North American News
North American Equities Cling to Stagnation as CPI Fails to Spark Excitement
- Maybe tomorrow’s retail sales report and the ECB decision will do it
Closing changes:
- S&P 500 up 0.2%
- DJIA -0.2%
- Russell 2000 -0.7%
- Nasdaq Comp +0.3%
US sells 30-year bonds at 4.345% vs 4.335% WI
- Results of the $30 billion sale of 30-year bonds
- Prior was 4.189%
That’s a one basis point tail. The auctions this week have been uninspiring and point to a bit of strain to digest all the supply. That’s not good news for anyone.
US August CPI +0.6% m/m versus +0.6% m/m expected
- US August 2023 consumer price index data
- Prior m/m +0.2%
- CPI m/m +0.6% versus +0.6% expected
- CPI y/y 3.7% versus 3.6% expected
- Prior y/y 3.2%
Core measures:
- Core CPI m/m +0.3% versus +0.2% expected. Last month 0.2%
- Unrounded core at +0.278%
- Core CPI y/y 4.3% versus 4.3% expected. Last month was 4.7%
- Shelter +0.3% versus +0.4% last month. Year on year 7.3% versus 7.7% last month
- Services less rent and shelter +0.5% m/m vs +0.2% prior
- Real weekly earnings -0.1% vs 0.0% prior
The market was pricing in a 9% chance of a hike next week ahead of the data but that rose to 53% for December. Afterwards, the September hike odds are down to 5% but December held steady. The numbers are modestly hotter than expected with the headline boosted by a 10.6% increase in gasoline prices m/m while the core was boosted by a 4.9% rise in airline fares. One drag was used vehicles, which fell 1.2% m/m.
NFLX stock falls 3% as company says it’s in no rush to boost margins
- Netflix shares drag down Nasdaq Composite
Shares of Netflix have come under pressure today as the company’s CFO speaks at a Bank of America conference.
CFO Spencer Neumann offered a soft guide on operating margins in the 18-20% range, which is shy of the current consensus of 22.1%. He tried to soften that by saying that Netflix is ‘nowhere near’ peak margins but shares fell 3.6%.
Neumann also cautioned that it’s ‘not easy’ to build an advertising business from scratch. The company has rolled out an ad-supported tier and he says a ‘healthy proportion’ of accounts are going in that direction. However he qualified that by saying that the ad business ‘is not that material yet’, which is another negative for the shares.
On live sports, he indicated that’s not something the company will be investing in, at least not in any of the big ticket sports. He said it’s hard to see a return on an investment of billions of dollars.
The selling in NFLX stock isn’t weighing heavily on broader market averages. The Nasdaq Composite remains 0.4% higher on the day as a 1.9% gain in Amazon and a 1.6% climb in Nvidia push in the positive direction. Technically, NFLX shares have support at $400 and just below. That’s the August low and a fall beyond it would be the worst level since late May. Shares have largely chopped sideways in the past three months aside from a brief earning spike. Perhaps the failure to hold the post-earnings gain was a tell for the shares, which have struggled to hold above $450 on repeated attempts.
A break lower would target the $375 range, where there should be more support.
US August federal budget +89.0 billion vs -$240.0 billion expected
- July’s deficit was $221 billion
- July deficit was $221 billion
- Last August was $220 billion
US MBA mortgage applications w.e. 8 September -0.8% vs -2.9% prior
- Latest data from the Mortgage Bankers Association for the week ending 8 September 2023
- Prior -2.9%
- Market index 182.2 vs 183.6 prior
- Purchase index 143.7 vs 141.9 prior
- Refinance index 367.0 vs 388.1 prior
- 30-year mortgage rate 7.27% vs 7.21% prior
Goldman Sachs on 3 developments that will slow US growth to a crawl in Q4 2023, just 1.3%
Goldman Sachs with a very subdued outlook for US economic growth into the end of the year, this in summary:
Three developments are set to temporarily slow growth:
- resumption of student loan payments
- the federal government looks more likely than not to temporarily shut down
- UAW strike
Taken together, we expect quarterly annualized GDP growth to slow from +3.1% in Q3 to +1.3% in Q4 (vs. consensus of +2.9% and +0.6%)
We expect the slowdown to be shallow and short-lived, with GDP growth rebounding to +1.9% in Q1 (vs. consensus of +0.1%) as these temporary drags abate and income growth reaccelerates on the back of continued solid job growth and rising real wages.
