North American News
US stocks close sharply higher and near session highs
- All 11 sectors of the S&P move higher
The major US indices all closed sharply higher and near their session highs.
- Dow industrial average rose 535.41 points or 1.63% at 33309.05. It’s high price reached 33364.41
- S&P index rose 7.75 points or 2.13%. It’s high price reached 4211.03
- NASDAQ index rose 200 360.89 points or 2.89% at 12854.81. It’s high price reached 12861.44
- Russell 2000 rose 56.15 points or 2.95% at 1969.24
Looking at the S&P sector
- Consumer discretionaries rose 2.88%
- Materials rose 2.87%
- Technology rose 2.77%
- Communication services rose 2.76%
The laggards today included:
- Utilities, -0.49%
- Energy, +0.71%
- Consumer staples, 0.74%
US July CPI +8.5% y/y vs +8.7% expected
- US July 2022 consumer price index inflation data
- Prior was 8.3% y/y
- 0.0% m/m vs +0.2% expected and +1.3% prior
Core CPI:
- 5.9% y/y vs 6.1% expected and 5.9% prior
- +0.3% m/m vs +0.5% expected and +0.7% prior
Details:
- CPI energy -4.6% vs +7.5% prior
- Gasoline -7.7% vs +11.2% prior
- New vehicles +0.6% vs +0.7% prior
- Used vehicles -0.4% vs +1.6% m/m prior
- Owners’ equivalent rent +0.6% m/m vs +0.6% prior
- Food +1.1% vs +1.0% prior
- Real weekly earnings +0.5% vs -1.0% m/m prior
US sells 10-year notes at 2.755% vs 2.761% WI
- Results of the $36 billion sale
- Prior was 2.960%
- Bid to cover at 2.53 vs 2.34 prior
Atlanta Fed GDPnow Q3 growth tracker up to 2.5% from 1.4% last
- Big jump in Q3 growth from Atlanta Fed GDP tracker
The Atlanta Fed Q3 estimate for growth jumped to 2.5% from 1.4% last. In their own words:
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2022 is 2.5 percent on August 10, up from 1.4 percent on August 4. After recent releases from the US Bureau of Labor Statistics and the US Census Bureau, the nowcast of third-quarter real personal consumption expenditures growth, third-quarter real gross private domestic investment growth, and third-quarter real government spending growth increased from 1.8 percent to 2.7 percent, -0.3 percent to 0.2 percent, and 1.4 percent to 1.7 percent, respectively, while the nowcast of the contribution of the change in real net exports to third-quarter real GDP growth decreased from 0.35 percentage points to 0.30 percentage points.
Commodities
Gold bulls got free drinks on the house, but hangovers could await them
- Gold is back under pressure following a relief rally to the weekly 61.8% Fibo.
- Bulls will be seeking space above $1,800 but the Fed is still a long way off from its target despite today’s CPI miss of expectations.
At $1,791.43, gold is around 0.17% higher on the day. It has rallied from a low of $1,787.60 to a fresh bullish corrective high of $1,807.96. The gold price has shot up to finally move to the 61.8% golden ratio on the weekly chart following today’s US inflation data that came in below expectations. The data has raised hopes that inflation may have seen a peak. Consequently, the US 10-Year Treasury yield dropped, as did the US dollar. In turn, gold bulls enjoyed the ride higher.
However, it is too soon to claim victory by the gold bugs for there is a long way to go until the Federal Reserve’s next meeting in September, which means potential speed bumps along the way for gold.
”The Fed will be looking for “clear and convincing” evidence of inflation turning the corner, and we are not there yet,” analysts at TD Securities argued. ”An epic collapse across USD pairs. The question is whether this will stick.”
Federal Reserve’s Neel Kashkari has recently crossed the wires and has said that while he is happier to see inflation surprised to the downside, the Fed is far, far, far away from declaring victory on inflation. He added that ”this doesn’t change my rate hike path”, and he is expecting 3.9% end of this year 4.4% end of next year.
