig Count is down 83 rigs from last year’s count of 669 with oil rigs down 28, gas rigs down 53 and miscellaneous rigs down 2.

The U.S. Offshore Rig Count is down 1 to 22, up 4 year-over-year.

Canada +8 to 197

Baker Hughes Rig Count: Canada is up 8 to 197 rigs.

Canada Rig Count is up 8 from last week to 197, with oil rigs up 4 to 130, gas rigs up 3 to 66.

Canada Rig Count is up 10 from last year’s count of 187, with oil rigs up 14, gas rigs down 5 and miscellaneous up 1.

Platinum has more to lose than palladium – TDS

Should demand expectations recover, palladium’s short squeeze could be reignited. It could be set-up to notably benefit from a reversal in broad commodity demand sentiment, TDS Senior Commodity Strategist Daniel Ghali notes

A recovery in demand expectations may push Palladium higher

“Should commodity demand expectations continue to subside, a cluster of Commodity Trading Advisor (CTA) selling programs could be catalyzed, sparking selling activity that could total -55% of the algos’ max size.”

“In contrast, should demand expectations recover, Palladium’s short squeeze could be reignited. CTAs are effectively ‘max short’ and therefore unlikely to add to their size in Palladium, even in a big downtape, whereas a commensurate rally could force large-scale buying activity from trend-following algos.”

“Considering that discretionary traders also likely still hold a substantial net short position, Palladium could be set-up to notably benefit from a reversal in broad commodity demand sentiment. A tactical relative value play appears to be an efficient expression.”

EU News

European equity market experiences challenges

The STOXX 600 closed near the session lows, marking its lowest closing level since May 6th after five consecutive days of declines and a weekly drop of 2.9%. 

Closing changes on the day:

• German DAX -1.0%
• France CAC -0.8%
• UK FTSE 100 -0.7%
• Spain’s IBEX -0.8%
• Italy’s FTSE MIB -1.0%

Eurozone May current account balance €37.0 billion vs €38.6 billion prior

• Latest data released by the ECB – 19 July 2024
• Prior €38.6 billion

Slight delay in the release by the source. Looking at the details, surpluses were recorded for goods (€33 billion), services (€15 billion) and primary income (€4 billion). These were partly offset by a deficit for secondary income (€14 billion).

Germany June producer prices +0.2% vs +0.1% m/m expected

• Latest data released by Destatis – 19 July 2024
• Prior 0.0%

Producer prices crept a little higher in June and if you exclude energy prices, the figure would’ve been up 0.3% instead. This comes as there were increases in prices for intermediate goods (+0.1%), capital goods (+0.2%), and consumer goods (+0.3%). Meanwhile, energy prices were seen down 0.1% on the month.

UK June retail sales -1.2% vs -0.4% m/m expected

• Latest data released by ONS – 19 July 2024

• Prior +2.9%
• Retail sales -0.2% vs +0.2% y/y expected
• Prior +1.3%; revised to +1.7%
• Retail sales (ex autos, fuel) -1.5% vs -0.5% m/m expected
• Prior +2.9%
• Retail sales (ex autos, fuel) -0.8% vs +0.2% y/y expected
• Prior +1.2%; revised to +1.6%

That’s a disappointing reading and once again reaffirms that household spending continues to suffer amid higher prices in the UK. The details show that food store sales were down 1.1% on the month, with department store sales down 3.4%, and other non-food store sales down 1.9%. Besides that, there were also drops for textile clothing & footwear (-1.6%), household goods (-2.1%), and non-store retailing (-1.1%).

Inflation to ease further and could reach ECB’s target by 2026 – survey

• The ECB releases the findings of its latest Survey of Professional Forecasters (SPF) – 19 July 2024

For this year, inflation is projected to average at 2.4%, which is similar to the last survey three months ago. Then, inflation is expected to slow to 2.0% next year and then potentially falling to 1.9% by 2026. As for the long-term, defined as 2028, inflation is seen being at exactly the 2% mark.

ECB’s Muller: It’s important not to pre-commit on September

• Remarks from the Bank of Estonia Governor Madis Muller

• It’s important that we wouldn’t promise too much in advance.
• It’s true that at least one more cut is expected by the market but I personally wouldn’t comment.
• There are still fluctuations on inflation.
• Wage growth is not in line with the 2% target.
• It’s realistic that in next 12 months inflation will keep to decelerate.
• The Eurozone economy should recover in coming quarters although the outlook deteriorated slightly.

ECB’s Villeroy: market expectations on rates seem rather reasonable

• Remarks from the Bank of France Governor

• Disinflation is happening as predicted.
• Inflation will continue to decline a bit slower.
• We are watching services inflation carefully.
• Rate decisions will depend on data.
• There is more uncertainty on growth than a few months ago.