Fed’s Jefferson sworn in as vice chair
- Vice chair Jefferson and Governors Cook and Kugler sworn in
All three of the latest Fed appointees were sworn in, according to a Fed statement. They were confirmed by the Senate last week.
Newswire says US government reportedly looking to offload almost USD13bn of mortgage bonds
Bloomberg with the chatter:
- US government is reportedly looking to offload almost USD 13bln of mortgage bonds
- The government amassed the stockpile from Silicon Valley Bank and Signature Bank following the collapse of the banks earlier this year
Carlyle CEO says the FOMC will hike rates one more time this year
David Rubenstein is CEO and co-founder of the Carlyle Group, a US-based private equity, alternative asset management and financial services firm (Federal Reserve Chair Powell was an employee at the firm).
- Says the FOMC will do one more interest rate hike this year
- says difficult to get top the 2% inflation target
- US economy has good prospect to not drop into recession
- Also says China’s economy will avoid recession
Was interviewed by CNBC.
Goldman Sachs on why the S&P 500 could go higher than their 4500 target
- Spoiler – if rates fall
Goldman Sachs’ chief U.S. equity strategist David Kostin was speaking in an interview on Tuesday.
He said it’s possible the S&P 500 overshoot his 12-month target of 4,500 … “The upside potentially would be that rates fall a little bit”
- arguing that lower rates have led to valuation expansions in the past
- also watch for better-than-expected earnings, these could also trigger stocks past that target level
JP Morgan analyst says Fed willing to sacrifice economy to kill inflation, “like the ECB”
- Says to expect a Fed Funds rate cut by the end of this year.
Bob Michele, CIO and global head of fixed income and commodities at JPMorgan Asset Management spoke with Bloomberg TV.
Says the Federal Reserve is signalling that it is willing to hurt the economy by prioritizing inflation-over-growth:
- They’re telling us that they’re prioritizing inflation over growth. And that means like the ECB, you’re willing to make the economy a casualty.
Says he still expects a Fed rate cut by the end of the year:
- If you have a Fed that’s being patient, not willing to cut and you have economic data that’s coming in hotter than expected, well, this is the Fed that promised us transitory and then within a couple of months changed their mind and started hiking rates. We think we’re going to see the same thing this time. They’re going to tell us that they’re going to keep rates higher for longer until inflation is at their target. But the magnitude of the slowdown we’re seeing across the board tells us that we’ll probably still be hitting recession around year end. And so they’ll be cutting rates by then.
Deutsche Bank says monetary policy impact transmitting more rapidly in Europe than the US
This from Deutsche Bank.
- believes monetary policy might be transmitting more rapidly in Europe than in the U.S.
- “Around 70% of Eurozone business debt is bank based and therefore far more likely to be variable rate, vs. only c.25% in the U.S.
- U.S. business debt is more likely to be fixed rate, with the vast majority financed via the longer-tenor investment-grade and high-yield bond markets”
- European corporate net interest payments are rising sharply in contrast to a surprise decline in the U.S.”
Commodities
Gold price seeks a decisive move despite US CPI turns out stickier
- Gold price trades directionless as investors shift focus to US inflation data.
- Investors worry that upside risks to headline CPI could elevate the likelihood of a final interest rate hike from the Fed.
- The US economy may avoid recession but higher interest rates could dampen economic prospects.
Gold faces fresh selling pressure as the US Bureau of Labor Statistics reported a slightly hotter than anticipated CPI report for August.US headline inflation expanded at a 0.6% pace as anticipated by market participants.Core CPI that excludes volatile oil and food prices expanded by 0.3%, higher than estimates and July’s reading of 0.2%.The US headline CPI, on an annual basis, accelerated to 3.6% from expectations of 3.6% and the prior release of 3.2%. Core CPI matched expectations of 4.3% in a similar period, remaining below the former reading of 4.7%.
WTI crude touches a fresh 2023 high but settles lower
- Some profit taking in oil
Oil touched a fresh high this year of $89.64 but profit taking ahead of the big figure capped the gains and oil fell into settlement, with WTI finishing down 32 cents.
Before that, it was a choppy day for crude as it slipped ahead of the weekly oil inventory report only to rally afterwards despite a surprisingly large build in US stockpiles. EIA crude inventories rose by 3.954 million barrels compared to a draw of 1.912 million forecast. The gasoline and distillates numbers were also bearish.
