North American News
US stocks close sharply lower
- Nasdaq leads the way lower
The major US indices are closing sharply lower for the 2nd consecutive day. The Nasdaq led the decline with a tumble of -2.55%.
A look at the closing levels shows:
- Dow industrial average is closing down one 643.15 points or -1.91% at 33063.62-
- S&P index is down -90.49 points or -2.14% at 4138.00
- NASDAQ index is modestly in 23.63 points or -2.55% at 12381.58
- Russell 2000 is down -41.60 points or -2.13% at 1915.74
All 11 sectors of the S&P move to the downside. The weakest included:
- consumer discretionary’s -224%
- information technology -2.78%
- communication services -2.66%
The best of the worst included:
- energy -0.25%
- consumer Staples -1.11%
- healthcare -1.38%
Leading the downside:
- Intel, -4.35%
- Salesforce, -3.64%
- Disney, -3.46%
- Microsoft, -2.94%
The best of the worst Dow stocks include:
- P&G, -0.24%
- J & J, -0.34%
- Chevron, -0.44%
- Verizon, -0.56%
Commodities
Gold Attempts to correct against strong headwinds
- Gold is firmly in the hands of the bears as the US dollar takes off.
- Bears eye $1,710 although, considering the support area, we could see a correction in coming sessions.
- The Jackson Hole will be a key driver for the week.
Gold is being kept under pressure at the start of the week, although the gold price is currently off the lows from the day and attempting to correct. At $1,735, the yellow metal is still down 0.7% on the day so far and has traveled between a low of $1,727.85 and $1,749.09.
Gold is down for the sixth consecutive day on Monday amid an environment that is favoring the US dollar while looming Federal Reserve interest rate hikes weigh on bullion’s appeal. The hawkish expectations from a speech at the Jackson Hole, Wyoming central banking conference later this week by Fed Chair Jerome Powell have put a bid on the greenback and are weighing on risk appetite.
Risk-off mood weighs on gold
The Dow Jones Industrial Average dropped 1.82% to 33,085, with the S&P 500 down over 2%. The US two-year yield jumped 3% to 3.346%, and the 10-year yield climbed 1.68% to 3.04%, implying the yield curve between the two maturities remains inverted, a bearish signal if sustained. Meanwhile, against a basket of currencies, the dollar was 0.82% higher at 108.98 DXY, not far from the two-decade high of 109.29 touched in mid-July.
In the build-up to the Jackson Hole, there has been a chorus of speakers from the Fed, and last week was particularly busy in that respect. The most hawkish of Fed officials was Bullard who expressed a desire for a 75bp hike at September’s meeting and added he isn’t ready to say the economy has seen the worst of the inflation surge. “We should continue to move expeditiously to a level of the policy rate that will put significant downward pressure on inflation” and “I don’t see why you want to drag out interest rate increases into next year,” Mr Bullard said in a Wall Street Journal interview. The latest of these officials, Richmond Fed President Thomas Barkin, on Friday said the “urge” among central bankers was toward faster, front-loaded rate increases.
Meanwhile adding to the risk-off mood, Russia’s announcement late on Friday of a three-day halt to European gas supplies via the Nord Stream 1 pipeline at the end of this month sank the euro, supporting DXY higher. On the weekend, Bundesbank President Joachim Nagel told a German newspaper that the European Central Bank must keep raising rates even if a recession in Germany is increasingly likely, as inflation will stay uncomfortably high through 2023. The combination has sent the euro below parity vs. the greenback again. At the time of writing, EUR/USD is down by over 1% to a low of 0.9926.
Elsewhere in the forex space, China’s yuan dropped to its lowest in nearly two years after the country’s central bank cut its benchmark lending rate and lowered the mortgage reference by a bigger margin on Monday. The people’s Bank of China’s move is adding to last week’s easing measures to support the ailing economy in the face of a resurgence of COVID-19 and the property crisis. This has also supported the greenback and has weighed on precious metals.
