Round up of today’s market news

North American News

US Stocks End Week in the Red as Late Sell-Off Leads to Negative Close

• Closing changes for the main US equity market indexes
• S&P 500 -0.5%
• DJIA -0.5%
• Nasdaq Comp -0.4%
• Russell 2000 -0.2%

On the week:

• S&P 500 -2.3%
• DJIA -0.5%
• Nasdaq Comp -2.8%
• Russell 2000 -1.2%

US July non-farm payrolls +187K vs +200K expected

• July 2023 US employment data from the non-farm payrolls report
• Prior was +209K (revised to +185K)
• Two-month net revision -49K vs -6K prior
• Unemployment rate 3.5% vs 3.6% expected
• Prior unemployment rate 3.6%
• Participation rate 62.6% vs 62.6% prior
• U6 underemployment rate 6.7% vs 6.9% prior
• Average hourly earnings +0.4% m/m vs +0.3% expected
• Average hourly earnings 4.4% y/y vs +4.2% expected
• Average weekly hours 34.3 vs 34.4 expected
• Change in private payrolls +172K vs +179K expected
• Change in manufacturing payrolls -2K vs 5K expected
• Household survey +268K vs +273K prior

JPMorgan chief economist no longer expects a US recession

• Long time economist Michael Feroli no longer sees US economy contracting

JPMorgan economists now no longer expect a US recession ‘this calendar year’.

Apple share slump weighs on the broader market

• Shares of Apple down 4.6%

Amazon shares surged higher today on strong cloud revenue but Apple posted slowing sales, including of the iPhone and that has led to a heavy round of profit taking.Shares are down 4.6%.

Here is a sense of how revenues have trended in the past year, despite an inflationary environment:

• Rev.: $81.8B, -1% y/y
• iPhone: $39.7B, -2% y/y
• Mac: $6.8B, -7% y/y
• iPad: $5.8B, -20% y/y
• Services: $21.2B, +8% y/y

Fed still on track for a September hike after non-farm payrolls – CIBC

• The rates market disagrees

CIBC continues to believe the Federal Reserve will raise rates by 25 basis points once again in September.

The below consensus hiring and past downward revisions suggests that the labor market is coming into better balance. Still, the drop in the unemployment rate and solid wage growth will keep the Fed on track for a 25bp hike in September.

The rates market is pricing in just a 13.5% chance of a Sept hike now and around 35% for November. The decision isn’t until September 20 so we will get another non-farm payrolls report and two CPI reports leaving plenty of time for markets and economists to shift positions.

CIBC notes that the composition of hiring may be showing weakness:

More than half of the job growth in the month came from the Education and Health Care sector (+100K). Hiring in this sector has likely been aided by investment from state and local governments that are flush with cash. But there was a generally weaker trend across most other sectors across. In particular, employment in transportation/warehousing dropped for the second consecutive month, information saw its third straight decline and temporary help payrolls fell for the fifth consecutive month.

US autoworkers union wants a 40% pay rise from Detroit automakers

The US United Auto Workers Union with a 40% pay hike claim.

Wall Street Journal reporting:

• union conveyed this demand to the automakers this week, according to people with knowledge of the matter, along with a list of other items they plan to press for at the bargaining table
• The 40% pay hike would be a general increase over the life of the next four-year contract, although it is still not clear how exactly it would be applied, the people say.

UBS says markets are vulnerable to signs of no soft landing

Snippet from UBS Global Wealth Management hinting at market complacency:

• Markets are already pricing in a soft landing, and increasingly with the belief that relatively little growth pain is required for inflation to gradually return to 2%,”
• The markets are vulnerable to any signs that the economy, with the Fed’s steering, is at risk of not sticking to that soft landing.

