North American News
Market Milestone: Dow Celebrates 13 Consecutive Winning Sessions in US Equity Close
- What a run
Unveiling the Dow Jones Industrial Average: A controversial measure of the US stock market, yet the past 13 Sessions showcase a spectacular streak, rewarding investors with a solid 4.9% rally despite some close calls along the way.
Closing changes:
- S&P 500 -0.01%
- Nasdaq -0.16%
- DJIA +0.23%
It’s the longest winning streak since 1987.
Federal Reserve interest rate decision: 25 bps rate hike to 5.25-5.50%
- Highlights from the Federal Reserve rate decision
- 25 bps rate hike
- economic activity has been expanding at a moderate pace (vs modest pace prior)
- Repeats forward guidance that refers to “the extent of additional policy firming that may be appropriate”
- No other changes to the statement
This statement is virtually identical to the prior one, save for the shift to a ‘moderate’ pace of growth from ‘modest’. I thought the Fed may change the line that “inflation remains elevated” to indicate some progress but it’s the same.
The implicit signal here is that the plan is to continue hiking at every-other meeting and the market is pricing in a 16% chance of a hike in September and 40% chance in November.
Powell opening statement: The full effect of our tightening has yet to be felt
- Highlights of the Federal Reserve decision press conference with Chair Jerome Powell
- Without price stability, the economy doesn’t work for anyone
- We’ve covered a lot of ground and the full effect of our tightening has yet to be felt
- Still a strong pace of jobs growth
- Labor demand still ‘substantially’ exceeds supply
- The process of getting back to 2% inflation “still has a long ways to go”
- Strongly committed to getting inflation back to target
- We have been seeing the effects of our policy on demand, particularly in most rate-sensitive sectors. It will take time to be felt
Powell Q&A: We’re going to be going meeting-by-meeting
- Comments from Powell
- Inter-meeting data was broadly in line with our expectations
- CPI was a bit better than expectations
- We haven’t made any decisions about future meetings
- We’re looking for moderate growth, we’re looking for a better balance in supply and demand, particularly in labor market
- We get 2 more jobs and CPI reports before the Sept meeting
- It is certainly possible that we would hike in Sept, also possible we would hold
- June CPI is just one reading
- We will be looking at everything in deciding on what to do next, growth and inflation very closely but inflation in particular
- How do you balance the risks of doing too much or too little? I would say “we’re coming to a place” where there are challenges on both sides
- We need to see inflation is durably down
- We think core inflation is a better signal of where core inflation is going
- We want to see core inflation coming down
- There are reasons to see core coming down but it’s still quite elevated
- The historical record suggests softening in labor market conditions so that’s still the likely outcome
- The worst outcome for everyone would be to not deal with inflation and not get it done
- Whatever the short term costs of getting inflation down, they outweigh the longer-term costs of not getting the job done
- Monetary policy is restrictive, moreso today after today
- Inflation has proved, repeatedly, stronger than we and other forecasters expected
- Doesn’t expect end of Ukraine grain deal to have a material effect
Fed takeaway: Powell wants to keep September in play
- The market has it priced a bit right but it will hinge on data
Two CPI reports, two non-farm payrolls reports.
Those are the big numbers that Fed Chairman Jerome Powell highlighted between now and the September 20 FOMC decision. The market is pricing in just a 20% chance of a hike, reasoning that even if the data is warm, the Fed can wait until November. And by November, the market is optimistic that something will cool, with only a 40% chance of a hike priced in.
The overall tone from the Fed and Powell was data dependence but he did make a push to keep September in play and I wonder if more officials try to highlight that in ahead of the week ahead, then manage further commentary after the August 10 CPI report.
Atlanta Fed GDPNow model for Q2 growth unchanged at 2.4%
- This is the final estimate for the 2Q. US Advanced GDP for Q2 will be released on Thursday
The Atlanta Fed GDPNow Q2 estimate comes in at 2.4%, unchanged from the prior model estimate.In their own words:
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2023 is 2.4 percent on July 26, unchanged from July 19 after rounding.After recent releases from the US Census Bureau and the National Association of Realtors, the nowcast of second-quarter real residential investment growth decreased from 0.1 percent to -0.1 percent.
US MBA mortgage applications w.e. 21 July -1.8% vs +1.1% prior
- Latest data from the Mortgage Bankers Association for the week ending 21 July 2023
- Prior +1.1%
- Market index 206.9 vs 210.7 prior
- Purchase index 159.2 vs 163.2 prior
- Refinance index 444.5 vs 446.4 prior
- 30-year mortgage rate 6.87% vs 6.87% prior
US June new home sales 697K vs 725K expected
- US June 2023 new home sales data from the Census Bureau
- Prior was 763K (revised to 715K)
- Single family sales -2.5% vs +12.2% prior
- Median sale price $415.4K vs $416.3K a year ago
- Supply months 7.4 vs 6.7 months prior
WSJ Timiraos: Fed Officials have been burned on inflation and that curbs enthusiasm
- Fed will not get too far ahead of ski’s on inflation
The Fed will likely announce a 25 basis point hike at 2 PM ET, and if Timiraos is right, will continue to be cautious about prospects for inflation. Employment remains solid. Unions are going after employers and getting wage concessions.Housing is more of a supply issue. Stocks and the wealth effect from it will likely also keep the economy going. Fiscal spending is continuing to be expansionary.
