Round up of today’s market news

North American News

Apple’s Stock Dips Following Latest iPhone Announcement at US Equity Close

• Tech lags, energy leads

Closing changes:

• S&P 500 down 0.5%
• DJIA flat
• Russell 2000 flat
• Nasdaq Comp -1.0%

AAPL stock falls to fresh session low after latest product announcements

• Shares of Apple down 2.5%

AAPL stock is under pressure following the announcement of the iPhone 15 and a new Apple Watch.
The 2.5% decline in the shares following the event is a session low and highlights something of a ‘sell the fact’ reaction. It’s something we’ve seen before following events, particularly with the difficulty of crafting new and novel technology.

Apple announced two new high-end iPhones: the iPhone 15 Pro and 15 Pro Max.They’re made of titanium, they have a new ‘Action Button’. The feature replaces the ring/silent switch and hardly sounds like a reason to shell out the $999 or $1199 for the Pro Max. Another notable change is a switch in a USB-C charging port from Lightning in order to comply with EU rules.

US sells 10-year notes 4.289% vs 4.289% WI

• Result of the $35 billion, 10-year note auction
• Prior was 3.999%
• Bid to cover 2.52 vs 2.56 prior

US CPI Preview: Forecasts from 10 major banks, strong headline with rising energy prices

Headline is expected at 3.6% year-on-year vs. 3.2% in July, while core is expected at 4.3% YoY vs. 4.7% in July. On a monthly basis, headline and core CPI are seen at 0.6% and 0.2%, respectively.

TDS

We expect the report to provide additional evidence that the core segment has taken a step down in terms of sequential price gains: We are projecting another 0.2% MoM increase, which would mark the core’s third consecutive month running at that pace. On the contrary, headline CPI inflation likely accelerated to 0.6% MoM largely as a result of surging gasoline prices in August. We are assuming a very strong 11% jump for the latter, though a chunk of that increase reflects an unfavorable seasonal adjustment. In YoY terms the headline CPI will likely rise to 3.6% from 3.2% in July, while the core segment will actually lose momentum, dropping to 4.3% from 4.7% YoY. 

RBC Economics

We expect headline CPI to tick up to 3.6% YoY in August, up from 3.2% in July. This increase is almost entirely explained by higher global energy prices. Aside from energy, US price pressures have eased substantially in recent months. Food price growth has moderated sharply and we look for ‘core’ (ex-food & energy) price growth to slow to 4.3% YoY in August from 4.7% the month before. That will drop the measure further below a 6.6% peak in September last year.

NBF

The energy component is likely to have had a sizeable positive impact on the headline index given the sharp rise in gasoline prices during the month. This, combined with another healthy gain in shelter costs, should result in a 0.6% increase in headline prices.If we’re right, the YoY rate could move up from 3.2% to 3.7%, marking the biggest increase in nearly a year and a half for this indicator.The advance in core prices could have been more subdued (+0.3% MoM) thanks in part to a decline in the price of used vehicles. This monthly gain should allow the annual rate to come down three ticks to 4.4%, its lowest level in nearly two years.

Citi

We expect a stronger increase in core inflation in August after two consecutive 0.16% MoM increases, with core CPI rising 0.3% MoM. However, at 0.252% MoM unrounded, core CPI would be close to printing another 0.2% increase, albeit still a stronger gain compared to June and July. We also expect some further slowing in shelter prices with 0.44% primary rents and 0.46% owners’ equivalent rent. Meanwhile, headline CPI should rise a strong 0.6%, the strongest increase since June 2022. This will be due to both a rise in retail gas prices and further strength in other energy components like utility gas.

ING

For inflation, we look for fairly big jumps in August’s MoM headline readings with upside risk relative to consensus predictions. Higher gasoline prices will be the main upside driver, but we also see the threat of a rebound in airfares and medical care costs, plus higher insurance prices. These factors are likely to also contribute to core CPI coming in at 0.3% MoM rather than the 0.2% figures we have seen in the previous two months. Slowing housing rents will be evident, but it may not be enough to offset as much as the market expects.Nonetheless, the year-on-year rate of core inflation will slow to perhaps 4.4%.We are hopeful we could get down to 4% YoY in the September report and not too far away from 3.5% in October. We would characterise this relatively firm MoM inflation prints as a temporary blip in what is likely to be an intensifying disinflationary trend.

