North American News
Strategic Investors Seize Opportunity as US Equities Rebound, Closing at Day’s Peak
- Tough to keep stocks down
Closing changes for the main US equity indexes:
- S&P 500 +0.9%
- Nasdaq Comp +0.5%
- DJIA +1.2%
- Russell 2000 flat
Berkshire Hathaway posts its highest ever quarterly operating profit
- Rising interest rates and dividend payouts and rebound in performance at Geico car insurer contributed to the record operating profit
Over the weekend, Berkshire Hathaway, led by Warren Buffett, recorded its highest-ever quarterly operating profit, reporting an overall profit of nearly $36 billion.The gains were boosted by stock holdings, rising interest rates, and increased dividend payouts.
Of note was the performance of Geico car insurer which significantly improved and contributed a 38% increase in profit for Berkshire’s insurance businesses compared to Q2 2022.
In the quarter, Berkshire’s
- Operating profit rose by 7% to $10.04 billion, up from $9.42 billion a year ago,
- Net income came in at $35.91 billion compared to a $43.62 billion loss in Q2 2022.
The company repurchased $1.4 billion in stock.Despite remaining a major net seller of stocks, it shed about $8 billion more stocks than it bought, which led to an increase in its cash stake to $147.4 billion as of June 30, up from $130.6 billion three months prior. That is near record high levels.
The results also included a full quarter of the truck stop operator Pilot, in which Berkshire owns an 80% stake, and which contributed $114 million to operating profit.
Buffett trimmed his Chevron estate by $1.4 billion to 19.4 billion at the end of June
US shelter inflation is likely to slow significantly over the next 18 months – S.F Fed
- Study from the San Francisco Fed
Fed officials have also acknowledged the lags in shelter pricing but are reluctant to express too much confidence in a return to target given their previous failings. In a note from the San Francisco Fed today, researchers lay out the pay of shelter inflation going forward and highlight a significant slowing.
In this Economic Letter, we forecast the path of CPI shelter inflation over the next 18 months by combining data from various market indexes that measure shelter inflation and housing markets. Our results suggest that the recent slowdown in asking rents and house prices is likely to slow shelter inflation significantly in the future, although substantial uncertainty surrounds these forecasts.
US July employment trends 115.45 vs 114.31 prior
- Data from the Conference Board
- Prior was 114.31 (revised to 113.56)
“The ETI ticked up in July after two months of decline, signaling continued job growth in the coming months,” said Selcuk Eren, Senior Economist at The Conference Board.“The Index peaked in March 2022 and has been on a slow downward trend since then but remains elevated and notably above pre-pandemic levels. We expect positive employment growth for the coming months even if the rate slows down.With continued strength in the labor market andelevated wage growth, we anticipate the Federal Reserve will raiseinterest target rates one more time”.
US home prices hit all-time highs
- High rates, no problem
Black Knight today reported that June US house prices rose 0.67% in the month after a 0.80% rise in May. They say the trend points to a 2% y/y price increase in July, if not higher.
“At the national level, home prices have now fully erased their 2022 corrections hitting new all-time highs in June on both seasonally adjusted and non-seasonally adjusted bases,” Black Knight writes. ” In fact, 60% of markets are now seeing prices above 2022 levels.”
Weak spots include Austin, San Francisco, Phoenix and Las Vegas while Hartford, Milwaukee, Philadelphia and Cincinnati are all up strongly compared to last year. That represents some mean reversion as the hottest markets from the post-covid period cool and those that had smaller booms continue higher.
“Broadly speaking, Midwest and Northeast markets are seeing the highestyear-over-year price gains, while West Coast and pandemic boom marketscontinue to see prices run below last year’s levels,” Black Knight writes. “Based on recent monthly trends, those West Coast markets are likely to begin climbing the ladder again in coming months.”
Manheim US July used vehicle price index -1.6% m/m
- Used car prices from Manheim
- July prices -1.6% seasonally adjusted
- Prices -3.8% non-seasonally adjusted
- Prices down 11.6% y/y
Yellow Corporation files for Chapter 11 bankruptcy in US District Court
- This is as expected
Yellow Corp, a 99-year-old trucking firm and the third largest less-than-truckload carrier in the U.S., has filed for bankruptcy.
This decision follows the Teamsters Union’s refusal to offer financial concessions to the struggling firm.About 22,000 Teamsters will lose their jobs.
The 99-year-old company was known for its cut-rate prices and has more than 12,000 trucks moving freight across the country for Walmart, Home Depot and many other smaller businesses.
