Round up of today’s market news

North American News

US Stocks End Mixed: Nasdaq Leads Gains Amid Financial Sector Weakness

Market Summary:
US stock indices closed mixed on Tuesday, with the Nasdaq leading the gains, recovering from last week’s significant drop. The broader indices saw up-and-down volatility, influenced by mixed sector performances and key financial stocks dragging down the Dow.

Indices Performance:

• Dow Industrial Average: Fell by 0.23%, closing at 40,736.96.
• S&P 500: Rose by 0.45%, ending at 5,495.52.
• Nasdaq Composite: Gained 0.84%, settling at 17,025.88.
• Russell 2000: Dropped by 0.83%, closing at 2,097.43.

Sector Highlights:

• Financials Struggle:
  • Bank of America (BAC): Down 0.44%.
  • JPMorgan (JPM): Fell 5.19% following COO comments on lower net interest income expectations.
  • Goldman Sachs (GS): Dropped 4.39% due to weaker results in fixed income and equities.
  • Ally Financial (ALLY): Plummeted 17.60% after lowering margin guidance.
  • American Express: Fell 2.18%.
• Technology and Consumer Stocks:
  • Chewy: Rose 6.01%.
  • Broadcom: Up 5.26%.
  • Tesla: Increased by 4.58%.
  • Moderna: Gained 3.49%.
  • AMD: Up 3.39%.
  • Alibaba: Rose 2.92%.
  • Roblox: Increased by 2.91%.
  • Gilead: Up 2.83%.
  • Amazon: Rose 2.36%.
  • Microsoft: Gained 2.09%.

Other Notable Decliners:

• GM: Down 5.44%.
• Ford: Fell 3.24%.
• Gamestop: Dropped 3.24%.
• Dollar Tree: Down 3.01%.
• Exxon Mobil: Fell 2.71%.
• Celsius: Dropped 2.70%.
• Citigroup: Fell 2.70%.

Outlook:
While the Nasdaq showed notable recovery, driven by technology and consumer stocks, the Dow’s decline was largely attributed to financial sector weaknesses. The upcoming days may continue to reflect sector-specific volatility as investors react to earnings reports and economic indicators.

US Treasury auctions $58B of 3 year notes at a high yield of 3.440%

• The WI level at the time of the auction was at 3.457%

High Yield:3.440%

• Previous: 3.81%

WI Level at the time of the auction: 3.457%

Tail: -1.7 bs

• Previous: -0.2bps
• Six-auction average: 0.1bps

Bid-to-Cover: 2.66X

• Previous: 2.55x
• Six-auction average: 2.56x

Dealers:10.45%

• Previous: 15.4%
• Six-auction average: 16.4%

Directs (a measure of domestic demand):11.3%

• Previous: 20.3%
• Six-auction average: 18.8%

Indirects (a measure of international demand):78.24%

• Previous: 64.4%
• Six-auction average: 64.7%

US August NFIB small business optimism index 91.2 vs 93.7 prior

• Latest data released by NFIB – 10 September 2024

Fed’s Barr comments on Basel rules

• Nothing on monetary policy

• New Basel draft will revise all major areas of original plans following industry criticism
• Fed will propose updating G-sib surcharge to account for changes in inflation and economic growth under new proposal
• Changes would exempt banks under $250 billion in assets from most new requirements except for recognizing unrealized gains and losses of securities
• New plan will raise capital by 9% compared to original plan at 19%

Morgan Stanley on US equities at risk from a further unwinding of yen-funded carry trades

• If the Fed cuts aggressively

Bloomberg (gated) carried info on the note from Morgan Stanley

• an initial Federal Open Market Committee (FOMC) cut of more than 25 basis points could support the yen
• would fuel further pulling out of US assets by Japan, ie. “The yen carry-trade unwind may still be a risk factor behind the scenes”
• “A quick drop in US front-end rates could cause the yen to strengthen further, thus eliciting an adverse reaction in US risk assets.”