Wells Fargo

We forecast core CPI gained 0.18% in August, equating to a 4.3% YoY rate.If realized, the Fed would achieve its elusive 2% target on a three-month annualized basis.Within core, commodities and shelter likely propelled the deceleration. However, we expect a roughly 10% jump in gas prices to lift the headline rate to 0.6%.This would mark the largest monthly jump in headline CPI in over one year, bringing the YoY headline rate to 3.6%.Despite recent progress in core inflation, it strikes us as unlikely that the Fed will be able to meet its 2% target on a sustained basis over the next couple of quarters.Although we expect core goods prices to decline in August, the disinflationary momentum from normalizing commodity prices is set to fade. The drag from health insurance prices will also likely come to an end in October, setting up core inflation for an acceleration in Q4.

CIBC

The August CPI will be the final piece of the puzzle for the Fed ahead of its September meeting. We expect the last few soft readings to start to form a trend, with core CPI in August expected to come in at a meagre 0.1% MoM as the easing supply chains will weigh further on core goods prices. We look for service prices to remain firm given solid demand but will be around the pace in recent months.Favourable base effects will also help push the 12-month change in core inflation down meaningfully to 4.2%.Headline CPI will tick up on higher gasoline prices to 3.5%. Given the Fed is sitting in a data dependent position and will continue to weigh risk management considerations heavily, a downside surprise should be slightly bullish for fixed income markets.

Deutsche Bank

Since gas prices have risen nearly 7% in August, headline CPI (+0.61% DB forecast vs. +0.17% previously) will see its largest monthly increase since June 2022. However, core (+0.22% vs. +0.16% last month) is likely to remain relatively becalmed.On these estimates, the YoY number for core CPI inflation should fall 0.4pp to 4.3%, whereas headline would rise 0.4pp to 3.7%, the highest for three months.With core inflation still relatively subdued, we think the positive momentum should continue, with the three-month annualised rate falling by about 90 bps to 2.2%, while the six-month annualised rate should fall by 50 bps to 3.6%. In both cases that would be the lowest since early 2021. So for now the strong headline print should be offset by the positive news on core. However, the risk is always that the longer headline edges up, the more risk of second-round effects down the road. 

Danske Bank

While higher energy prices likely lifted headline CPI by 0.5% MoM (3.6% YoY), we look for another low core CPI print at 0.2% MoM (4.3% YoY).

ANZ

We forecast US core CPI to rise by 0.2% MoM in August.Higher energy prices should result in the headline CPI rising by a more substantive 0.5% MoM.

There’s an upward bias to the consensus numbers:

Poll: Most economists see Fed waiting until at least end of March before cutting rates

• Reuters poll of Fedwatchers
• 94 of 97 economists see no Fed change this month
• 58 of 87 see Fed waiting until at least end of March before cutting
• Bigger risk is that first Fed cut comes later than expected, according to 23 of 28 economists
• 17 of 97 economists expected at least one more hike before year end
• Poll sees unemployment rate averaging 4.3% in 2024

Walmart CEO says he feels ‘pretty good’ about second half

• Comments from the CEO of the world’s largest retailer

• US consumers are looking for some relief in prices
• US consumers have held up better than expected

Here were recent comments from Bank of America president of regional banking Dean Athanasia along the same lines. He was asked about the consumer:

Yes, consumer spend right now, I mean, we — our economists have pushed things out. So GDP not seeing a downturn, consumer spending not seeing a downturn out to 2025. So if you look at our economists, that’s what they’re looking at. So we — when I look at the data in the consumer bank, I see our clients are still holding, versus pre pandemic, about 27% more cash in their accounts on average. It’s more acute on the lower end. They’re holding between $2,500 to $5,000, on average, more cash in their accounts on the credit side.They’re still paying off their credit cards.I don’t know what the last group said here. But for our group, in our specific client base, they’re paying off at a higher rate than they ever have before. Still, it’s pretty high, it’s 4 percentage points higher than it was pre COVID. So they’ve got — that denotes solid quality there and they’re spending at about a 5% clip. So we see that maybe coming down a little bit, but they’re still spending at a pretty good clip and they’re sort of averaging down to where they were pre COVID.So in terms of consumer spending, that’s what we’re seeing.Again, this is across 64 million households out there and client base that we have. And so those are all the activities going up. They’re in good shape, and they’re angling down. They’re spending a little bit of it, but they still have, on the lower end, probably 2 to 3x more cash than they had pre COVID.

