North American News
US Markets Take a Day Off in Observance of Labor Day
‘Fed Watch’ tool now shows more than 90% chance the FOMC remains on hold in September
The next Federal Open Market Committee (FOMC) decision is due on September 20 and will also include and updated Summary of Economic Projections.
The CME ‘Fed Watch’ tool shows markets are pricing a 93% probability of no change to to the Fed Funds rate at this meeting.
Nouriel Roubini says an equity market drop of 10% is not “totally unlikely”
Roubini was speaking with Bloomberg TV on Friday. Says that if economic data points towards weakness and central banks keep raising rates then H2 could bring a 10% ‘correction’ for stock markets.
- a 10% correction is not “totally unlikely”
- “With core (inflation) being still high in the U.S., UK, Europe, and central banks hiking somehow more, I would not be surprised within the second half of the year to get the 10% correction in global equity markets,”
BlackRock’s Rieder thinks there will be no further Federal Reserve FOMC rate hikes
BlackRock’s chief investment officer in global fixed income Rick Rieder after the US jobs report on Friday:
- “The Fed should be done. You can put your shoulder behind a bit more of interest-rate exposure than has been the case certainly over the last few months.”
The data is here ICYMI:
Rieder says the Federal Open Market Committee (FOMC) can stop hiking now, although its set to hold rates high.
- “26 million jobs …” (created in the US over the past 3 years or so) ” is like adding an economy the size of Australia or Taiwan (including every man, woman, and child),”
- “Remarkably, 22 million people were hired between May 2020 and April 2022, and 11 million were added to the workforce from June 2021 to May 2023, as the economy has opened up massive amounts of roles for fulfillment,”
- expects wage pressures to ease
- should make the Fed feel more confident in “the permanence of lower levels of inflation,” so that it can slow or stop its interest-rate rises by year-end
Biden Expresses Unusual Optimism in Address on Autoworker Strike in Philadelphia
President Joe Biden delivered a Labor Day speech in Philadelphia today, where he struck an unexpectedly optimistic tone regarding the ongoing negotiations with autoworkers. In a conversation with reporters, President Biden expressed confidence that a strike is unlikely to occur, stating, ‘I’m not worried about a strike. I don’t think it’s going to happen.’
His remarks come amidst negotiations between autoworkers and major automotive manufacturers, a topic of significant concern for the labor force and the broader economy. President Biden’s optimism reflects his administration’s efforts to promote labor rights and positive relations between workers and employers, particularly on a day dedicated to celebrating the American workforce.
Hedge funds have ditched short bets against US regional banks – Goldman Sachs
- Goldman Sachs weighs in on the matter in their latest note
The firm says that hedge funds have dropped short trades on US regional banks as of the end of August and instead have now turned bullish on the broader US financial sector in general. The note is from Goldman’s prime brokerage desk, which serves hedge funds, and says that US financial services companies (including banks) were among the most sought-after stocks last week.
Meanwhile, they find that the ratio of long trades compared with short positions on US regional banks has risen by 26% since the low of the year at around mid-July.
Commodities
Gold price consolidates due to extended weekend, higher Fed pause bets
- Gold price juggles below the $1,950.00 resistance as the focus shifts to the US Services PMI.
- US markets will remain closed on Monday on account of Labor Day.
- Cooling labor market conditions boost the Fed’s hopes of a soft landing.
Gold traded back and forth from the past four trading sessions even though cooling labor market conditions boosted the Federal Reserve’s soft landing hopes.A softening job market could mean that the Fed’s interest rate hike in July was the last one in the current policy tightening spell. The precious metal remains calm, but a power-pack action is expected after the release of the Services PMI data on Wednesday.
US markets will remain closed on Monday on account of the Labor Day holiday, so a lackluster performance is widely anticipated due to thin trading conditions.Going forward, investors hope that both price and the US Dollar can deliver gains as strength in the US Dollar would shift from the Fed’s tight policy to the vulnerable economic outlook of other G7 economies.
Oil Records Eighth Consecutive Gain, Achieves Highest Closing Price Since November
While most markets remained closed today, electronic trading saw WTI crude continuing its impressive run, with a 38-cent rise to $85.93. This marks the eighth consecutive day of gains, catching the attention of market observers.
The market’s optimism is buoyed by significant drawdowns in visible inventories, coupled with low stockpiles of gasoline and diesel. Despite OPEC+ production cuts, the decline in US drilling rigs signals a newfound commitment to production discipline.
In the short term, Russia’s recent hints of an extension to the OPEC+ production agreement later this week have added to the bullish sentiment. While specific parameters are yet to be defined, the unity within the group remains strong, a reflection of the current pricing environment.
From a technical perspective, short-term indicators may suggest overbought conditions, but many see this as a potential breakout from the 10-month trading range, further fueling the optimism in the oil market.
