Round up of today’s market news

North American News

US Stocks Wrap Up the Week with Gains and High Spirits

• Closing changes for the main indexes

Closing changes:

• S&P 500 +0.6%
• DJIA +0.7%
• Nasdaq Comp +.09%
• Russell 2000 +0.4%

On the week:

• S&P 500 +0.8
• DJIA -0.4%
• Nasdaq Comp +2.3%
• Russell 2000 -0.4%

July final UMich US consumer sentiment 69.5 vs 71.2 expected

• Final UMich consumer sentiment data for August 2023
• Prelim was 71.2
• Prior was 71.6
• Current conditions 75.7 vs 77.4 prelim (76.6 prior)
• Expectations 65.5 vs 67.3 prelim (68.3 prior)
• 1-year inflation 3.5% vs 3.3% prelim (3.4% prior)
• 5-10 year inflation 3.0% vs 2.9% prelim (3.0% prior)

Powell: We are prepared to raise rates further if appropriate, will proceed carefully

• Comments at Jackson Hole
• We will decide next move based on data
• Fed will proceed ‘carefully’ when deciding to hike again or hold steady
• Will decide next moves based on data
• Fed attentive to signs economy not cooling as expected
• Economic uncertainty calls for ‘agile’ monetary policy making
• Inflation remains too high
• Two months of good data are only the beginning of what we need to see to build confidence on inflation path
• Policy is restrictive but Fed can’t be certain what neutral rate level is
• Fed will not change 2% target
• Lowering inflation also likely to require a softer labor markets
• Signs job market not cooling could also warrant more Fed action
• Sees evidence inflation becoming more responsive to labor market

A review of the speech from Fed Powell by topics

• A look at the speech by topics

Decline in Inflation So Far: Review

1. Origins and Initial Actions:
   • High inflation resulted from strong demand meeting pandemic-limited supply.
   • The Federal Open Market Committee raised the policy rate in March 2022 to address inflation.
   • The goal was to slow demand growth, allowing supply to catch up.
2. Headline PCE Inflation:
   • Peaked at 7% in June 2022, then declined to 3.3% by July 2022.
   • Global events, like Russia’s war against Ukraine, influenced these changes.
   • Headline inflation reflects the direct experience of households and businesses.
3. Core PCE Inflation:
   • Excludes volatile food and energy prices.
   • Peaked at 5.4% in February 2022, then decreased to 4.3% by July.
   • Two months of positive data is just the start; more is needed to ensure sustainable decline.
   • The goal is to achieve price stability.
4. Core Goods Inflation:
   • Has seen a significant decline, especially for durable goods.
   • The motor vehicle sector exemplifies this trend, with prices spiking during the pandemic due to demand-supply imbalances.
   • As the pandemic’s effects lessen, supply improves, and demand decreases due to higher interest rates.
   • Restrictive monetary policy is essential for continued progress.
5. Housing Sector Inflation:
   • Interest rates greatly influence this sector.
   • Mortgage rates doubled in 2022, leading to decreased housing starts, sales, and house price growth.
   • Growth in market rents began to decline.
   • Measured housing services inflation, reflecting all rents, has started to decrease but lags behind market changes.
6. Nonhousing Services Inflation:
   • Makes up over half of the core PCE index.
   • Includes services like health care, food services, and transportation.
   • Inflation in this sector remained stable since liftoff but has shown a decline over the past three to six months.
   • This sector is less affected by global supply chain issues and is less sensitive to interest changes.
   • The labor-intensive nature of these services and a tight labor market have influenced inflation here.
   • Restrictive monetary policy will be crucial for balancing supply and demand, reducing inflation in this sector.

Outlook: A look ahead

1. General Perspective:
   • The unwinding of pandemic-related distortions will continue to reduce inflation, but restrictive monetary policy will play a significant role.
   • Achieving a 2% inflation rate will likely need a period of economic growth below the trend and some relaxation in labor market conditions.
2. Economic Growth:
   • Restrictive monetary policy has led to tighter financial conditions, pointing to growth below the trend.
   • Real yields have increased, bank lending standards have become stricter, and loan growth has decelerated.
   • Indicators like slowed industrial production growth and reduced residential investment expenditure suggest a slowing economy.
   • However, there are signs that the economy might not be cooling as anticipated, with GDP growth exceeding expectations and consumer spending being particularly strong.
   • A resurgence in the housing sector and consistent above-trend growth might necessitate further monetary policy tightening.
3. The Labor Market:
   • The labor market has been rebalancing over the past year, but the process isn’t complete.
   • Labor supply has improved due to increased participation from workers aged 25-54 and a return to pre-pandemic immigration levels.
   • The labor force participation rate for prime-aged women reached a record high in June.
   • Although job openings remain high, they are decreasing, and payroll job growth has significantly slowed.
   • Total hours worked have remained stable, and the average workweek has returned to pre-pandemic levels, indicating a normalization in labor market conditions.
   • Wage pressures have reduced, with wage growth slowing across various measures.However, real wage growth has been on the rise as inflation decreases.
   • The expectation is for the labor market rebalancing to persist.If labor market tightness doesn’t ease, it might necessitate a monetary policy intervention.