It’s a million-dollar question. Where we think it will last by the way looking at from the — sort of the economy, it’s a slow travel down on the consumer side. They’re bringing in more cash. There is plenty of jobs out there.Obviously, they’re dealing higher interest rates, but they’ve got higher wages.They still have a lot of job openings out there. They can find employment and the cash is still coming in. So, I would say, slow angling down, getting to more normalized period out into first quarter of 2024, but you’re just going back to where we were sort of pre-COVID where we had moderate 2%, 3% growth in deposits and things like that revert back into that type of economy.

US August NFIB small business optimism index 91.3 vs 91.9 prior

• Latest data released by NFIB – 12 September 2023

The reading is once again below the 49-year average of 98, with this being the 20th month in a row at that. NFIB does note that Q3 economic conditions are looking good with September “needing to be an exceptionally bad month to negate the solid economic data that came out of July and August”.

US wage rises continue – California fast food workers to get a $20 minimum wage

I doubt this will impact the Federal Open Market Committee (FOMC) September decision, due on the 20th, but it all goes into the mix.

Morgan Stanley say its lonely being bullish US Treasuries, advise to buy the dips

Morgan Stanley is bullish US bonds but would like clients to join them:

• “They say it’s lonely at the top.”
• “The same can be said for being bullish on bonds at the highs in yield. We stand alone, with conviction, telling investors to buy government bonds.”
• “We continue to suggest investors adopt an overweight stance on government bond duration”
• “Market extrapolation of strong growth into the long term via higher long-term real rates may not pan out, leaving the rise in long-end yields vulnerable to a correction.”

Goldman Sachs says to shrug off higher yields, may not hold back tech stock rally

Goldman Sachs:

“Indeed, yields on 10-year Treasuries ranged between 4.5% and 7% back in the late-1990′s in the years when the Nasdaq posted significant outsized gains (CPI inflation was also in a similar range as today, if not lower)”

ICYMI – CEO of Barclays says near the end of the FOMC hiking cycle

Barclays is beginning its cycle of slashing jobs, Chief Executive Officer C.S. Venkatakrishnan was probably relieved to be speaking about something else. Headline comments from Monday ICYMI:

• ‘We are near the end’ of the Fed’s monetary actions
• Underlying economic trends in the US are healing

Goldman Sachs CEO: The chance of a soft landing has risen very meaningfully

• Comments from DJ D-Sol in a Reuters interview
• Chance of a soft landing has increased ‘very meaningfully’
• Economic outlook still uncertain
• The Fed still has work to do on inflation
• Inflation likely to be more sticky versus optimistic views

Former IMF official rings alarm bell on US dollar – US needs to “get its act together”

An interesting piece on what could bring down the USD:

• Whether the dollar retains its global role will depend not simply on the United States’ relations with Russia, China, or the BRICS countries.Rather, it will hinge on whether the US brings its soaring debts under control, avoids another unproductive debt-ceiling showdown, and gets its economic and political act together more generally.

The writer is Barry Eichengreen, Professor of Economics and Political Science at the University of California, Berkeley, and a former senior policy adviser at the International Monetary Fund.