ICYMI – Saudi Arabia’s Aramco considers selling (listing) US$50 Billion in shares
The Wall Street Journal reported that Saudi Arabia’s Aramco, the world’s most valuable oil company, appears to be considering selling a stake of as much as $50 billion.
The Journal cites “people familiar with the potential deal” for the info. The 50bn cited would be the largest offering in the history of capital markets.
Says the WSJ piece:
- after months – long consultations with advisers, the kingdom has decided to host any new Aramco offering on the Riyadh exchange to avoid legal risks associated with an international listing
- final decision hasn’t been made on the timing of the deal, but some of the people familiar with the transaction say the kingdom could offer the shares before the end of the year
- Aramco has been sounding out potential investors
Notably, the Journal adds that “similar previous plans have fallen through”.
EU News
European equity close: Sluggish finish after a good start
- Closing changes as the week gets underway in Europe
European equities opened the week with some nice gains but they slowly evaporated before some heavier selling in the final hour.
Closing changes:
- Stoxx 600 -0.2%
- German DAX -0.2%
- UK FTSE 100 -0.2%
- French CAC -0.3%
- Italy MIB -0.1%
- Spain IBEX -0.4%
Eurozone September Sentix investor confidence -21.5 vs -20.0 expected
- Latest data released by Sentix – 4 September 2023
- Prior -18.9
SNB total sight deposits w.e. 1 September CHF 467.6 bn vs CHF 471.4 bn prior
- Latest data released by the SNB – 4 September 2023
- Domestic sight deposits CHF 458.0 bn vs CHF 461.7 bn prior
Switzerland Q2 GDP 0.0% vs +0.1% q/q expected
- Latest data released by the Federal Statistics Office – 4 September 2023
- Prior +0.3%
Germany July trade balance €15.9 billion vs €18.0 billion expected
- Latest data released by Destatis – 4 September 2023
- Prior €18.7 billion; revised to €18.8 billion
ECB’s Lagarde: It’s critical for central banks to keep inflation expecations anchored
- Comments from Lagarde
- It is exactly when people are paying most attention that central banks should deliver their key communication to ensure that those expectations remain firmly anchored
- It will be critical for central banks to keep inflation expectations firmly anchored while these relative price changes play out
Morgan Stanley forecasting that the European Central Bank will stop raising interest rates
- Morgan Stanley were expecting an ECB rate hike at the September ECB meeting but now says the rate hike cycle is over
Morgan Stanley has changed their forecast for the ECB. Analysts at the bank were expecting an ECB rate hike at the September ECB meeting but now says the rate hike cycle is over.
Morgan Stanley cite data showing services inflation slowing in the euro area (drop in August services inflation to 5.5% from 5.6%), and also signs of a quickly deteriorating economy.This will see ECB policymakers pause at this month’s meeting. MS had previously been expecting a hike at this meeting to be the ECB’s last, but says now the hiking cycle is over, the terminal rate has been reached at 3.75%’
ECB’s Wunsch says underlying inflation remains persistent, may need more rate hikes
- European Central Bank Governing Council member Pierre Wunsch spoke on Saturday.
The European Central Bank may need to raise interest rates further according to ECB Governing Council member Pierre Wunsch, who spoke on Saturday in a radio interview.
Wunsch said there are signs that price pressures are dissipating, but the ECB’s 2% target rate won’t be hit before 2025. Given the persistence of inflation:
- “I’m inclined to say we maybe need to do a little bit more”
- The “idea that we’ll have to come to a pause at a certain point can’t be excluded” he said,. but its too early to talk about stopping hiking completely
Other News
Central bank policy decisions in focus this week
- The central bank bonanza returns in September
The two big ones to watch this week are the RBA (tomorrow) and the BOC (Wednesday). Both major central banks are expected to keep their respective policy rates unchanged at 4.10% and 5.00% respectively.
For the RBA, this will be Philip Lowe’s last policy meeting as governor before handing over the post to Michele Bullock from September onwards. The latest developments and language guidance have steered markets accordingly to not expect a rate hike for tomorrow. The odds priced in are ~99% for no change.
Meanwhile, the BOC is facing a tough challenge as economic conditions are starting to take a noticeable hit recently. That is enough to convince traders not to expect any more rate hikes by the central bank, with odds of a no change decision this week at ~98% currently. According to the OIS market, we are at peak interest rates in Canada but traders have not gotten too aggressive to price in any rate cuts just yet with the earliest hint only coming in October next year.
There will be bigger fish to try later this month in relation to the central bank bonanza. So, the two this week aren’t really expected to be too impactful for markets and broader sentiment in general.