Gold for December delivery was last seen down $2.5 to $1,809.90 per ounce, after rising to US$1,824.60 immediately following the release of US July inflation figures. The spot price is also giving back some ground as US yields recover as the market digest the inflation report. Prices rose 8.5% on an annualized basis in July, a slower pace than the 9.1% rise reported in June and below analysts’ consensus expectations for an 8.7% rise.
Despite the prospects of peak inflation, the broader sentiment in the markets is for the Fed to maintain its aggressive tightening bias in the months ahead. There are fewer possibilities of a 75bps hike in September, however, with markets in anticipation of a 50bp rate hike instead but the peddle will be to the metal as the Fed aims to reach a more restrictive policy posture before the end of the year.
This means, depending on data and other potential surprises, the gold price will be vulnerable to ongoing strength in US yield and the US dollar.
”The first downside surprise in monthly headline inflation since September 2021 pushed investors to lower the odds of a 75bp hike in September from 85% to just 44% and the pricing for the terminal funds rate to 3.5% from nearly 3.7%,” analysts at TD Securities noted.
”We expect market pricing for hikes to continue gyrating between extremes as investors digest more data ahead of the September FOMC.”
”We think short-term price action will reflect risk sentiment,” the analysts explained with respect to the values of the US dollar.
Between now and the next meeting, there will be plenty of noise between Fed speakers and US data as well as global calendar events to keep the US dollar in tow.
Not only do we have another inflation reading but also the Jackson Hole Economic Symposium scheduled for August 25-27 will be keenly eyed. Fed Chairs often use this symposium in August to announce or hint at policy shifts ahead of the September FOMC meetings.
The analysts at BBH explained that ”by late August, we will have seen all the major July data and some of the early August surveys such as the preliminary S&P Global PMI readings and regional Fed surveys. The Fed will also have a good idea of how the economy is doing in Q3. That said, we do not think the Fed will make any major policy announcements or paint itself into a corner ahead of next month’s FOMC meeting.”
Oil rebounds $4 after the weekly supply data to settle at $91.93
- WTI crude settles up $1.43
It was another volatile day in oil trading.
WTI crude oil fell as low as $87.66 in early US trading before reversing higher to trade at a peak of $92.43. After some moderate selling in the final 30 minutes of trading, it settled at $91.93. That’s the highest settlement in a week but crude remains near the lowest levels since February.
US weekly crude oil inventories +5458K vs +73K expected
- Weekly US oil inventory data for the week ending August 5
- Prior was +4467K
- Gasoline -4978K vs -633K expected
- Distillates +2166K vs -667K expected
- Refinery utilization +3.3% vs +0.7% expected
- SPR draw of 5.3m
- Implied gasoline demand 9.12m vs 8.54m last week
EU News
European equity close: Strong gains for stocks
- Closing changes for the main European bourses
- Stoxx 600 +0.9%
- UK FTSE 100 +0.4%
- German DAX +1.3%
- French CAC +0.7%
- Italy MIB +1.0%
- Spain IBEX +0.5%
Other News
Fed’s Kashkari: We’re far, far away from declaring victory on inflation
- Comments from the Fed’s Kashkari
- CPI doesn’t change my rate hike path. Expecting 3.9% at year-end and 4.4% at the end of 2023
- We are united about our commitment to get inflation down to 2%
- The idea of cutting rates in early 2023 is not realistic
- It’s more more realistic that we will raise rates and leave them there until inflation well on its way to 2%
Cryptocurrency News
Outside day sets up in Ethereum as it breaks $1800 in 9% rally
- Bullish price action continues
All risk assets are surging today on signs of a peak in US inflation but crypto is particularly strong and ethereum is leading the way.
Market participants are increasingly enthusiastic about the changes coming to ethereum that will lower energy consumption by 99%. Yesterday, ETH/USD retraced after its first attempt at $1800 but today it traced out an outside day (so far) with a rally to the highest level since June 6. That erases the June rout when the crypto-lending business model was being blown up.