Uncertainty and Risk Management along the Path Forward: the Challenges

1. Inflation Target Commitment:
   • The inflation target is set at 2%.
   • The goal is to establish a monetary policy that is restrictive enough to reduce inflation to this target over time.
   • Determining when this stance is achieved in real-time is challenging.
2. Real Interest Rates and Policy Stance:
   • Real interest rates are currently positive and exceed mainstream estimates of the neutral policy rate.
   • The current policy is seen as restrictive, exerting downward pressure on economic activity, hiring, and inflation.
   • The exact neutral rate of interest is uncertain, leading to ambiguity about the precise level of monetary policy restraint.
3. Lags in Monetary Tightening Effects:
   • The effects of monetary tightening on economic activity and inflation are delayed.
   • Over the past year, the policy rate has been raised by 300 basis points, with a 100 basis point increase in the last seven months.
   • The size of securities holdings has also been significantly reduced.
   • The varied estimates of these delays suggest potential further impacts.
4. Supply and Demand Dislocations:
   • This cycle’s unique supply and demand imbalances complicate the effects on inflation and labor market dynamics.
   • Job openings have decreased without a corresponding rise in unemployment, indicating a significant demand for labor.
   • Inflation appears to be more sensitive to labor market tightness than in recent decades.
   • It’s uncertain whether these dynamics will continue, emphasizing the need for flexible policymaking.
5. Balancing Risks:
   • Policymakers face the challenge of weighing the risk of over-tightening monetary policy against under-tightening.
   • Insufficient tightening could lead to persistent above-target inflation, necessitating more aggressive measures that could harm employment.
   • Over-tightening could also damage the economy unnecessarily.

A September UAW strike is almost a sure thing

• This is a case of an unstoppable force hitting an immovable object

UAW workers are voting now to authorize a strike and the current tally is around 97%.
This is more of a procedural step to give union leadership the power to strike and was a sure thing.

The problem is that workers are asking for a lot in negotiations, and that’s not a surprise given inflation and given headlines about UPS drivers making $170K. Detroit is in better shape than a decade ago and the workers sense some leverage.

According to CNBC:

The union’s demands include a 46% wage increase, restoration of traditional pensions, cost-of-living increases, reducing the workweek to 32 hours from 40 and increasing retiree benefits.

Fed’s Mester: We probably still have more work to do

• Comments from the Fed’s Mester
• We have to be very diligent about this
• We don’t want to be satisfied because inflation remains too high
• We’ve had stronger underlying momentum since June forecasts
• We’ve made progress on inflation
• Core inflation over 4% is still too high
• Notes she doesn’t have cuts built in for next year but will watch the data
• It was ‘very good’ to see the recent numbers on inflation, but need to see more
• It’s very likely that we will need below-trend growth to get inflation under control
• Labor market is stronger than I would have anticipated given rates but pandemic effects are working their way through

Goolsbee: Still feels confident about reaching the “golden path” of a soft landing

• Talking on CNBC at Jackson Hole
• Feels confident about a soft landing
• Nothing has happened in the last 2 months to make me think that the “golden path” is not attainable
• I don’t like to speculate on the future Fed action
• It does feel like we are in a period where conditions continue to go as they have over the last couple of months, our argument will go toward how long do we keep rates at the same level
• We have a couple of good months on improvement in inflation
• There is still a long way to go
• So far it seems like credit tightening has not materialized from banking issues
• If the longer rates are going and it gives some constraint to the economy, maybe that is okay
• Rise in bond yields may not be issue for economy
• We can’t observe what the legs are we just have to wait and see
• We haven’t seen consumer spending deteriorate like you’d normally see given the rise in yields
• Some part of the consumer spending might be due to the pent-up demand from the supply constraints
• Inflation is really not down to 3%. There is energy that can move around a lot.
• I am in comfortable of declaring victory with inflation near 3%
• I don’t think you can change the inflation target until you hit it. I think you have to go all the way.
• I am willing to be patient in getting to a 2% target

Fed’s Harker says he doubt rate cuts are on the table until next year at some point

• No surprise

Harker was out with dovish comments earlier this week so I don’t expect anything new here:

• Repeats that he doesn’t see the need for more hikes now
• Hold rates steady and see how economy develops
• If inflation retreat stalls, it could call for more hikes

Canada prelim July wholesale sales +1.4%

• Advance reading from Statistics Canada

“The increase reflects higher sales in the motor vehicle and motorvehicle parts and accessories subsector and the building material and supplies subsector,” Statistics Canada said.

