North American News
Stocks close higher for the 2nd consecutive day. Up and down session for the major indices
- Major indices up around 0.6%
The major US stock indices are closing higher for the 2nd consecutive day. The gains are fairly consistent in the indices with gains between 0.60% and 0.66%
Price action was up and down. The major indices open lower, but rebounded higher despite chair Powell’s interview with the Cato Institute where he reiterated the sentiments from his Jackson Hole Symposium.
Stocks turned back lower after ECB sources comments that a 75 basis point hike is not ruled out for October. Today the central bank increased rates by 75 basis points the largest increase since the start of the common currency.
Those declines were whittled away into the close.
The final numbers are showing:
- Dow industrial average up 193.24 points or 0.61% at 31774.51
- S&P index up 26.31 points or 0.66% at 4006.19
- NASDAQ index up 70.24 points or 0.60% at 11862.14
US initial jobless claims 222K vs 240K estimate
- Weekly initial jobless claims and continuing claims
- Initial jobless claims 222K vs 240K estimate.Lowest since May 27 week. The prior week was revised to 228K from 232K
- 4 week moving average 233K vs 240.50K (revised)
- continuing claims 1.473M vs 1.435M. The prior week was revised to 1.437M vs. 1.438M
- 4 week moving average 1.439M vs 1.4283M last week
US consumer credit rises by $23.8 billion vs. expectations of $33 billion
- US consumer credit for the month of July
- US consumer credit for the month of July rose by $23.81 billion. The expectations was for a rise of $33 billion
- prior month $40.15 billion (revised from $39.058 billion)
- revolving credit increase by $10.9 billion vs. $14.79 billion last month
- non-revolving debt increased by $12.91 billion vs. $25.356 billion last month
Commodities
Gold bulls pressured, but eye a retest and breakout above $1,730
- Gold has underperformed on the day as the US dollar and yields rise.
- Gold bulls, however, are not going down without a fight and are eyeing a third attempt of a breakout.
The gold price is down on the day after falling heavily from a high of $1,728.23 to a low of $1,704.00. The yellow metal is trading around $1,709.33 at the time of writing and lowing some 0.5%. The US dollar index and shorter-dated US Treasury yields rose on Thursday following Federal Reserve Chair Jerome Powell’s comments that the central bank was “strongly committed” to controlling inflation.
The DXY index, which measures the greenback vs. a basket of currencies has travelled between a low of 109.334 and a high of 110.243 so far while the 10-year Treasury yield has recovered to a 3.304% high on the day from a low of 3.201%. The two-year yield reached a high of 3.506% from a low of 3.404% and is currently up 1.45% on the day.
Meanwhile, US stocks have struggled for direction as investors digested hawkish remarks by Powell and other policymakers that are underpinning the sentiment for a large interest rate hike later this month. In more recent trade, Chicago Fed President Charles Evans joined his fellow policymakers in saying that reining in inflation is “job one,” although he said that he would prefer to raise rates and hold for some time, rather than raise too far and then have to cut. ”I’m open-minded on 50 bps or 75 bps rate hike for Sept.” Money market traders see nearly 90% odds that the Fed will hikes rates by 75 basis points at this month’s meeting.
”Over the last multiple decades, gold prices have tended to outperform in the earlier stages of a hiking cycle, but have displayed a systematic underperformance when markets expect the real level of the Fed funds rate to rise above the neutral rate,” analysts at TD Securities explained. ”In turn,” they added, ”while gold prices may now have accurately captured the expected level of interest rates, they are not reflecting the implications of a sustained period of restrictive policy.”
This leaves the focus on the downside for gold, as the analysts have been arguing and suggesting to ”fade the technical rebound in gold prices.”
”While gold prices are flirting with a break of a multi-decade uptrend near $1675/oz, the stars are aligning for additional downside in precious metals to ensue. Rates markets appear to be nearing a fair pricing for Fed funds, but gold’s price action is still not consistent with its historical performance when hiking cycles enter into a restrictive rates regime.”
”At the same time, the margin of safety against a short squeeze continues to grow, increasing odds that we can break through this critical support.”
Meanwhile, adding insult to injury, US data showed the number of Americans filing new claims for unemployment benefits fell last week to a three-month low. This proves a robust labor market even in the face of higher levels of interest rates. In this regard, investors will be waiting for a critical last-minute US August inflation report next week ahead of the Fed meeting that will offer some final key information that could give fresh clues on whether the Fed will need to raise by 75 or 50 basis points at the next policy meeting due Sept. 20-21.
Silver clings to gains above $18.50 despite higher US T-bond yields
- Silver prices advance despite higher US Treasury bond yields.