Eichengreen does not see an imminent end to dollar dominance. However:

• History confirms that international currency status can be lost

and goes on to outline the demise of the UK pound sterling

• But whether that happens depends on the actions of the issuing country, not simply on geopolitical circumstances beyond its control.
• To a significant extent, the twentieth-century history of global currency status is a history of the British pound sterling, the leading global currency of the preceding century.Britain emerged from World War I economically and financially weakened. It had lost skilled manpower, sold off assets to finance the war effort, and now faced intense competition from other economies

US bank economists see a slower US economy, no recession, & 100bp of Fed cuts from May ’24

The latest from the American Bankers Association’s Economic Advisory Committee

• composed of 14 chief economists from some of North America’s largest banks

Forecasts, in brief:

• real economic growth slowing to less than 1.0% annualized over the next three quarters
• median committee forecast does not include any quarterly contractions
• considerable concerns about a mild recession remain – risks center primarily around the delayed impact of monetary tightening, deteriorating credit availability, and high credit costs, but also include event risks such as a prolonged government shutdown or renewed flaring of geopolitical tensions. The group consensus is that near-term recession risks have come down but are still significant for 2024, approaching 50%.

Commodities

Silver holds above $23.00 ahead of US inflation data

• Silver wanders around $23.00, but the bullish momentum seems weak.
• A stronger USD and yields remaining high don’t allow precious metals to make a significant upwards move.
• All eyes are on Wednesday’s US CPI figures from August.

On Tuesday’s session, Silver’s spot price traded neutral around $23.00, mainly limited to a strong USD whose DXY index jumped to a high of 104.90 and US yields slightly increased.

WTI crude oil rises to a fresh 10-month high

• WTI crude up $1.08 to $88.35

WTI crude oil is trading at the highest since November after some modest resistance at the recent high of $88.07 gave way.The fresh high is $88.45 with little now standing in the way of $90 and beyond.

The IEA has grabbed some headlines today, writing that demand for natural gas, oil and coal will all peak before 2030.That’s sooner than projections a year ago because of new renewable technologies and changes in technology.

“In the last 10 years China accounted for about one-third of the growth in natural gas demand globally and two-thirds of the growth in oil demand,” IEA leader Faith Birol said. “Solar, wind and nuclear power will be eating up the potential growth of coal in China.”

Unfortunately the IAE has a spotty track record when it comes to predictions and has undershot real-world demand for more than a decade. It’s unlikely the report will have any effect on near-dated oil prices, which are responding to a shortfall in the market of around 2 million barrels per day.

EIA boosts 2023 world oil demand growth but cuts 2024 forecast

• The latest from the US EIA’s STEO report
• Sees world oil demand 50k bpd higher this year
• Sees demand 250k bpd below previous levels next year
• Sees 2023 demand up 1.81 mbpd
• Sees 2024 demand up 1.36 mbpd
• Global oil inventories forecast to fall by 0.2 million b/d in the fourth quarter of 2023
• forecast U.S. gasoline consumption will average 8.9 million b/d in 2023
• And 8.7 million b/d in 2024. The 2024 forecast is down by 0.2 million b/d from our August STEO due to lower working age population.

EU News

European equity close: Germany lags while the UK leads

• Closing changes in the main European bourses for the day

• Stoxx 600 -0.2%
• German DAX -0.5%
• Francis CAC -0.35%
• UK’s FTSE 100 +0.5%
• Spain’s IBEX +0.3%
• Italy’s FTSE MIB +0.2%

BP CEO Bernard Looney to resign

• Intrigue around the 53-year-old CEO of the second-largest company in Europe

The CEO of BP is resigning less than four years into the job. The 53-year-old is stepping down after spending his entire career with the energy giant.

Looney suddenly found himself offside of the prevailing thinking in oil and gas as he pledged to reduce output and invest in clean energy. Those plans of have since been scaled down amidst pushback to Looney.

The FT reports that his departure was due to ‘past personal relationships with colleagues’. Shares of the company have fallen since the disclosure and are flat on the day despite a 1.7% rally in oil prices.