• Farm products (excluding oilseed and grain): 0.0%
• Food, beverage and tobacco products: +0.3%
• Personal and household goods: +1.1%
• Motor vehicles and motor vehicle parts and accessories: +5.8%
• Building material and supplies: +3.5%
• Machinery, equipment and supplies: -1.9%
• Miscellaneous goods: +0.4%

Commodities

Gold fall’s as US yields tick higher after Powell’s words

• Jerome Powell sounded cautious with a hawkish tilt, leaving the door open for another hike in 2023.
• Markets are price back chances of a hike in November.
• Higher US yields opened the downside to the yellow metal.

On Friday, the Gold Spot price faced selling pressure after Jerome Powell’s words at the Jackson Hole Symposium. The spot trades near the $1,910 area, where the 20 and 200-day Simple Moving Average (SMA) are about to perform a bearish cross.

Chair Powell stated that the Federal Reserve needs to be cautious regarding the next meetings.
He commented that the economy hasn’t cooled down as expected and that the bank will maintain its restrictive policy until it shows signs of cooling down. As he pointed out in July, it will all come down to the incoming data. The Fed will get an additional Nonfarm Payrolls and inflation report from August, and those data points will help investors model their expectations.

WTI crude futures settle at $79.83

• Up $0.78 or 0.99%

The price of WTI crude oil futures are settling at $79.83.That’s up $0.78 or 0.99%.

For the week, the price-1.03% or $-0.87 (at current levels). It is the 2nd consecutive week to the downside after last week’s decline of -3.04%.

Looking at the chart above, at the lows this week, the price found support near the $77.30 – $77.59 swing area. The high price today was able to get above it 200-hour moving average but installed near the low of a swing area near $80.45. In between sits the $79 level which has seen a number of swing lows and swing highs going back in time.

That range between $77.30 and $81.08 will be late in trading next week for bias clues. Moving above $81 area, and the bias is more bullish. Moving below $77.30, and the bias is more bearish.

An oil ICYMI – US administration in talks with Venezuela about boosting supply

U.S. officials are proposing to ease sanctions on Venezuela’s oil sector if the country moves towards free elections.

If sanctions are eased it’d allow more US firms, and others, to import Venezuelan crude.

Media reports on this cite unnamed sources. It does make sense that the Biden administration would seek to allow further imports of oil from the country. Prior to sanction Venezuela was producing circa 2mn bbls/day, currently its around 750K

Baker Hughes total rigs down to 632 from 642 last week

• Baker Hughes recount continues to move lower
• Oil rigs moved from 520 to 512 or -8 rigs
• Natural gas rigs moved from 117 to 115 or -2 rigs
• Total rigs moved from 642 to 632 or -10 rigs

Citi says OPEC may need to to cut again, “fragile five” now adding to output

Citi commodity analysts say OPEC may need to think about further cuts to oil output.

Info comes via a Bloomberg report (gated), main points:

• the “fragile five” (Iran, Iraq, Libya, Nigeria and Venezuela) have struggled with output losses and disruptions for the past few years, but will be adding around 900K barrels a day of production this year, and at least the same again next year
• will be sources of growth for five, four years — or maybe even longer in the case of Iraq and Venezuela
• while growth in oil demand will be constrained by fading expansion in China
• thus the core OPEC+ countries have a problem, and Saudi Arabia and its Persian Gulf allies may face pressure to cut output further

EU News

European indices snapped back higher into the close and end the day positive

• Modest gains for the major indices in Europe

The major European indices rebounded into the close and in doing so moved into positive territory. A snapshot of the market closing levels shows:

• German DAX, up 10.35 points or +0.07%
• Frances CAC, up 15.14 points or +0.21%
• UK’s FTSE 100 up 4.93 points or +0.07%
• Spain’s Ibex up 14.20 points or +0.15%
• Italy’s FTSE MIB, +0.36%

At session lows,

• German DAX was down -42.51 points
• Frances CAC was down -17.63 points
• UK’s FTSE 100 was down -6.67 point
• Spain’s Ibex was down -16.79 point

Germany Q2 final GDP 0.0% vs 0.0% q/q prelim

• Latest data released by Destatis – 25 August 2023

• GDP (non-seasonally adjusted) -0.6% vs -0.6% y/y prelim
• GDP (seasonally adjusted) -0.2% vs -0.2% y/y prelim

Germany August Ifo business climate index 85.7 vs 86.7 expected

• Latest data released by Ifo – 25 August 2023

• Prior 87.3; revised to 87.4
• Outlook 82.6 vs 83.8 expected
• Prior 83.5; revised to 83.6
• Current conditions 89.0 vs 90.0 expected
• Prior 91.3; revised to 91.4

Belgian August business sentiment -14.9 vs -14.8 prior

• Belgian business sentiment data

Belgian business sentiment is a leading indicator and it ticked slightly lower in August.