Fed’s Goolsbee: The July non-farm payrolls report is pretty much what we expect

• Comments from the Chicago Fed President
• Jobs market cooling a bit but still extremely strong
• Goods inflation has been tough to bring down
• Highlights improvements in US productivity as disinflationary
• Fed has to be patient, monetary policy has lags
• Question should be: How long are we going to stay at these levels, not about when the next hike will be
• Holding rates at these levels is increasing restriction
• We have been getting promising numbers on inflation

Fed’s Bostic: Fed likely to be in restrictive territory well into 2024

• Comments from the Atlanta Fed President
• Fed on trajectory to get to 2% inflation
• Jobs numbers came in as expected, I’m comfortable

Canada July employment change -6.4K versus 21.1 K estimate

• Canada July 2023 employment report
• Prior report 59.9K
• Employment change for July -6.4K vs 21.1K estimate
• Unemployment rate 5.5% vs 5.5% expected.
• Last month unemployment rate was at 5.4%.
• 3rd consecutive monthly increase
• Full time employment 1.7K vs 109.6K last month
• Part-time employment -8.1K vs -49.8 K last month
• Participation rate 65.6% vs 65.7% last month
• Average hourly earnings 5.0% versus 4.2% (revised from 3.9%) last month
• Total hours worked were virtually unchanged in July and were up 2.1% on a year-over-year basis

Some other highlights:

• Employment in construction fell by 45,000, a 2.8% decrease.
• Public administration saw a decrease of 17,000 employees, a 1.4% drop.
• The information, culture, and recreation sectors lost 16,000 workers, a 1.8% reduction.
• There was a 1.3% decrease in transportation and warehousing employment, equating to 14,000 jobs.
• Health care and social assistance saw an increase of 25,000 employees, a 0.9% rise.
• Employment in educational services rose by 19,000, an increase of 1.3%.
• Finance, insurance, real estate, rental, and leasing sectors gained 15,000 jobs, a 1.1% increase.
• Agriculture employment rose by 12,000, a substantial 4.6% increase.

Detailed summary of the unemployment rate:

• The unemployment rate increased 0.1 percentage points to 5.5% in July, following increases in May and June.This marks the first three-month consecutive rise since the early months of the COVID-19 pandemic.
• The unemployment rate for female youth (aged 15 to 24) rose 1.5 percentage points from April to July, reaching 10.3%.
• During the same period, the unemployment rate for core-aged women and women aged 55 and older increased by 0.8 percentage points, to 5.0% and 4.3% respectively.
• There was negligible change in the unemployment rate for men across all age groups.
• In July 2023, over half (53.6%) of the unemployed had been outside the labor force prior to becoming unemployed, while 38.7% had lost or left a job.
• The remaining 7.7% of the unemployed were either on temporary layoff or waiting to start a new position, figures that have barely changed from the previous year.

Canada July Ivey PMI 48.6 vs 50.2 prior

• Canadian manufacturing survey
• Prior was 50.2
• Non-seasonally adjusted at 45.2 vs 53.4 prior

Commodities

Silver recovers some ground as doji emerges and is subject to remaining subdued

• Silver stages a modest recovery after July’s US jobs data missed estimates, trading at $23.57, bouncing off the 200-day EMA at $23.18.
• Technical outlook shifts to neutral-upward bias, as the metal remains above the 200-day EMA and July 6 low of $22.53.
• Key resistance lies at the 100-day EMA at $23.67, followed by the 50 and 20-day EMAs at $23.90 and $24.07 respectively.Support is found at the 200-day EMA and $23.00 mark.

Silver price is staging a slight recovery on Friday after US jobs data for July missed estimates, spurring XAG/USD’s bounce at around the 200-day Exponential Moving Average (EMA) at $23.18 a troy ounce as US Treasury bond yields tank. The XAG/USD is exchanging hands at $23.57 after hitting a daily low of $23.23.

Eyes on $83.53 as WTI crude threatens to hit the highest since November

• WTI crude up $1.56

A Friday afternoon is no time for a breakout but oil is going to be in focus next week, especially if the US dollar continues to retreat. The big level to watch is $83.53.

If that breaks, we’re at the highest since November.