ICYMI: China president Xi is expected to skip upcoming G20 summit
- There are a host of speculative reasons why and they’re mostly not good from a geopolitical perspective
For some context, this will be the first time that Xi is skipping a G20 summit since taking charge of China in 2012. And what makes this rather eyebrow raising is that it just comes right after his trip to South Africa for the BRICS summit. Here’s some speculative reasons why:
- Perhaps Xi wants to avoid further scrutiny on China’s economy, where he will likely be posed tough questions on how Beijing is dealing with things back home and how he plans to turn things around; or
- Xi is offering a show of support to Putin, who will also not be attending the summit, and he would also like to dodge any allegations and pressures during the event related to the Russia-Ukraine conflict; or
- Recent China-India tensions are weighing on his mind and with the summit to be held in India, this is a vote of no support towards Modi and in some ways is an attempt to undercut him
Perhaps it is all of the above put together in bits and pieces. Adding to that will be the US’ own agenda to try and poke and prod at Xi on the Taiwan situation as well. So, take your pick.
China state planner says will set up a special bureau for development of private economy
The vice chair of China’s state planner, the National Development and Reform Commission of the People’s Republic of China (NDRC), says the country’s central government approved setting up a special bureau within the NDRC for the development of the private economy.
- the department will be the Private Economy Development Bureau.
- will focus on strengthening policy coordination in the private economy
Moody’s cut its China economic growth forecast for 2024 to 4% (from 4.5% previously)
Moody’s rating agency has downgraded its GDP forecast for China next year:
- the 2023 forecast remains at 5%
- 2024 cut to 4% from 4.5% the firm was expecting previously
Moody’s reasoning that:
- China is facing “considerable growth challenges” stemming from weak business and consumer confidence amid economic and policy uncertainty, continued property sector woes and an aging working population.
- “Data from China suggest that the economic recovery from a prolonged zero-COVID policy remains muted, as the reopening momentum seen in March, April and May appears to be waning.”
- “We believe that low consumer confidence is holding back household spending, and economic and policy uncertainty will continue to weigh on business decisions”.
Australian Q2 2023 Business Inventories -1.9% q/q (vs. expected +0.4%)
April – June quarter data from Australia.
Business Inventories -1.9%
- expected 0.4%, prior 1.2%
- the surprise drop in this will drag down Q2 GDP by around 1%
Gross Company Profits -13.1% q/q
- expected -1.9%, prior +0.5%
- mining company profits slumped, dragging down this number
Company Profits Pre-Tax -14.6% q/q
- prior -7.5%
Also published were Australian ANZ Indeed Job Advertisements for August: -1.9% m/m
- prior +0.7%
- for the y/y -7.7% (note they are up more than 50% compared with pre-pandemic numbers)
Australian Melbourne Institute Inflation for August 2023: 0.2% m/m (prior 0.8%)
Australian Melbourne Institute Inflation gauge for August 2023 rose 0.2% m/m in August (July was + 0.8%)
And for the y/y, a jump to 6.1%
prior 5.4%
New Zealand Q2 terms of trade +0.4% q/q (expected -1.3%)
New Zealand Q2 terms of trade +0.4% q/q
- vs. expected -1.3%, prior -1.5%
Export prices -0.6% q/q
- expected -2.1%, prior -6.9%
Import prices -1.0% q/q
- expected -1.4%, prior -5.4%
Japan August monetary base +1.2% y/y (prior -1.3%)
Cryptocurrency News
BTC Derivatives Signal Bearish Turn as Investor Sentiment Sours Despite ETF Hopes
The optimism surrounding Bitcoin’s potential spot exchange-traded fund (ETF) has dimmed, with BTC derivatives data pointing towards a potential correction down to $22,000. Despite Grayscale’s much-celebrated legal victory against the United States Securities and Exchange Commission (SEC) on August 29th and the subsequent anticipation for spot BTC ETFs, the overall mood in the market appears to have soured.
Bitcoin’s price chart reflects this changing sentiment, with a notable absence of the bullish momentum many had hoped for. The SEC’s decision to delay multiple spot BTC ETF requests has raised concerns about whether the prospects of an ETF can outweigh the growing risks. As Bitcoin’s derivatives market takes a bearish turn, the $22,000 level is increasingly seen as the next logical step in its price trajectory.
Shiba Inu Price Faces Caution from Traders Amidst Cautious Approach to Shibarium
- Shiba Inu price is yet to catch up with the rising on-chain activity on Layer 2 chain Shibarium.
- The total value of assets locked on Shiba Inu’s scaling solution is lagging behind, while a million SHIB wallets engage with Shibarium’s bridge.
- SHIB price has yielded 4% losses for holders over the past week.
Shiba Inu price is struggling to catch up with the activity on its Layer 2 chain Shibarium. After a botched launch of the scaling solution Shibarium, there has been a lag in the total value of assets locked (TVL) on the chain.
At the time of writing, TVL is $1.04 million, down from $1.27 million on August 28, based on data from DeFiLlama.
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