ECB Lagarde: Need to set rates at sufficiently restrictive level for as long as necessary

• ECB’s Lagarde highlights changes due to energy transition and labour market changes
• Energy transition and climate change is triggering profound transformations in energy markets
• We are seeing profound changes in the labour market and the nature of work
• If we face both higher investment needs and greater supply constraints, we are likely to see stronger price pressures
• We need to set rates at sufficiently restrictive levels for as long as necessary to achieve a timely return of inflation to our 2% medium-term target
• “Pretty confident” that by end-2023 inflation numbers will look different
• Disinflation has to be ‘timely’ and ‘sustainable’
• German growth not broken and demonstrating resilience
• Proximity to war in Ukraine part of the reason for differing economic paths for US and Europe
• Changing inflation target would be ‘deceptive’ and counter to anchoring expectations

ECB’s Vujcic says eurozone inflation has most likely peaked

Boris Vujčić is Governor of the Croatian National Bank and thus an European Central Bank Governing Council member.

• Eurozone economy is basically stagnating
• Inflation has most likely peaked
• Need to seen whether rates are restrictive enough

Other News

China reportedly plans to cut stamp duty on stock trading in bid to recover sentiment

• Reuters reports, citing three people with knowledge on the matter

It’s been an extremely rough last few weeks for Chinese equities as the dominoes appear to be falling in the property sector. It is now being reported that China is planning to try and provide some help with authorities looking to cut the stamp duty on domestic stock trading by as much as 50%. The draft proposal had already been submitted and a decision could be made and announced as soon as later today.

China’s CSRC met pension funds, big banks, major insurers to increase equity investments

China’s securities regulator, China Securities Regulatory Commission, confirmed it was encouraging medium and long-term investors, such as state pension funds and wealth management funds, to increase their equity investments.

The CSRC said it met with pension funds, big banks and major insurers.

Japan data – July PPI Services (Corporate Services Price Index) +1.7% y/y (expected 1.3%)

July 1.7% y/y, a decent sized jump:

• expected 1.3%, prior 1.4%

BOJ to keep policy as it is until at least July 2024 – poll

• The findings from Reuter’s latest poll on economists on the BOJ

• 5% (1 of 22) expect BOJ to start unwinding ultra-easy policy this year
• 55% expect that to happen some time after July next year
• 73% expect the BOJ to end yield curve control some time next year

Japan is considering fuel price relief measures

A few comments from Japanese officials on fuel prices. There is nothing concrete and these may not mean much beyond seeking to calm nerves over high fuel prices, not helped by a weak yen of course (Japan imports are more expensive with the slide in the yen).

Japanese Industry Minister Nishimura was asked about fuel subsidies and responded that he will work with ruling parties and urgently consider measures to help the public.

Cryptocurrency News

BTC miners dump over 2,800 BTC in 24 hours as Bitcoin price dips below $26,000

• Bitcoin price has failed to recover from the more than 11% crash, resulting in the cryptocurrency trading at $25,899. 
• Bitcoin mining difficulty is at its all-time high, which is a good sign for the network but not for the miners.
• To adjust the losses borne from BTC crashing, miners are shedding from their reserve, selling $72 million worth of BTC in a day.

Bitcoin price crash brought losses to everyone – investors and traders and did not even spare miners. The people who have been validating the blocks on the network bore the brunt of the market as they faced unprecedented losses, forcing them to move to sell for a long time.

Bitcoin price crash causes distress to miners

Bitcoin price had been hovering around $30,000 before it crashed this month, and at the time of writing, the cryptocurrency could be seen under the $26,000 mark.The biggest cryptocurrency in the world has already failed all its attempts to chart a recovery and is presently declining further below the lows of the August crash.

Binance terminating P2P service with five sanctioned Russian banks does not mean absolution from US regulators

• Binance exchange will no longer let clients pay one another through certain banks in Russia.
• The exchange had been accused of helping the country’s citizenry move crypto worth $428 million monthly.
• The exchange has attributed the move to a regular system update in compliance with local and global regulatory standards and sanctions rules.

Binance has resolved to delist several Russian banks from its peer-to-peer (P2P) service only three days after reports that the exchange was helping the country’s citizenry to move a monthly sum of $428 million. Considering the US sanction against Russia still stands, the exchange broke the law by facilitating the transactions.

Binance ends P2P services with select Russian banks

Binance will no longer offer its P2P services to five select banks in Russia, all sanctioned, after a longstanding business with the financial institutions moving millions of dollars worth of Rubles through the service.

Follow our recently launched pages. Join our community and never miss a beat in the dynamic world of trading.

https://www.facebook.com/BilalsTechLtd

https://www.linkedin.com/company/bilals-tech/