UK consumer confidence in July hits its highest in nearly 3 years

The GfK consumer confidence survey hit -13 in July

• expected -12, prior -14
• highest since September 2021
• subindex measuring consumers’ willingness to make major purchases jumped 7 points, an encouraging result

Joe Staton, GfK’s client strategy director:

• “July’s consumer confidence poll suggests a note of caution as people wait to see exactly how the UK’s new government will affect the wider economy and their personal finances”

Asia-Pacific-World News

China says it will encourage the development and expansion of private economy

• Comments from the Third Plenum press confernce

China’s Senior Party Official For Policy Research:

• Promoting Chinese-style modernisation faces many complex contradictions and problems, but it is necessary

China’s senior party official for deepening reform:

• We have consolidated and developed the advantages of the socialist system with Chinese characteristics
• We will continue to improve and develop the socialist system
• We will inject strong impetus into economic development
• We will continue to reform the socialist market economy
• We will improve the modern market system and promote market-orientated reform of factors of production
• We will deepen reform of state-owned enterprises
• Will encourage the development and expansion of private economy
• Will build systems and mechanisms to support comprehensive innovation
• Will deepen reform of the fiscal, taxation and financial systems
• Improve the systems and mechanisms for integrating urban and rural development
• Will build a new system of an open economy at a higher level
• The functions of party and state institutions adapted to the new situation and have been continuously improved
• We will promote income distribution
• Promote the establishment of the world’s largest education, social security, medical and healthcare systems
• Will win the largest battle in history against poverty
• Will improve the centralised, unified, efficient and authoritative national security leadership system
• Will continue to improve the party’s leadership system and improve the supervision of the party and the state
• Will establish and improve a comprehensive approach to tackling corruption
• By 2035 the country’s governance system and governance capacity will be basically modernised

China’s senior party official for economic affairs:

• Should promote state-owned capital and enterprises to become stronger, better and bigger, enhance their core functions and competitiveness
• On the other hand, should create a good environment, opportunities for private enterprises
• Improve the long-term participation of private enterprises in major national projects
• Should formulate and promulgate law on promoting private economy
• Should greatly increase total factory productivity
• Propose to improve the financial relationship between the central and local governments
• Increase local independent financial resources and expand local tax sources

China’s senior party official says China’s economic recovery is not strong enough

China’s senior party official for economic affairs:

• China’s economic recovery is not strong enough
• Need to implement macro policies more effectively
• Should speed up the issuance and use of special bonds
• Should give full play to the role of fiscal funds in leveraging economic growth and structural adjustment
• Monetary policy should be flexible, moderate, accurate and effective
• Maintain reasonable and abundant liquidity
• Should increase policy support so that enterprises and consumers tangibly benefit
• Make good use of funds from ultra-long term special bonds
• Should increase residents’ property income through multiple channels
• Will improve the long-term expansion of consumption
• Will improve the mechanism for promoting high-quality full employment
• We should speed up the construction of a new model for real estate development
• eliminate the past high debt, high turnover and high leverage model
• build a model that better meets the expectations of the people, better mets demand for improved housing
• Need to establish appropriate financing, taxation, land sales systems
• High quality development of real estate still has considerable room for development
• We will expand domestic demand, especially consumer demand
• We should stabilise the basic situation of foreign trade and investment
• China’s economy is big, with great potential for domestic demand

PBOC: We will keep yuan exchange rate basically stable

• Comments from the People’s Bank of China

• Will improve macroprudential policy framework and systemic financial risk prevention and disposal mechanism
• Will always maintain prudency of mon pol, enrich mon pol toolkit

PBOC sets USD/ CNY reference rate for today at 7.1315 (vs. estimate at 7.2706)

• PBOC CNY reference rate setting for the trading session ahead

In open market operations:

• PBOC injects 59bn via 7-day RR, sets rate at an unchanged 1.8%
• 2bn mature today
• thus net 57injection via OMOs today

Westpac eyeing Australia expected to follow the same broad disinflation trend as peers

• Overseas economies showing that sticky inflation need not imply inflation is stuck

A summary of a note from WPAC on inflation in Australia and the RBA:

• Recent inflation data overseas has reminded market participants that sticky inflation need not imply stuck inflation. After a few wobbles, disinflation has resumed in the United States, Canada and New Zealand.
• Expectations of near-term cuts in policy rates have therefore come back into frame in the United States and New Zealand; the Bank of Canada has already started cutting, as have the ECB and several other European central banks. Our Chief Economist in New Zealand, Kelly Eckhold, has changed his rate call and now expects the RBNZ to start cutting from November.
• There is no reason for the RBA to move in lockstep with its peers. At times, the RBA and the Fed have even moved in opposite directions. But there are limits to divergence. To be fair, Australia was later to open up and experience the inflation surge. The RBA has also chosen a ‘not quite as high for longer’ strategy and a more gradual return of inflation to target. Even allowing for this, though, Australia should be expected to follow the same broad disinflation trend as its peers, in the face of mostly common shocks.