”Shanghai traders have also been unwinding their recent length, with lockdowns and industrial woes likely to weigh on Chinese demand,” analysts at TD Securities said. ”Our tracking of positioning for the top ten traders in Shanghai suggests they have sold nearly 40,000 SHFE lots of silver over the past month, in contrast with the nation’s blockbuster imports of gold from Switzerland in July.”
The Saudis comments on cutting production
“This is detrimental because without sufficient liquidity, markets can’t reflect the realities of the physical fundamentals in a meaningful way and can give a false sense of security at times when spare capacity is severely limited and the risk of severe disruptions remains high,” he said.
Abdulaziz was then asked about cutting production and said this:”
In OPEC+ we have experienced a much more challenging environment in the past and we have emerged stronger and more cohesive than ever. OPEC+ has the commitment, the flexibility, and the means within the existing mechanisms of the Declaration of Cooperation to deal with such challenges and provide guidance including cutting production at any time and in different forms as has been clearly and repeatedly demonstrated in 2020 and 2021.
Soon we will start working on a new agreement beyond 2022 which will build on our previous experiences, achievements, and successes. We are determined to make the new agreement more effective than before. Witnessing this recent harmful volatility disturb the basic functions of the market and undermine the stability of oil markets will only strengthen our resolve.”
When I look at the big picture on OPEC I wonder: What if they’re actually being honest? They’re repeatedly warning about a lack of investment and spare capacity. They continually note that more investment is needed to fuel the world. No one is listening.
EU News
European equity close: Dax crumbles to lead the way lower
- There’s no help coming for European energy
Closing changes for the main European bourses:
- German DAX -2.4%
- UK FTSE 100 -0.3%
- Stoxx 600 -1.0%
- French CAC -2.0%
- Italy MIB -0.4%
- Spain IBEX -1.8%
UK could be facing 18.6% inflation in January – Citi
- The news in Europe keeps getting worse
As if today’s 13% rise in European benchmark natural gas prices wasn’t enough, today Citi is out with a note saying UK inflation is on course to rise 18.6% y/y in January.
The forecast is largely based on natural gas prices and doesn’t take into account potential mitigation strategies from the government. The current level of the energy cap is £1971 per year. They see it rising to £4567 in January and £5816 in April.
Inflation that high would break the 1979 peak and push the country into recession.
“Even with the economy softening, last week’s data reaffirmed the continued risk of pass through from headline inflation into wage and domestic price setting could accelerate,” wrote Citi in a note.
Other News
No change in oil prices today. Anything happen? The spread to watch for gas-to-oil switch
- WTI crude oil settles nearly unchanged
It was a wild day in the oil market that resulted in prices pretty much where they started.
Oil climbed on the China rate cut then plunged early in US trading for no particular reason. But then crude bounced back on headlines on Saudi Arabia floating production cuts. Those headlines were not accurate but here we are.
In terms of the Iran nuclear deal, there’s no US response yet but the State Dept said a deal is closer than two weeks ago. That is going to continue to be the trade for the next week or so.
But in the big picture, European natural gas is trading at nearly $500 in oil-equivalent terms. The obvious move is to switch to oil for anyone who can. In that case, oil usually means diesel. Notably, there were large exports of products from the US last week, presumably as diesel was shipped to Europe.
With that, the spread of diesel over gasoline is rising. It could be the chart that best indicates natural gas-to-oil switching.
Cryptocurrency News
Australia to improve the regulatory system around crypto assets
The Australian Treasury will token map the Australian crypto market ths year:
- It will seek to uncover the characteristics of all digital asset tokens available in Australia. That will include the type of crypto asset, their underlying code and any other defining technological features.
- The mapping will be used to determine which crypto assets are already subject to financial services law and non-financial products that may require their own special legislation.
Australian Treasurer Chalmers:
“The aim will be to identify notable gaps in the regulatory framework, progress work on a licensing framework, review innovative organisational structures, look at custody obligations for third-party custodians of crypto assets and provide additional consumer safeguards.”