Baker Hughes US oil rig count -4

• US drilling rigs continue to fall

• Oil rigs 525 vs 529 prior
• Gas rigs 128 vs 128 prior

ICYMI – Russia to cut oil exports by 300,000 barrels per day in September

ICYMI, Russian Deputy Prime Minister Alexander Novak jumped on the bandwagon:

“Within the efforts to ensure the oil market remains balanced, Russia will continue to voluntarily reduce its oil supply in the month of September, now by 300,000 barrels per day, by cutting its exports by that quantity to global markets,”

OPEC+ JMMC makes no recommendation on oil output policy – report

• Reuters report

At this point we’ve already heard from Saudi Arabia and Russia about their policies for September so there’s not much for the JMMC to say.

EU News

European equity close: A positive finish to the week

• Closing changes for the week ending August 4, 2023

• Stoxx 600 +0.3%
• German DAX +0.4%
• FTSE 100 +0.5%
• French CAC +0.8%
• Italy MIB -0.2%
• Spain IBEX +0.7%

Weekly:

• Stoxx 600 -2.5%
• German DAX -2.5%
• FTSE 100 -1.6%
• French CAC -2.1%
• Italy MIB -2.9%
• Spain IBEX -3.2%

Eurozone June retail sales -0.3% vs +0.2% m/m expected

• Latest data released by Eurostat – 4 August 2023
• Prior 0.0%; revised to +0.6%

UK July construction PMI 51.7 vs 48.0 expected

• Latest data released by S&P Global – 4 August 2023
• Prior 48.9

Germany July construction PMI 41.0 vs 41.4 prior

• Latest data released by HCOB – 4 August 2023
• Prior 41.4

Germany June industrial orders +7.0% vs -2.0% m/m expected

• Latest data released by Destatis – 4 August 2023
• Prior +6.4%; revised to +6.2%

BNP Paribas lowers BOE terminal rate forecast to 5.50%

• The firm previously saw a peak of 5.75% in the bank rate

This comes after the policy meeting yesterday, so BNP is saying that they are only seeing one more rate hike to go for the BOE. In terms of market pricing, the OIS market is seeing a peak in rates at 5.70% at the moment.

Underlying inflation has likely peaked in 1H 2023 – ECB

• ECB comments in an article

• Median and mean underlying inflation measures suggest that underlying inflation has likely peaked in the first half of 2023
• Most measures of inflation were showing signs of easing
• The latest inflation data for July was broadly in line with expectations

Other News

Biden to issue executive orders to screen outbound investment to China

• Reuters is reporting

According to sources cited by Reuters, U.S. President Biden plans to sign an executive order early next week to scrutinize outbound investment to China. Previously, the Financial Times reported that the Chair of the House China Committee, Mike Gallagher, is urging the President to restrict additional U.S. investment in Chinese stocks and bonds. Gallagher emphasized that the impending executive order should not only cover direct investments from private equity and venture capital groups, but should also include U.S. participation in Chinese public markets.

The regulations are not expected to go into effect right away.

PBOC official says will use monetary policy tools flexibly for reasonably ample funds

PBOC official:

• RRR cuts, open market operation, MLF, and all structural monetary policy tools needs to be used flexibly to maintain liquidity in banking system reasonably ample
• Will guide banks to effectively adjust mortgage interest rates and support banks to reasonably control cost of liabilities
• NDRC will strengthen policy reserve to unleash huge market potential

Chinese authorities say they’ll be inspecting more financial firms

China’s Global Times says:

• Shanghai’s securities regulator will conduct on-site inspections of securities companies
• Such as Morgan Stanley Securities, Changjiang Financing Services
• Targeting employee management, anti-money laundering

Chinese financial authorities say small firms, individual investors still face difficulty

China Ministry of Finance news conference.

Says small firms, individual businesses still facing difficulties.

Chinese authorities conducted an inspection of Morgan Stanley this week

Chinese authorities conducted an inspection at Morgan Stanley Securities offices on Monday.

Citing anti-money laundering, investor suitability.