BlackRock says markets underestimate inflation’s persistence, Fed hike and hold rates high
BlackRock preview what they expect from the Federal Open Market Committee (FOMC) on Wednesday, 26 July 2023 and further ahead:
- “Central banks are set to hike policy rates this week. Markets expect rate cuts to soon follow due to cooling inflation, whereas we see central banks holding tight”
- “The Fed and European Central Bank will likely raise interest rates again this week. We see the Bank of Japan opting to keep policy loose to sustain inflation.”
- “We favor U.S. inflation-linked bonds as markets underestimate inflation’s persistence.”
Justin Trudeau announces cabinet shuffle
- Bill Blair takes charge of defense, while Arif Virani becomes justice minister in Trudeau’s minor cabinet shuffle.
- Bill Blair takes over as defense minister
- Anita Anand goes from defense to Treasury board
- Sean Fraser named housing and infrastructure minister
- Arif Virani to be justice minister
- No changes in finance, foreign, innovation or natural resources ministries
BOC minutes: Debated not hiking at the July 12 meeting
- Minutes from the latest Bank of Canada meeting
- Consensus among BOC members was that the cost of delaying action was greater than the benefit of waiting for more data
- Agreed they were prepared to hike further if needed but ‘did not want to do more than they had to’
- Concerned that progress towards price stability could stall and inflation could rise again if upside surprises materialize
- Felt the data clearly indicated that excess demand and core inflation were proving to be more persistent than expected
- Core inflation measures suggest the return to 2% inflation will take longer than anticipated
- Agreed that household consumption should moderate as higher rates take effect
- Felt it was too early to tell whether wage growth was easing
Commodities
Gold whipsawed but leans towards trendline support on Fed hike
- Fed hikes rates by 25bps as expected.
- Gold price whipsawed in Fed volatility as the market awaits Fed’s chair, Powell.
- Gold price leans towards trendline support, $1,963 and $1,975 are the breakout levels.
The Gold price has been whipsawed after the Federal Reserve, Fed, raised its interest rate decision by a 25 bps rate hike to 5.25-5.50%, as expected. At the time of writing, Gold is volatile between $1,973 and $1,965 so far as the market digests the statement and key points as follows:
Silver soars following Chair Powell’s press conference
- XAG/USD jumped towards $24.90, its highest in six days.
- The Fed delivered a 25 bps hike as expected, but Chair Powell didn’t commit to further hikes.
- USD weakness and falling US yields allowed the metal to gain ground
In the middle of the week, the XAG/USD pair is trading strong, showing 0.88% of gains so far this day.
As the market expected, the Federal Reserve (Fed) effectively raised the interest rate by 25 basis points.
Fed’s Chair Jerom Powell emphasized that “a rate hike in September is possible, but also stated that it is possible not to raise rates”.
Powell also highlighted the importance of ‘meeting by meeting’ as the following decisions will be based on the data that comes out.
EIA weekly US crude oil inventories -600K vs -2348K expected
- US crude oil inventories see smaller-than-expected decrease, leading to decline in oil prices.
- Prior was -708K
- Gasoline -786K vs -1678K expected
- Distillates -245K vs -301K expected
- Refinery utilization -0.9% vs +0.1% expected
- Production estimate mbpd 12.2 mbpd vs 12.3 mbpd prior
- Implied mogas demand: 8.94mbpd vs 8.86mbpd prior
EU News
Eurozone June M3 money supply +0.6% vs +1.0% y/y expected
- Latest data released by the ECB – 26 July 2023
- Prior +1.4%
Broad money growth in the euro area is shrinking faster than expected and this just adds to more concerns surrounding a credit crunch impacting the economy. As the ECB seeks to tighten further, this is definitely a risk that they have to consider in the months ahead.
Switzerland July Credit Suisse investor sentiment -32.6 vs -30.8 prior
- Latest data released by Credit Suisse and CFA Society Switzerland – 26 July 2023
- Prior -30.8
France July consumer confidence 85 vs 86 expected
- Latest data released by INSEE – 26 July 2023
- Prior 85
Deutsche Bank expect European growth only a little above stagnation over next few quarters
On Tuesday the European Central Bank released its latest Bank Lending Survey. Deutsche Bank says its been keeping a close eye on lending standards for evidence of monetary policy lags. On the latest report:
- On the downside, the BLS showed the sharpest decline in demand in loans by enterprises in the survey’s history since 2003. The share of rejected corporate loans also rose.