Fed’s Bowman repeats that she expects additional rate increases
- Comments from Bowman
- Will be looking for evidence that inflation is on a ‘consistent and meaningful’ downward path in making decisions
- Inflation still significantly above 2% target
Fed’s Williams does not rule out possibility of rates cuts next year
- NY Fed president, John Williams, comments in the New York Times
- Inflation is coming down as hoped
- Expects unemployment to rise slightly as the economy cools, personally sees unemployment rate rising above 4% next year
- Does not rule out possibility of lowering rates in early 2024
- It all depends on the economic data
Commodities
Gold clears daily gains as USD bulls fight back
- Gold peaked at a daily high of $1,945 and then settled at $1,935.
- The USD recovered ground thanks to rising US Treasury yields.
- Investors continue to discount higher odds of the Fed not hiking for the rest of 2023.
At the start of the week, Gold prices slightly decreased as the recovery of the USD limits the upside potential. Markets are cautious ahead of critical inflation data on Thursday and continue to digest Nonfarm Payrolls (NFP) figures from Friday.
After NFPs revealed that job creation cooled down in July in the US, the USD faced severe selling pressure, and the DXY fell below 102.00. On Monday, the index recovered towards 102.10, as the Greenback traded strong against most of its rivals. Attention now turns to Thursday, when the US will report July’s inflation figures, where the Headline CPI index is expected to accelerate to 3.3% YoY and the Core CPI is seen falling to 4.7% in the same month.
Silver plunged below the 100-day SMA as the USD recovers
- Silver dropped to its lowest level since mid-July, near the $23.10 area, below the 100-day SMA.
- The USD gained traction on the back of rising US yields following Friday’s losses.
- All eyes are now on Thursday’s CPI data from July from the US.
On Monday, Silver spot price tumbled near the 100-day Simple Moving Average near the $23.20 area seeing more than 1.80% losses. Rising US yields and a stronger USD following Friday’s sell-off are mainly responsibles for the metal’s decline.
Oil: Year-end target of $100, upside beyond looks unlikely in 2024 – ANZ
Economists at ANZ Bank maintain their end of year price target of $100/bbl for Oil prices.
Oil’s last hurrah?
Supply cuts are finally tightening the Oil market. We now expect sharp drawdowns in inventories in the coming months. However, the recent rally in prices remains on shaky ground.
The supply tightness is largely managed by OPEC. Any sustained rally in prices is reliant on demand continuing to improve. For the moment, that appears to be the case. There is hope that recently announced stimulus measures can support further growth.
Over the medium term, some red flags that could cap this upside in prices are emerging. EVs in China are increasingly eating into Oil consumption. We expect lost Oil consumption from EVs to hit 260K b/d in 2023. That will reach 1.5M b/d by the end of the decade.
We maintain our end of year price target of $100/bbl; however, upside beyond this looks unlikely in 2024.
EU News
European equity close: Small changes so far this week
- Closing changes for the main European bourses
- Stoxx 600 +0.1%
- German DAX flat
- UK FTSE 100 +0.1%
- French CAC +0.2%
- Italy MIB -0.1%
- Spain IBEX -0.2%
Eurozone August Sentix investor confidence -18.9 vs -24.3 expected
- Latest data released by Sentix – 7 August 2023
- Prior -22.5
SNB total sight deposits w.e. 4 August CHF 492.9 bn vs CHF 490.1 bn prior
- Latest data released by the SNB – 7 August 2023
- Domestic sight deposits CHF 477.4 bn vs CHF 479.3 bn prior
Switzerland July seasonally adjusted unemployment rate 2.1% vs 2.0% expected
- Latest data released by the Federal Statistics Office – 7 August 2023
- Prior 2.0%
UK July Halifax house prices -0.3% vs -0.1% m/m prior
- Latest data released by Halifax – 7 August 2023
- Prior -0.1%
- House prices -2.4% y/y
- Prior -2.6%
Germany June industrial production -1.5% vs -0.5% m/m expected
- Latest data released by Destatis – 7 August 2023
- Prior -0.2%
BOE’s Pill: There are risks on both sides of UK inflation
- Comments from the BOE chief economist
- Risk inflation may fall below target in years
- There are also risks the UK hasn’t raised rates enough
- Food inflation is longer-lasting than past spikes
- Food price inflation will fall to 10% this year
Other News
Taiwan’s defense minister: 12 Chinese Air Force planes entered Taiwan’s air defense zone
- Geopolitical risk
Taiwan’s defense minister says that in the last 24 hours, 12 Chinese Air Force planes have entered Taiwan’s air defense zone
The BOJ Summary of Opinions from the last monetary policy meeting on July 27/28th
- The Summary of Opinions from the Bank of Japan’s July interest rate decision
- One member said BOJ needs to patiently continue with monetary easing toward achieving the price stability target.