Japan banking regulator says sees no big impact from BOJ shift for now

• Remarks by Japan’s financial regulator chief, Teruhisa Kurita

Kurita is the new head of the FSA and he mentions that:

“With long-term interest rates staying around 0.6%, I don’t think it will have much of an impact on Japanese banks.Unless rates surge in a short period of time in Japan the way they did in the US, I believe the banks can handle the situation.”

China’s Ministry of Commerce said it would drop tariffs on Australian barley imports

Anti-dumping and anti-subsidy tariffs on Australian barley imports were slapped on by China 3 years ago.

China’s Ministry of Commerce announced on Friday an end to the punitive tariffs. The tariffs will be dropped starting tomorrow, Saturday, 5 August 2023.

RBA Statement says rates may need to go higher, full impact of rises so far not yet felt

• Reserve Bank of Australia SoMP

The Reserve Bank of Australia Statement on Monetary Policy (SoMP).

Headlines via Reuters:

• Some further tightening may be required
• Board considered raising rates at August meeting, decided stronger case was to hold steady
• Policy has been tightened significantly, full impact has yet to be felt
• Board mindful of lags in policy, painful financial squeeze on some households
• Board keen to preserve gains made in labour market
• Tightening couldprovide some further insurance against upside inflation risks

RBA trims GDP growth and inflation forecasts for end 2023, most others little changed

• Forecasts GDP end 2023 0.9%, end 2024 1.6%, end 2025 2.3%
• Forecasts CPI at end 2023 4.1%, end 2024 3.3%, end 2025 2.8%
• Forecasts unemployment end 2023 3.9%, end 2024 4.4%, end 2025 4.5%

The RBA’s Statement on Monetary Policy:

• It outlines the bank’s views on domestic and international economic conditions.
• also provides an analysis of the bank’s policy decisions and an outlook for inflation and output growth.
• published quarterly
• It typically includes:
  • An overview of the global and domestic economic situation, which incorporates various factors such as growth, inflation, employment, and monetary and fiscal policies of key countries.
  • Information about financial markets, which details changes in asset prices, exchange rates, and monetary policy settings worldwide.
  • Domestic economic conditions, which provides a comprehensive analysis of key indicators including GDP, consumer spending, business investments, the labor market, and housing market.
  • Forecasts for domestic economic activity and inflation, typically for a period of two years ahead. And an assessment of the balance of risks surrounding these forecasts.

Cryptocurrency News

Bitcoin options worth $530 million set to expire on Friday without bear market end in sight

• Bitcoin price remains largely unchanged at $29,100, with weekly option implied volatility at 25%.
• Half a billion dollars worth of expiring Bitcoin options contracts have a maximum pain point of $29,500, signaling the level at which losses will be incurred.
• The put/call ratio is 0.38 for Friday’s expiry, meaning long positions are paying for shorts.

Bitcoin price is at a six-week low as BTC options contracts worth $530 million are set to expire on Friday.
The maximum pain point or the price at which the contracts would incur the highest financial losses is $29,500.

Interestingly, the notional value of the Bitcoin options contracts set to expire on August 4 is considerably lower than last week’s $2.09 billion.

TRON’s Justin Sun says Ethereum Layer 2 Arbitrum, Optimism have performed well in shrinking DeFi ecosystem

• JPMorgan’s analysts reported that the overall DeFi ecosystem is in a shrinking mode since the spread of the CRV contagion.
• TRON’s Justin Sun argued that TRON ecosystem and Ethereum Layer 2 networks Arbitrum and Optimism have seen a rise in total value locked.
• Curve Finance founder, Michael Egorov, sold 106 million CRV in OTC deals in exchange for $42.4 million so far, fighting the CRV liquidity crisis.

The contagion from the Curve Finance exploit is spreading throughout the DeFi ecosystem. JP Morgan’s team of analysts led by Nikolaos Panigirtzoglou penned a report on the state of DeFi and said that the ecosystem is in a shrinking or stalling mode.

In response to the report, TRON’s founder Justin Sun argued that Ethereum Layer 2 projects Arbitrum (ARB), Optimism (OP) and the asset Tron (TRX) have beat the DeFi contagion, driving more assets and value to their ecosystem.

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