Fed to halve biggest banks’ capital hike in latest Basel plan, from 19% to 9%

• Federal Reserve Vice Chair for Supervision Michael Barr will speak on this later today

Fed Governor Barr is expected to announce the new measures in a speech on September 10:

• Fed to halve biggest banks’ capital hike in latest Basel plan

• FED, FDIC, OCC poised to unveil changes as soon as September 19
• Top banks face 9% increase in revised plan from 19% earlier

Headlines come via Bloomberg

It “wouldn’t take much for the Fed to be behind the curve”, then “a string of 50bp cuts”

• Deutsche Bank warn of a Federal Reserve policy error

An interesting snippet from Deutsche Bank, expecting 25bp rate cuts ahead, but read on for the “however”.

DB say that while Friday’s … payrolls report was disappointing:

• the data did not rise to the “significant deterioration” Waller noted was needed for larger (50bp) rate cuts.
• So our economists keep to their expectations for a 25bps cut next week

And then add:

• The risk for the Fed is if and when job losses actually arrive in the payrolls report, you tend to get little warning
• With hiring now relatively soft it wouldn’t take much for the Fed to be behind the curve and a string of 50bp cuts to follow.
• With markets now pricing in over 250bps of cuts by January 2026 there has to be a reasonably high market expectation in the fixed income space of this policy error occurring

Macklem Q&A: Employment is not negative but is well below population growth

• Comments from the Bank of Canada Governor in a press conference at the Canada-UK Chamber of Commerce

• Businesses are hiring much more slowly than people are entering the work force
• Youth unemployment has gone up a lot
• We have very high rates of immigration
• If we were to see a rise in unemployment, that would be a concern
• It’s reasonable to expect further rate cuts
• We want to see growth pickup as we get closer to the neutral rate
• We want to see growth pickup and that’s something that’s going to factor into our monetary policy decisions
• We expect wage growth to come into line with productivity. If that doesn’t happen, it could make inflation sticky
• If upside surprises materialize, we could slow the pace of normalization
• Monthly GDP in particular and jobs have been on the weak side and that’s a downside risk
• If downside risks materialize, it could be appropriate to take a bigger step

BOC’s Macklem: Bigger cuts are possible if economy and CPI weaker

• Macklem comments:

• Trade disruptions also increase variability of inflation
• We have to focus on risk management, balancing upside risks to inflation with downside risks to economic growth
• Cost of global goods many not fall as fast as globalization, and that could put more upward pressure on inflation
• Global trade has slowed and that is a big concern for Canada
• The growth we are seeing in trade is shifting from goods to services, pandemic may have provided a more durable boost to trade in services
• Seemingly vast potential of digitalization suggests future growth in trade will tilt to services

Commodities

Gold Rises Ahead of Key US CPI Data and Harris/Trump Debate

Market Overview:
Gold prices advanced by approximately 0.30% on Tuesday, trading at $2,514. The uptick in gold comes as the US Dollar weakened and Treasury yields declined, with traders awaiting the August Consumer Price Index (CPI) report and the first presidential debate between Vice President Kamala Harris and former President Donald Trump.

US CPI and Fed Rate Cut Odds:
The upcoming CPI report is a key focus, with expectations for a decline from 2.9% to 2.6% year-over-year. Core CPI is projected to remain steady at 3.2%. The swaps market reflects a 67% chance of a 25 basis point (bps) rate cut and a 33% chance for a 50 bps cut, according to the CME FedWatch Tool. Last week’s Nonfarm Payrolls (NFP) data showed job additions below expectations, though a dip in the Unemployment Rate provided some support for the US Dollar.

Political Developments:
Political developments are also in the spotlight as Vice President Kamala Harris and Donald Trump prepare for their first debate at 21:00 ET (01:00 GMT). The outcome of this debate could influence market sentiment as the US Presidential Election approaches.

Daily Market Moves:

• Gold Price: Increased to $2,514, up 0.30%.
• US Dollar Index (DXY): Remains relatively unchanged at 101.62.
• US Treasury Yields: Declined ahead of the CPI release.
• Fed Rate Cut Expectations: 67% for a 25 bps cut, 33% for 50 bps.

Outlook:
Gold’s price movement reflects a cautious optimism in the markets as traders brace for the CPI data and monitor political developments. The direction of the Federal Reserve’s rate decisions will be critical, with potential implications for both the gold market and broader financial sentiment.

Oil private survey of inventory shows a headline crude oil draw vs. build expected

• This is from the privately surveyed oil stock data ahead of official government data tomorrow morning out of the US.

• API Inventory:
• Crude -2.79 million (exp. +700,000)
• Gasoline -513,000
• Distillates +191,000
• Cushing -2.6 million
• SPR +300,000

U.S. Short-Term Energy Outlook: Key Insights from the EIA

Biofuels and Distillate Fuel Oil:

• Increasing Biofuel Share: Biomass-based diesel products are becoming a larger component of U.S. distillate fuel oil consumption, expected to reach 9% (360,000 b/d) this year, up from 8% last year and 5% in 2022.
• Distillate Fuel Consumption: Expected to slightly decline to 4.1 million barrels per day (b/d) in 2024.

Propane Prices:

• Retail Price Forecast: The average retail propane price is projected to be $2.50 per gallon for the upcoming heating season (November–March), maintaining last winter’s level. Prices are expected to range from $3.35/gal on the East Coast to $2.00/gal in the Midwest.

Crude Oil Prices:

• Price Trends: Despite recent drops, Brent crude oil prices are expected to rebound to above $80 per barrel (b) this month, reaching an average of $82/b in 4Q24 and $84/b in 2025.
• Inventory Withdrawals: Ongoing withdrawals from global oil inventories are anticipated due to OPEC+ delaying production increases until December.

Natural Gas Prices:

• Price Forecast: Natural gas prices are expected to remain relatively stable during the shoulder season before rising to around $3.10 per million British thermal units (MMBtu) in 2025, driven by lagging U.S. natural gas production relative to LNG export growth.

Electricity Generation:

• Increased Demand: U.S. electricity generation is projected to increase by 3% this year compared to 2023, driven by higher demand and contributions from solar and natural gas power.
• Solar Power Growth: Solar generation is set to grow significantly, with Texas and California leading in capacity additions. Solar accounted for 59% of U.S. generating capacity additions in the first half of 2024, bolstered by new battery storage developments.

This outlook underscores evolving trends in energy consumption and production, with biofuels, solar power, and oil inventory dynamics playing pivotal roles in shaping the energy landscape for the coming months.

ICYMI – Morgan Stanley have cut its oil price forecast again, see Brent @ $75 / Per barrel in Q4

• Morgan Stanley updated their crude oil forecasts on Monday

Two weeks ago Morgan Stanley lowered their Brent crude oil forecast to $80 / Per barrel. Now they’ve cut it even further:

now expecting an average $75 a barrel in Q4 of 2024

Citing demand headwinds:

• “considerable demand weakness”
• signals are of “recession-like inventory builds”

On supply:

• oil market to remain tight through Q3
• potential move into surplus by 2025

EU News

European equity close: On the backfoot

• Losses today in European markets

• Stoxx 600 -0.5%
• German DAX -0.9%
• Francis CAC -0.3%
• UK’s FTSE 100 -0.7%
• Spain’s IBEX -0.6%
• Italy’s FTSE MIB -1.0%

Germany August final CPI +1.9% vs +1.9% y/y prelim

• Latest data released by Destatis – 10 September 2024

• Prior +2.3%
• HICP +2.0% vs +2.0% y/y prelim
• Prior +2.6%

UK July ILO unemployment rate 4.1% vs 4.1% expected

• Latest data released by ONS – 10 September 2024

• Prior 4.2%
• Employment change 265k vs 123k expected
• Prior 97k
• Average weekly earnings +4.0% vs +4.1% 3m/y expected
• Prior +4.5%; revised to +4.6%
• Average weekly earnings (ex bonus) +5.1% vs +5.1% 3m/yexpected
• Prior +5.4%
• August payrolls change -59k
• Prior 24k; revised to -6k

Asia-Pacific-World News

China’s Tepid Import Growth Raises Concerns for Global Economy

Economic Overview:

• China Import Growth: +0.5% y/y, significantly below the 2.0% expected and down from July’s +7.2% y/y.
• China Export Growth: Fastest pace since March last year, with a notable 12.2% increase in exports to the US, while exports to Europe fell by 5.3%.
• Trade Surplus: $91 billion, surpassing the $82 billion forecast.

Market Impact:

• Global Manufacturing Outlook: Soft import figures suggest a cautious outlook for global manufacturing and weaker domestic demand in China.
• Resource Imports: Australian imports declined by 14.3%, reflecting reduced demand for raw materials. Iron ore imports specifically were down by 4.73% y/y.

Policy Implications:

• Delayed Support: Nomura analysts anticipate that the strong export performance might delay the implementation of fiscal and monetary support, with expectations for more significant measures in Q4.

Key Takeaways:

• Demand Signals: The slow growth in imports highlights a potential slowdown in future global demand and underscores ongoing economic challenges within China.
• Market Watch: Investors should monitor China’s economic policies and trade dynamics, as they may influence broader market trends and global economic stability.

China records ¥649.34 billion trade surplus in August

• In dollar terms, the trade balance is seen at +$91.02 billion

• Yuan-denominated exports +8.4% y/y
• Yuan-denominated imports 0% y/y
• Dollar-denominated exports +8.7% y/y
• Dollar-denominated imports +0.5% y/y

Breakdown via Reuters:

Goldman Sachs on 3 reasons China’s economy is going to run better

• Spoiler is fiscal easing, strong export momentum, and subsiding weather-related risks

Goldman Sachs on China’s (improving) economy, citing 3 stronger signs:

• fiscal easing, strong export momentum, and subsiding weather-related risks

1. Fiscal easing – GS see signs this has recommenced in recent weeks

2. Export momentum is strong

3. Weather-related risks from the summer are likely subsiding

Combining the three GS China’s property market could get some positive input.

PBOC sets USD/ CNY central rate at 7.1136 (vs. estimate at 7.1140)

• PBOC CNY reference rate setting for the trading session ahead.

In open market operations (OMOs):

• PBOC injects 186bn via 7-day RR, sets rate at 1.7%
• 1bn mature today
• thus a net injection of 185bn yuan

Australian Westpac Consumer Confidence Index (September 2024) 84.6 (prior 85.0)

• Westpac-Melbourne Institute index of consumer sentiment fell from August to September, to 84.6

• prior 85.0

WPAC comment:

• “The pessimism that has dominated for over two years now is still showing no real signs of lifting”
• “While cost-of-living pressures are becoming a little less intense and fears of further interest rate rises have eased, consumers are becoming more concerned about where the economy may be headed and what this could mean for jobs.”

Australian August business confidence -4 vs. prior +1

• National Australia Bank business survey

National Australia Bank monthly survey of business, for August 2024

Business Confidence -4, lowest for the year so far

• prior +1

Business Conditions +3

• prior +6
• conditions to the lowest in 2-1/2 years
• employment index came in at +1, sharply down from +7 in July

Inflation indicators:

• growth in labour costs quarterly rate of +1.7% (from July’s +2.4%)
• purchase costs +1.6% in the quarter (from July’s +1.3%)
• retail prices +1.2% for the three months ending August (+1.0% in July)

National Australia Bank (NAB) comments:

• “suggests the period of very strong private sector labour demand seen throughout the post-COVID period may be coming to an end”
• “Conditions are now fairly clearly below average compared to the history of the survey which reflects the weakness seen in the private sector broadly as the economy has slowed.”

The changes proposed for the Board of the RBA has failed

• This is not an unexpected development

The key change for the Board of the RBA was the proposal to split the existing RBA board into separate groups for interest rate-setting and governance.

• The board split was supposed to come into effect on July 1

Australian Treasurer Chalmers was driving the proposed changes but has said he wanted bipartisan support. The measure has failed to gain support from the main opposition party here in Australia. This, in effect, kills the proposal. The only avenue left for the Treasurer is to cobble together a deal with minor parties, notably the Greens.

More details via Reuters:

• The reforms, which were recommended by an independent review last year, included setting up a separate governance board to complement the current monetary policy board.
• The nine-member rate-setting board would still have six outside members, which the opposition said could be used by the ruling Labor Party to include appointees friendly towards the current government.
• Australian Treasurer Chalmers also offered to amend a proposal to remove the government’s veto power over the RBA’s rate decisions that was opposed by the opposition and the Greens party.

Sales for New Zealand’s manufacturing sector improved in Q2

• Some better news for the NZ economy

New Zealand manufacturing sales rose in second quarter:

• +0.6% q/q vs the -0.4% in Q1

Japan LDP lawmaker Ishiba says key task for Japan is to completely exit from deflation

• Shigeru Ishiba is arguably the popular pick among the public to succeed as Japan’s next prime minister

• Does not believe that private consumption has recovered strongly yet
• Will aim to achieve conditions where wages grow sustainably so can fully exit from deflation

Japan PM contender Kato wants folks to have higher wages

• Sees an exit from deflation looming on the horizon

• sees exit from deflation on horizon
• must compile stimulus package backed by a bold supplementary budget at an early date
• stimulus package should include spending for reconstruction from the Noto earthquake and typhoon
• package should contain to prompt higher wage

South Korea warn that rapid pick-up in household debt may turn into systemic risk.

• Housing debt is skyrocketing

Info via Reuters:

• South Korea’s financial watchdog chief on Tuesday expressed concern about a rapid pick-up in household debt and said such financial imbalance may turn into systemic risk.
• “There are concerns that it may turn into a systemic risk, as financial imbalances accumulate and soundness deteriorates should home prices undergo correction”
• South Korea has one of the world’s highest household debt-to-economy ratios, with more than 60% of loans tied to mortgages at local banks.

South Korean stock markets to close for a temporary holiday (October 1)

• KOSPI won’t trade that day

South Korea has designated October 1 as ‘Armed Forces Day’, and a temporary holiday.

• The move is intended to boost domestic consumption, and troop morale.

• Korea Composite Stock Price Index (KOSPI)
• KOSDAQ
• ETF, derivatives markets and commodity markets

Will all be closed.

Cryptocurrency News

Bitcoin Surges Past Key Resistance as ETF Inflows and Whale Activity Spark Recovery

Bitcoin Breaks Through Resistance:
Bitcoin (BTC) has surged above the crucial $56,000 resistance level, trading just over $57,000 on Tuesday. This marks a near 4% gain from Monday, reflecting a potential recovery from last week’s downturn.

ETF Inflows Signal Positive Shift:
U.S. spot Bitcoin ETFs recorded a mild inflow of $28.60 million on Monday, breaking a streak of outflows that began on August 27. This modest inflow suggests a slight improvement in market sentiment, though it pales in comparison to the $48.67 billion in total Bitcoin reserves held by these ETFs.

Whale Activity and On-Chain Data:
On-chain data reveals increased whale activity with significant withdrawals and purchases. A whale withdrew 300 BTC ($17.19 million) from Binance on Monday, and between September 1 and September 3, several whales acquired 2,814 BTC for $157.3 million, averaging $55,887 per BTC. This indicates that large investors are seizing opportunities presented by recent price dips.

Market Sentiment Indicators:

• Long-to-Short Ratio: Coinglass data shows the Binance Bitcoin long-to-short ratio at 1.69, its highest since August 27, suggesting a rising optimism among traders.
• Stablecoin Holdings: The amount of stablecoins held on exchanges has increased from $20.82 billion in early August to $24.99 billion, signaling potential buying pressure. While this increase in stablecoin holdings often indicates a readiness to invest, it does not guarantee a price rise.

Daily Market Movers:

• Spot Bitcoin ETF Inflows: Mild inflow of $28.60 million breaks the recent trend of outflows.
• Whale Activity: Increased withdrawals and purchases signal strategic accumulation by large investors.
• Market Sentiment: Rising long-to-short ratio and increasing stablecoin holdings suggest growing optimism and potential buying pressure.

Bitcoin’s current trajectory reflects a cautious recovery, bolstered by improved ETF flows and whale buying activity, while traders await further developments in market sentiment and on-chain indicators.

XRP Eyes Potential Boost from Upcoming Ripple Stablecoin Launch

Ripple Prepares for RLUSD Launch:
Ripple (XRP) is trading at $0.53, showing a slight correction on Tuesday as anticipation builds for the upcoming launch of Ripple USD (RLUSD), Ripple’s new stablecoin. CEO Brad Garlinghouse confirmed that the RLUSD launch is just weeks away, with details emerging from Korea Blockchain Week earlier this month.

Analyst Insights:
A recent analysis suggests that XRP could benefit significantly from the launch of RLUSD. The stablecoin is expected to enhance activity on the XRP Ledger, with XRP serving as the gas token for transactions. This increased activity could lead to higher demand for XRP, potentially driving its price higher.

Key Developments:

• Stablecoin Launch: Ripple’s RLUSD aims to enhance on-ledger transaction activity, with XRP as the gas token. The stablecoin is set to provide liquidity and facilitate transactions for institutional clients.
• Market Response: XRP is currently trading at $0.5387. Analysts predict that the stablecoin’s launch could spur positive momentum for XRP due to the anticipated increase in ledger activity and demand for the gas token.
• Institutional Focus: CTO David Schwartz highlighted that RLUSD will initially be available to institutional investors, drawing comparisons to established stablecoins like USD Coin (USDC) and Tether (USDT).

Daily Market Movers:

• XRP Price: Trades at $0.53, showing a slight correction.
• Analyst Expectations: Anticipated benefits from RLUSD could boost XRP through increased transaction activity on the ledger.
• Upcoming Launch: Ripple stablecoin RLUSD set for release in the coming weeks, with potential to drive XRP demand.

The launch of RLUSD represents a strategic move for Ripple, potentially positioning XRP for increased usage and demand, as the stablecoin is expected to enhance transaction volume and activity on the XRP Ledger.

Ethereum ETFs Struggle Amid Rising Exchange Reserves and Historical Trends

Underperformance Factors:
Ethereum (ETH) is trading up 1% on Tuesday, but Ethereum exchange-traded funds (ETFs) are facing continued outflows and underperformance. The recent weak performance of ETH ETFs may be attributed to a combination of historical trends and current market conditions.

ETF Outflows and Historical Context:
Ethereum ETFs have experienced a streak of negative flows, with $5.2 million in outflows recorded on Monday alone. Grayscale’s ETHE, in particular, saw a significant outflow of $22.6 million, bringing its total asset loss since inception to $2.69 billion. Despite some inflows into Fidelity’s FETH and Grayscale Mini Ethereum Trust, the overall ETF market for Ethereum remains weak. Historically, Q3 has been a challenging period for risk assets, which might explain the current underperformance. Analysts suggest that a thorough analysis of ETH ETF performance may need to wait until the end of Q3 for a clearer picture.

Rising Exchange Reserves and Potential Selling Pressure:
Ethereum’s exchange reserves have surged, with an increase of over 94,000 ETH (approximately $220 million) in the past 24 hours. This rise in reserves could indicate growing selling pressure, which might lead to further price declines. An increase in exchange reserves often signifies that more ETH is being held on exchanges, potentially leading to higher selling activity.

Daily Market Movers:

• ETFs Performance: Ethereum ETFs extended their outflow streak to five days, with significant losses recorded, particularly by Grayscale’s ETHE.
• Historical Trends: Q3 has historically been a weaker period for risk assets, influencing ETF performance.
• Exchange Reserves: A rise in Ethereum exchange reserves could contribute to increased selling pressure and potential price declines.

Outlook:
The underperformance of Ethereum ETFs amid rising exchange reserves and historical trends underscores the complexities facing ETH in the current market environment. Investors and analysts will be closely monitoring these factors to gauge the potential for a future recovery or further declines.

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