- One member said there is still a significantly long way to go before revising the negative interest rate policy, and the framework of yield curve control needs to be maintained.
- One member said strictly capping 10-year Japanese Government Bond (JGB) yields at the 0.5 percent level could affect the functioning of bond markets and the volatility in other financial markets.
- One member said given that there are increasingly significant upside and downside risks to the outlook for prices, it is appropriate for the bank to conduct yield curve control with greater flexibility in order to respond to these risks.
- One member said the bank should conduct yield curve control with greater flexibility and thereby make preparations, so that it can successfully continue with monetary easing while nimbly responding to both upside and downside risks.
- One member said until the likelihood of achieving the price stability target rises sufficiently, the bank needs to maintain yield curve control while conducting it with greater flexibility.
- One member said in order to ensure that monetary easing can be continued smoothly for as long as necessary, it is desirable that the bank increase the flexibility of yield curve control to a certain extent in advance while it is able to do so.
- One member said to ensure monetary easing can be continued smoothly for as long as needed, it is desirable to increase flexibility of yield curve control to a certain extent in advance while it is able to do so without turmoil.
- One member said achievement of 2% inflation in a sustainable and stable manner seems to have clearly come in sight.
- One member said while conducting yield curve control with greater flexibility as a preventive measure against future risks, the bank should maintain its basic stance that it will continue with monetary easing.
- One member said allowing to some extent a rise in long-term interest rates in response to the price environment will make real interest rates stable and enable BOJ to contain side-effects.
- One member said it is appropriate for BOJ to conduct monetary policy that is designed to give consideration to market functioning while maintaining accommodative financial conditions.
- One member said in conducting yield curve control with greater flexibility, it is important to let rates be determined by markets as much as possible, prevent sharp fluctuations in rates.
- MOF rep said govt considers that the proposals made at this MPM are aimed at enhancing the sustainability of monetary easing.
- MOF rep said govt expects BOJ to conduct appropriate monetary policy toward achieving price stability target in a sustainable and stable manner while closely cooperating with govt.
- Cabinet Office rep said BOJ must carefully explain to the public its intention regarding changes proposed at this meeting.
- One member said as signs of change have been seen in firms’ wage- and price-setting behaviour, close monitoring is warranted on their effects on prices.
- One member said determining whether wage hikes will continue next year will be a key issue.
- One member said prices could deviate upward from BOJ’s baseline scenario as firms’ moves to pass on cost increases become widespread.
Japan June leading indicator index 108.9 vs 109.1 prior
- Latest data released by the Japanese Cabinet Office – 7 August 2023
- Coincident index 115.2
- Prior 114.3
Ftich weighs in on China local-government financing vehicles
- Fitch says Chinese authorities are likely to implement further measures to ease refinancing pressure at local-government financing vehicles (LGFVs).
- Fitch says we believe that the China central government will avoid a bailout of troubled LGFVs, as this could create moral hazard risk.
Cryptocurrency News
PayPal launches stablecoin
- PayPal tries to unseat Tether
PayPal USD has launched a stablecoin PYUSD.The coin is is issued by Paxos Trust Co and fully backed by US dollar deposits, short-term Treasuries and similar cash equivalents, the San Jose, California-based payments company said on Monday.It’s pegged to the dollar and will be gradually available to PayPal’s customers in the US.
This is the first major company that has launched its own stablecoin.
Hong Kong Securities Commission warns crypto exchanges against improper practices, derivatives trading
- China’s Special Administrative Region’s securities regulator has warned projects that derivatives and earning services on crypto exchanges are not allowed.
- Companies operating during the transition period may not be granted licenses if they violate regulations.
- Exchanges that have not applied for a license and are operating in Hong Kong are committing criminal offense.
Hong Kong’s securities regulator, the Hong Kong Securities Commission, has warned cryptocurrency exchanges that are operational within China’s Special Administrative Region (SAR) that derivatives and earning services are not allowed.
The regulator warned crypto exchanges that it is a criminal offense to operate without a license in Hong Kong.
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