- But on the upside, the pace of tightening in credit standards moderated (bear in mind the previous survey was conducted just after the March banking stress). And most encouragingly, banks expect credit conditions to improve closer to neutral settings in Q3.
- Overall, while the pace of the tightening in credit conditions may be passing its peak, the tightening that’s already been delivered will weigh over the next few quarters. Our economists expect European growth to remain only a little above stagnation over the next few quarters, not least as they see limited room for excess savings to buffer the impact from credit tightening. They also see the survey as consistent with corporates being more exposed than households to the transmission of higher rates.
Other News
What China’s politboro offered for the economy
- China’s politboro offers mixed signals on stimulus measures, leaving market participants skeptical about the effectiveness of growth-boosting promises.
Commodity currencies are soft today and that’s in large part due to a soft Australia CPI but risks are growing towards some disappointment in the commodity market itself after China’s politboro sent mixed signals on stimulus.
Officials committed to boosting stimulus measures, adopting a proactive fiscal stance and prudent monetary policy to address the nation’s economic challenges. Policy changes include tax and fee reductions, local government bond issuances, and a shift in housing policy. The removal of President Xi Jinping’s earlier stance that “houses are for living, not for speculation” has spurred a rally in property shares.
Officials said they plan to boost consumption in sectors like automobile, electronics, and tourism but there won’t be vouchers for consumers, instead it appears there will be some incentives aimed at producers and that could go awry.
Japan official citing BOJ’s Ueda says long-term yields remain stable under YCC
- The headlines via Reuters
- BOJ to maintain accommodative monetary policy environment for firms
- Yen exchange rate against dollar slightly volatile partly due to interest rate differentials
IMF warns of upside risk to Japan inflation, urges BOJ to start preparing for tightening
- IOMF says loose Bank of Japan policy is still appropriate but to begin planning an exit
The International Monetary Fund’s chief economist Pierre-Olivier Gourinchas spoke on Tuesday, at a news conference held after the release of the IMF’s updated World Economic Outlook report.
- “Right now, the risk is probably on the upside, that maybe inflation pressures will continue to remain above the target”
- “Our advice for Japanese authorities there is that right now, monetary policy can remain accommodative, but it needs to prepare itself for the need to maybe start hiking”
- encouraging the BoJ to “be a bit more flexible and maybe move away from the yield-curve control that it has now.”
Australian Q2 Headline CPI 0.8% q/q (vs. 1.0% expected)
The weighted median:
- 1.0% q/q vs. expected 1.1% and prior 1.2%
- 5.5% y/y vs. expected 5.4%, prior 5.8%
Australian Treasurer Chalmers says there is a long way to go to beat inflation
Australian Treasurer Chalmers speaking after the CPI data published earlier today:
- says there is a long way to go to beat inflation
- inflation is moving in the right direction
Cryptocurrency News
LDO price falls 6% as Lido Finance members push for dual governance model
- LDO price is down 6% to $1.90, wiping out the last bit of gains made during the July 13 XRP-infused rally.
- The slump comes as Lido Finance considers rolling out a new tokenomics structure for a dual governance model.
- The proposal could confer to LDO holders staking on Ethereum blockchain veto power on governance proposals.
Lido DAO (LDO) price is on a load-shedding exercise after the July 13 rally fueled by Ripple’s win against the US Securities and Exchange Commission (SEC). The slump comes as the Lido Finance community deliberates a proposal intended to introduce a new tokenomics structure.
Lido Finances deliberates new tokenomics structure
Lido DAO (LDO) price is down 6%, wiping out the last bit of the ground covered when the overflows of Ripple’s partial victory over the SEC inspired capital inflows into altcoins. Riding on the hype, an influx of buying pressure among LDO holders sent Lido price up almost 35% to record an intra-day high of $2.52 on July 14. Nevertheless, it has been a gains-shedding exercise since then as profit-taking ensued.
Federal Reserve raises interest rates by 25 bps, Bitcoin price floats above $29,000
- The Federal Reserve ended up hiking interest rates by 0.25%, as expected, bringing the Fed Funds target rate to 5.25% – 5.50%.
- The central bank noted that it remains committed to returning inflation to its 2% objective.
- Bitcoin price observed no significant reaction as it continued to trade above $29,300.
The Federal Reserve lived up to its promise of raising interest rates despite hitting a pause at the last meeting.The Federal Open Market Committee (FOMC) today announced a 0.25% rise in the Fed Funds target rate to 5.25-5.50%.In its policy statement, the Fed reiterated that policymakers would continue to assess incoming data in terms of its implications for policy moving forward.
Bitcoin price reacts to Federal Reserve raising interest rates
The rate hike brought interest rates in the US to a 22-year high, as the last time they stood at these levels was back in January 2001. In line with the hike, the United States central bank stated,
“In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
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