The RBA meet on August 5 and 6. Ahead of that meeting is Q2 CPI data, due on July 31. On this WPAC add:

• an unexpectedly ugly June quarter CPI result might make the RBA want to wait even longer. But would it be enough to convince it that Australia is on a completely different path to its peers?

New Zealand Credit Card Spending (YoY)

Actual: -3.1%
Previous: -0.2%

BOJ bond meeting minutes shows some mixed views on pace of tapering

• BOJ publishes its meeting with bond market players from 9-10 July

• It is highly uncertain to what extent financial firms can bear interest rate risk
• BOJ should proceed cautiously with reduction of bond purchases
• In order to stimulate demand, BOJ should swiftly reduce purchases to target level originally set to be achieved in over around two years’ time
• Even if BOJ reduces amount significantly to start, it is unlikely to see excessive rise in rates
• That is due to continued effects brought upon by large JGB holdings by the BOJ
• A swift reduction in purchases could lead to deterioration of market functioning
• It would be more desirable for BOJ to reduce purchases in a stepwise manner

BOJ will pass on July rate hike – poll

• The latest findings from the July poll on economists by Reuters with regards to the BOJ

• Only 24% of economists see a July rate hike (76% see no change to rates this month)
• 30% of economists see a rate hike in September instead, with 43% anticipating it in October
• 59% of economists see the BOJ tapering monthly bond purchases to around ¥5 trillion to start
• 52% of economists see those monthly purchases cut to about ¥3 trillion by July 2026

Japan data – June CPI

• 2.8% y/y (vs. 2.9% expected)

Japan National Core CPI (YoY) (Jun)

• Actual: 2.6%
• Expected: 2.7%
• Previous: 2.5%

Japan CPI, n.s.a (MoM) (Jun)

• Actual: 0.1%
• Previous: 0.4%

Japan National CPI (MoM) (Jun)

• Actual: 0.3%
• Previous: 0.5%

Japan Foreign Bonds Buying

• Actual: -208.9B
• Previous: 209.7B

Japan Foreign Investments in Japanese Stocks

• Actual: 227.6B
• Previous: 603.5B

JP Morgan says they do not expect a Bank of Japan rate hike in July, or at all in 2024

• On the yen, says it’ll take some time before the USDJPY carry becomes less punitive

Via analysts at JP Morgan Private Bank, an outlook for the BoJ and yen. The TL;DR version is:

• A July hike from the BoJ is not our base case, nor do we expect a hike for the rest of 2024.
• Its too early to turn bullish on the yen

• The strongest argument for hiking as soon as the July meeting would be related to the currency – in other words, to pre-emptively limit the potential cost of further JPY weakness. In this regard, any sign of two-way risks around JPY helps to lessen the urgency of hiking.
• The second, weaker argument for hiking in July would be for the BoJ to prove a point. As the central bank is preparing to start reducing bond purchases in July, general market consensus is that they are unlikely to hike at the same time. The BoJ might not appreciate being seen as having their hands tied, and might want to prove they have full policy flexibility. We don’t think investors should be overly concerned about this

And, on not hiking:

• The main reasoning is that a hike at this point is premature given where we are in the growth cycle.
• The main growth driver at the moment is the corporate sector, which is reporting higher profits, strong export growth, and a positive capex outlook. All of these are on full display in the equity market, where earnings outlooks are still being revised higher. But the positive vibe isn’t shared broadly, as consumers have taken the brunt of inflation over the last two years. Consumers are just starting to recover from this inflation shock thanks to stronger wage growth. Nominal wage growth accelerated to 2.7% in June, and we have positive expectations that wage growth can settle in the 3-4% range by the end of 2024. That said, it will likely still take time for consumer sentiment to improve, as reflected in the soft consumption data.

On the yen:

• Fundamentally, the deeply negative carry against the dollar has been the key reason behind yen weakness, and small moves in carry have historically not been sufficient to support the yen in a significant way. If a BoJ rate hike is not imminent, the Fed will likely continue to be in the driver’s seat in determining the yen’s fate. After last week’s CPI, the bar seems high for the Fed to move faster than what the market currently anticipates (i.e. more than two cuts this year).
• Short of a meaningful deterioration in the U.S. economy, the pace of cuts will likely remain gradual, which means it could take some time before carry becomes less punitive for investors and corporates to start accumulating the yen.