Germany August wholesale price index +0.2% vs -0.2% m/m prior

• Latest data released by Destatis – 12 September 2023
• Prior -0.2%

Germany September ZEW survey current conditions -79.4 vs -75.0 expected

• Latest data released by ZEW – 12 September 2023
• Prior -71.3
• Expectations -11.4 vs -15.0 expected
• Prior -12.3

Spain August final CPI +2.6% vs +2.6% y/y prelim

• Latest data released by INE – 12 September 2023
• HICP +2.4% vs +2.4% y/y prelim

UK August payrolls change -1k vs 97k prior

• Latest data released by ONS – 12 September 2023

• Prior 97k; revised to -4k
• July ILO unemployment rate 4.3% vs 4.3% expected
• Prior 4.2%
• July employment change -207k vs -185k expected
• Prior -66k
• Average weekly earnings +8.5% vs +8.2% 3m/y expected
• Prior +8.2%
• Average weekly earnings (ex bonus) +7.8% vs +7.8% 3m/y expected
• Prior +7.8%

BOE’s Breeden: The risks to inflation around August forecast are to the upside

• Breeden was named as one of four deputy governors at the BOE, set to replace Jon Cunliffe later this year

• Sees balanced risks to growth and unemployment in both directions
• Expects inflation to be around the 2% target in two years

ECB rate hike odds now sit at 50/50

• A true coin toss

ECB rate hike odds are rising today and now sit at precisely 50% compared to a 50% chance of no hike. The only fundamental news today was the German ZEW business sentiment survey. The main index improved to -11.4 from -12.3 but the metric of current conditions fell to -79.4 from -71.3. That’s hardly a reason to hike rates but we’ve certainly heard a pushback from hawks leading into the decision and those betting on ‘no change’ are getting nervous.

Other News

China Property Developer giant Country Garden wins approval to extend bond payments

Reuters reporting, citing unnamed sources:

• Country Garden wins approval to extend six onshore bond repayments by 3 years

This is a positive news item for Chinese stocks, especially those in the property sector. Many of these are Hong Kong-listed. Its also good news for China-proxy trades such as AUD.

Australia data – ANZ Roy Morgan weekly consumer confidence 77.6 (prior 78.7)

Australian Weekly ANZ Roy Morgan Consumer Confidence survey.

ANZ comment:

• the recent upswing has hit a roadblock
• confidence has now printed below 80pts for six months – the longest on record

Australian August Business confidence 2 (was 1 in July) & Conditions 13 (11 in July)

National Australia Bank Business Survey for August 2023

Australian business conditions showed a broad uptick in sales, profits and jobs

• employment sub index +3 to +9
• sales index +1 to +18
• profitability +2 to +13
• forward orders, an indicator for the demand outlook +1 to zero

NAB comments:

• “There was a notable rise in the employment index which is well above the long-run average, suggesting labour demand has remained strong into the second half of the year,”
• “Price growth also remains elevated which reflects the considerable cost pressures businesses are facing, as well as the ongoing resilience of demand… We expect inflation to remain elevated in Q3.”

Labour costs +3.2% in the past three months

• prior reading was +3.7%

Purchasing costs + 2.9%

• from 2.8%

Australian monthly consumer confidence for September falls 1.5% m/m to 79.7

Westpac – Melbourne Institute Consumer Confidence for September 2023 falls 1.5% from August to to dismal 79.7.

• Numbers under 100 mean that pessimists outnumber optimists in the survey
• the index has been below 100 mark since March 2022, the longest streak since the early 1990s recession

Westpac comments:

• “The strong message from the survey detail is of ongoing intense pressures on family finances.”
• “The cost of living remains the key negative for confidence in this cycle. While the ‘threat’ of rising rates is expected to ease further, a sustained recovery in confidence will only emerge when households are much more comfortable with the cost of living.”

New Zealand Treasury forecasts unemployment lower than earlier estimated, GDP growth ahead

New Zealand Treasury statement, pre-election economic and fiscal update:

• forecasts the jobless rate at 4.8% in 2023/24 vs. earlier at 5.0%
• forecasts economic growth in Q2 2023, Q3 2023 and Q4 2023
• increases bond program by NZ$9bn over four years
• sees annual average GDP growth of 1.3% in 2023-24
• sees budget deficit of NZ$11.4bn in 2023-24
• return to budget surplus delayed one year to 2027

New Zealand retail sales indicator for August +0.7% m/m (prior 0.0%)

New Zealand electronic card retail sales for August 2023:

+0.7% m/m

• prior 0%

+3.7% y/y

• prior +2.2%

Japan senior lawmaker says took Ueda’s remarks to mean BOJ will continue with easing

• Remarks by Japan LDP senior lawmaker, Hiroshige Seko

• Ueda has said that exit from easy policy will be after achieving 2% price target
• Took his comments to mean that BOJ will continue with easing as such

Japanese Finance Minister Suzuki declined to comment on remarks by BOJ Governor Ueda

Japanese Finance Minister Shunichi Suzuki spoke earlier at his regular news conference.He didn’t have much of note to say:

• Specific monetary policy up to boj to decide
• Expects the BOJ toconduct monetary policy appropriately
• Expects the BOJ towork closely with the government
• No comment on remarks by Bank of Japan Governor Ueda

Japan’s 20-year bond yield has hit its highest since May 2014

The yield on the 20 year Japanese Government Bond has risen to 1.47%, its highest in nearly a decade.

Yesterday the 10-year yield hit its highest since May 2014. The Bank of Japan was in the market buying the 10yr earlier today

UBS on Ueda and PBOC warning: Verbal intervention in FX needs fundamentals to back it up

UBS are blunt:

• Bank of Japan Governor Ueda commented about perhaps being able to judge if (nominal) wage growth was sustainable at the end of the year. The fevered world of foreign exchange saw interest rate increases around the corner and boosted the yen.
• The People’s Bank of China made a statement essentially saying “stop speculating against the renminbi” after tweaking a short-term policy rate. State-owned banks also sold US dollars. The renminbi rose.

Context on what started all this:

Bank of Japan Governor Ueda gave an interview with Yomiuri last week. The media group published comments from the interview over the weekend. In a nutshell, Ueda said that he thinks its possible that the BOJ will have enough information by the end of 2023 to make an assessment if wages will continue to rise, which is a condition for trimming monetary stimulus. If the Bank is confident that prices and wages will rise in a sustainable fashion then ending itsnegative interest rate is one of the options available.

Cryptocurrency News

SEC Chair says staffs’ recommendation will be vital for Bitcoin Spot ETF approvals after Grayscale ruling

• SEC chair Gary Gensler has indicated Bitcoin spot ETF filings are under review, noting that staff recommendations will have a bearing.
• The comment was in response to Tennessee Senator Bill Hagerty, asking what the commission criteria for approval entails.
• Following the Grayscale ruling, impatience continues to grow, with crypto enthusiasts watching the clock for the financial regulator’s decision.
• Meanwhile, the combined AUM of firms that have filed for Bitcoin spot ETFs is now over $16 trillion, with Franklin Templeton joining the race.

SEC chair Gary Gensler has responded to a public inquiry about what it would take for the financial regulator to approve a Bitcoin Spot Exchange Traded Fund (ETF). The concern comes amid growing impatience two weeks after Grayscale won its longstanding litigation against the commission.

SEC chair response to Senator Hagerty

Amid growing uncertainty and with the market craving an impulse, Tennessee Senator Bill Hagerty asked SEC chair Gary Gensler “what the SEC needs to see in order to approve a BTC Spot ETF.” His question sprouted from Grayscale’s resounding victory on August 29 in its lawsuit against the SEC, when the court determined that the SEC’s denial of Grayscale’s spot ETF proposal was “arbitrary and capricious” given the commission’s failure to explain why similar products are treated differently.

Speaking during the Senate Banking Hearing, Gensler said:

We’re still reviewing that decision. We have multiple filings…we’re reviewing them and looking forward to staff’s recommendations.

Bitcoin jumps as BOE policymaker says better to regulate crypto under financial services

• A quick jump sees Bitcoin move up to extend gains to 4% on the day

To be fair though, there were a couple of light bids leading up to the sudden jump if you zoom in to the minute-chart. But the big spike came right on the dot as BOE policymaker Breeden said that it would be better to regulate cryptocurrencies under the financial services perimeter rather than under gambling.

After what looked like a breakdown in the charts yesterday, dip buyers are certainly making a stand now in Bitcoin as we see price erase the losses from the day before and then some. The $25,000 mark appears to be where the line is being drawn for now.

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