- Hawkish commentary by Jerome Powell fueled estimations that a 75 bps rate hike in September is a done deal.
- US 10-year Treasury Inflation-Protected Securities (TIPS), a proxy for real yields, approaches the 0.90% threshold, a headwind for precious metal prices.
Silver price holds to earlier gains after Federal Reserve Chair Jerome Powell emphasized that the Fed will continue to tighten monetary policy at the expense of slower economic growth. The XAG/USD is trading at $18.52, above the opening price, by 0.56%.
Sentiment has shifted mixed, with US equities fluctuating. Fed officials are crossing newswires as the Federal Reserve blackout period approaches, led by Fed Chair Jerome Powell. On Thursday, Powell commented that the Fed is “strongly committed” to bringing inflation to its 2% target and added that the Fed needs to act“forthrightly, strongly as we have been doing.”
Related to this, Barclays said now that it sees a 75 bps rate hike in September, but a 50 bps in November, via Reuters.
The US Department of Labor features Initial Jobless Claims for the week ending on September 3, with figures falling to 222K, lower than estimates. In the meantime, the US Dollar Index, a gauge of the buck’s value measured vs. a basket of peers, gains 0.34% at 109.905.
Meanwhile, the US 10-year Treasury yield edges up two bps, sitting at 3.294%, putting a lid on the white metal gains. Also, the US 10-year TIPS, a proxy for real yields, climbed sharply, approaching the 0.90% mark, as recent Fed’s commentary fueled expectations of a 75 bps rate hike in September.
Late in the day, Chicago’s Fed Charles Evans said the labor market remains tight and added that the Fed is “increasing interest rate expeditiously.” Evans said that he expects GDP growth to remain at positive levels and commented that inflation would likely remain around 4 to 5% in core PCE and by 2023 at 3%, perhaps 2.5%.
US weekly EIA oil inventories +8844K vs -250K expected
- Weekly US oil inventory data
- Prior was -3326K
- Gasoline +333K vs -1667K expected
- Distillates +95K vs +530K expected
- Refinery utilization -1.8% vs -0.8% expected
- Implied gasoline demand 8.73m vs 8.591m last week
- SPR draw of 7.5m vs 3.1m prior (-7.5m expected)
EU News
European equity close: Decent comeback after the ECB
- Closing changes for the main European bourses
- UK FTSE 100 +0.4%
- Stoxx 600 +0.4%
- German DAX -0.1%
- French CAC +0.3%
- Italy MIB +0.9%
- Spain IBEX +0.9%
ECB’s Lagarde: Today wasn’t an isolated decision; 75 bps isn’t the norm
- Comments from Lagarde in the ECB press conference
- Determined action had to be taken
- Today wasn’t an isolated decision
- Risks to inflation tilted to the upside, risks to growth to the downside
- Next hike not necessarily 75 bps, not the norm
- We will determine on a meeting-by-meeting basis the level that will get inflation back to 2%
- Initial signs of inflation expectations above target warrant monitoring
- Wage growth still contained
- Where we are at is not the neutral rate
- Decision was unanimous, there were different views around the table
- Downside scenario for growth includes negative growth in 2023, sees negative growth in 2023
- We are ‘so far away’ from a policy setting that will be enough to bring down inflation
- We don’t know what the terminal rate is
Other News
WTI crude oil settles $1.60 higher. Biden admin floats another SPR release
- WTI up $1.60 to $83.54 per barrel
Oil fell $5 yesterday and bounced $1.60 today, still leaving it near the lowest level since January.
In the last hour, a report is crossing saying the Biden admin is ‘hunting for ways to head off a feared spike in oil prices later this year’ once the planned SPR ends. The report says a further release of crude reserves is possible.
“The officials are warning of an increase in prices this December when EU sanctions on Russian supplies take effect, unless other steps are taken, according to people familiar with the deliberations”
Cryptocurrency News
White House suggests enforcing “emergency operations procedures” for Bitcoin miners
- The White House released a report focusing on the impact of power-consuming cryptocurrencies on the environment.
- According to the report, the potential benefits of DLT technology must outweigh its environmental externalities.
- Bitcoin’s price has been disproportionate to the growing demand resulting in higher energy consumption and higher losses.
For a very long time, the environmental impact of cryptocurrencies and Distributed Ledger Technology (DLT) has been a matter of concern for environmentalists and governments around the world.
To deal with this, multiple guidelines and regulations have come up, but strict enforcement of rules is yet to appear. This is because the industry is technically still in its infancy, and understanding the pros and cons of DLT is taking time. On the same, the White House had an interesting take.