Japan finance minister Suzuki scolds government minister speaking about markets

Japan finance minister Suzuki:

• Also will attend G7 meetings to be held on the sidelines of g20 meetings
• Plan to discuss various topics including world economy and currency at g20
• Hope that politicians should be mindful about commenting on market-related comments due to their impact

Japan PM Kishida says need to be cautious about effect of rising prices due to weak yen

• Words from the top of the Japanese government

Careful on this folks. Kishida sounds like he is not happy with the weak yen. Reuters conveying report in Kyodo news:

• Govt must be vigilant about impact of rising prices, driven in part by weak yen, on economy to achieve domestic-demand driven recovery
• Says need to be cautious about effects of rising prices due to weak yen

Japan private sector economic council members say cant overlook weak yen negative effects

• Japan has downgraded growth forecasts

Japan’s government cut growth forecast for the current fiscal year ending in March 2025 to a 0.9% expansion from a 1.3% gain projected in January

• expects the economy to grow 1.2% in fiscal 2025
• consumption took a hit from rising import costs due to a weak yen
• projected growth to accelerate next year on robust capital expenditure and consumption
• retaining its view the economy will sustain a domestic demand-led recovery
• Some members of the government’s top economic council, however, voiced concern over recent weakness in consumption and the pain the yen’s falls were inflicting on households. “We can’t overlook the impact a weak yen and rising prices are having on households’ purchasing power,” the private-sector members of the council told Friday’s meeting that discussed the new growth forecasts.
• “The government and the Bank of Japan must guide policy with a close eye on recent yen declines”

Japan government minister Kono says he is not directly requesting the BOJ raise rates now

Japanese media, Jiji, reporting – conveyed via Reuters:

• Japan digital minister Kono says he is not directly requesting BOJ to raise rates now
• Says monetary policy decision is up to BOJ

Cryptocurrency News

Institutions strategically position themselves in anticipation of a Tuesday Ethereum ETF launch

Ethereum (ETH) is up over 3% on Friday as institutions and investors prepare for a potential spot ETH ETF launch on July 23. Recent developments suggest that Grayscale has anticipated a July 23 trading date for its Ethereum ETF, while Bitwise organizes a virtual round table discussion on the same day to answer questions related to its Ethereum ETF.

Institutional and retail investors are making strategic moves ahead of the launch. Following criticism over Grayscale’s 2.5% Grayscale Ethereum Trust fees, the asset manager lowered fees for its Ethereum Mini Trust from 0.25% to 0.15%. This change could reduce outflows for Grayscale Ethereum Trust and increase overall net inflows for ETH ETFs upon launch.

Galaxy Digital has increased its staked Ethereum assets by 43%, acquiring the assets of blockchain node operator CryptoManufaktur (CMF) LLC, which had $1 billion worth of staked ETH. This acquisition brings Galaxy Digital’s holdings to $3.3 billion.

Investors have withdrawn over $126 million worth of ETH from exchanges this week in anticipation of a potential bull run following the launch of Ethereum ETFs. Bitwise CIO Matt Hougan has predicted that the launch could propel Ethereum to an all-time high of about $5,000.

Ripple’s Whales Dump Over 200 Million XRP Tokens As Altcoin Suffers Correction After 23% Gains in Seven Days

Whale activity is creating waves in the Ripple market as over 200 million XRP tokens are sold by larger cohorts of whales, while smaller cohorts accumulate.

In a seven-day period that saw XRP rallying 23%, recent gains have been erased due to profit-taking from traders. The altcoin’s price trades around $0.5600 at the time of writing.

On-chain data reveals a change in supply distribution, with larger cohorts of whales selling their XRP holdings while smaller cohorts continue to accumulate.

Santiment data shows Ripple’s large wallet investors holding upwards of 100 million XRP have sold over 200 million tokens in July 2024, as the chart illustrates below:

Typically, accumulation is a bullish sign for XRP. While the largest whale cohort is shedding their holdings, smaller cohorts are accumulating, likely anticipating a recovery in the future.

The US Securities and Exchange Commission (SEC) vs. Ripple lawsuit remains ongoing with no new updates from either side. XRP traders keep an eye on this legal battle for a final ruling. Attorney Fred Rispoli predicts the end of the SEC vs. Ripple lawsuit in July 2024.

As of Friday, July 19th, profit-taking by investors is coming to a halt. The Network Realized Profit/Loss metric, used to determine net profit/loss for traders, shows XRP traders realized nearly $500,000 in losses on the day.

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