In the aftermath of the report, crude rose to $89.40 from $88.50 but couldn’t take out the early European high of $89.64 and that led to a round of profit taking later in the day.
It’s hardly fatal for the oil bulls though as this is just the third daily decline since August 23 and all of them have been modest. The market is increasingly convinced that OPEC+ supply will keep the market tight. The latest STEO report suggested a 3 million barrel per day deficit in global supply in Q4. That will ensure a sharp drawdown in global inventories, even if China has some excess.
US EIA weekly crude oil inventories +3954K vs -1912K expected
- Weekly US crude oil inventories
- Prior was -6307K
- Gasoline +5560K vs +237K expected
- Distillates +3931K vs +1303K expected
- Refinery utilization +0.6% vs -0.4% expected
- Production estimate 12.9 mbpd vs 12.8 mbpd prior
- Impld mogas demand: 8.31 mbpd vs 9.32 mbpd prior
EU News
European equity close: Down ahead of tomorrow’s ECB decision
- Closing changes in Europe
- Stoxx 600 -0.3%
- German DAX -0.4
- UK FTSE 100 +0.1%
- French CAC -0.4%
- Italy MIB -0.4%
- Spain IBEX -0.2%
Eurozone July industrial production -1.1% vs -0.7% m/m expected
- Latest data released by Destatis – 13 September 2023
- Prior +0.5%; revised to +0.4%
Industrial output in the euro area falls by more than expected in July, with a rise in intermediate goods (+0.2%), non-durable consumer goods (+0.4%), and energy production (+1.6%) being offset by declines in capital goods (-2.7%) and durable consumer goods production (-2.2%).
UK July monthly GDP -0.5% vs -0.2% m/m expected
- Latest data released by ONS – 13 September 2023
- Prior +0.5%
- GDP +0.2% vs +0.3% 3m/3m expected
- Prior +0.2%
Looking at the breakdown:
- Services -0.5% m/m
- Industrial output -0.7% m/m
- Manufacturing output -0.8% m/m
- Construction output -0.5% m/m
Goldman Sachs slash UK 2023 GDP growth forecast to 0.3% from 0.5% previously
German government to downgrade GDP forecast for the year, sees contraction of 0.3%
- Bloomberg reports on the matter
This compares with the growth of 0.4% predicted at the end of April, with the government reportedly now expecting the economy to shrink in Q3 and expand only slightly in Q4 this year. Overall, the government is said to anticipate a contraction of 0.3% for the year.
German economy ministry says current indicators point to weak Q3
- The latest report from the German economic ministry
- Early indicators point to subdued developments of private consumption in coming months
- Noticeable economic recovery only to be seen at the turn of the year at earliest
Other News
Beijing scrapped a rule limiting prices of pre-owned homes in popular district
- A move intended to boost demand and prop up the country’s slumping property market.
South China Morning Post with the report today:
- Authorities in Beijing have scrapped a rule that limited the listing of prices of pre-owned homes in Haidian district, a move intended to boost demand and prop up the country’s slumping property market.
- In Haidian, a district known for its good schools and access to quality education, 29 properties are now publicly advertising their listing prices for pre-owned homes, as reported by local news outlets.
- Properties whose ownership grants students free admission to prestigious schools nearby were previously prohibited from listing their prices due to inflated demand between 2020 and 2021. A price restriction was also put in place by the Haidian district property association in September 2021 to rein in a price surge and stabilise the market.
PBOC says will support prices to rise moderately
- A publication released by the Chinese central bank
- Will pay close attention to the effect of financial policies
- Will strengthen guidance of expectations
China says it has not issued a ban on purchase and/or use of iPhones
- Or any foreign brand phones for that matter, according to the Chinese foreign ministry
The ministry says that they have noticed some “security concerns” involving iPhones though. They’re not officially acknowledging the ban among government departments but these reports highlight a growing a concern at least of what is happening behind the scenes.
Japan August PPI +0.3% m/m (expected +0.1%)
Japan PPI, AKA Corporate Goods Price Index.
- This is ‘wholesale’ level inflation, the price that firms charge each other for products (more on this under the screenshot)
- the annual rate, at 3.2%, slowed in August for the eighth straight month
- July was revised down to 3.4%
- peaked at 10.6% y/y in December last year
Reuters September Tankan: Manufacturers Index +4 (prior +12) