North American News
US equities struggle ahead of CPI as meme stocks fade
- Closing changes for the main US indices
- S&P 500 -0.4%
- Nasdaq -1.2%
- Russell 2000 -1.7%
- DJIA -0.2%
That’s a fair amount of divergence. Small cap and tech stocks struggled badly while megacap held up ok. Meme stocks exploded higher yesterday but struggled today:
- GME -6.3%
- AMC -6.3%
- BBBY -14.2%
- HKD -48%
A high CPI reading tomorrow will be a major challenge to the recent optimism in markets.
The US treasury auctions off $42 billion of 3 year notes at a high yield 3.202%
- WI level 3.205% at the time of the auction
- High yield 3.202%
- Tail -0.3 BPS vs avg of 0.1 bp
- Bid to cover 2.5x vs six-month average of 2.47X
- Directs 17.28% vs six-month 18.05%
- Indirects 63.08% vs six-month average of 60.4%
- Dealers 19.64% vs. six-month average of 23.47%
Highlights:
Above average components:
- negative tail
- bid to cover higher than average
- international demand from indirect bidders higher than taverage
- dealers were saddled with much less than what is average
Below average component:
- domestic demand is lower than the average
Commodities
Gold is firm on softer US yields ahead of Critical CPI
- Gold could depend on the outcome of Wednesday’s US CPI data.
- The current price is a few bucks shy of the golden ratio, 61.8% level.
- If CPI were to disappoint, then a subsequent break of $1,815 would be significant.
The gold price is higher on Tuesday by some 0.35% at the time of writing in the afternoon of the New York session. Gold is trading at $1,795.55, just below the highs of the day. Gold has moved higher from a low of $1,783.31 and reached the psychological $1,800 mark at the start of Wall Street.
Gold is firm due to a softer US dollar at the start of the week. The greenback, as measured by the DXY index fell to a low of 105.97, reversing all of the gains made on the blockbuster Nonfarm Payrolls report when it rallied to a high of 106.93.
Additionally, gold is enjoying some relief in lower US yields. Waining yields are bullish for gold since it offers no interest. The US 10-year note made a fresh corrective low of 2.746% on Tuesday but they have since recovered to a high of 2.816%. Nevertheless, yields are way off their 52-week range high of 3.497% printed in mid-June 2022.
US CPI data will be key
Markets are fixated on the US inflation data coming on Wednesday where prices likely rose by a level that will prompt further interest rate hikes from the Federal Reserve. Combined with last week’s NFP report, the Fed is expected to hike interest rates by another 75 basis points at the next Fed meeting in September.
”While a slowing headline reading could lead some investors to believe the Fed can stop hiking, we expect the Fed to take rates to 3.75% by December,” analysts at TD Securities argued, given that the consensus is that CPI will have risen less in July by comparison to what June’s reading showed, 9.1% vs. 8.8% expected whereas tomorrow’s data is expected to come below 9%.
Crude oil settles at $90.50
- Down -$0.26 or 0.29%
The price of crude oil is settling at $90.50, that is down -$0.26 or -0.29% on the day.
The high price reached $92.62. The low price reached $89.06. The price fell below the 100 hour MA at $89.95 but could not sustain momentum below the level.
EU News
European equity close: German stocks lag
- Closing changes for the main European bourses
Closing changes:
- Stoxx 600 -0.6%
- UK FTSE 100 +0.1%
- German DAX -1.0%
- French CAC -0.5%
- Italy MIB -1.0%
- Spain IBEX +1.0%
Other News
Risk trades fade as meme stocks unwind and CPI eyed
- Nasdaq leads the way lower
A flat start in US stocks has given way to selling, led by the Nasdaq.
Yesterday’s high-flying meme stocks have given much back. The resurgence of the likes of GME, AMC and BBBY were a sign that froth had returned to the market.
Some are also pointing to the Cleveland Fed’s CPI tracker as an indication that tomorrow’s US CPI report will be on the hot side. The consensus is 8.7% but it points to a 8.8% reading. That said, some of the core metrics in it are a touch softer than consensus.
In any case, the consequences of a hot reading will probably hurt the market more than vice versa.
Cryptocurrency News
The RBA has kicked off a one-year research program into digital currency
This from the RBA:
Reserve Bank and Digital Finance Cooperative Research Centre to Explore Use Cases for CBDC
CBDC is a Central Bank Digital Currency.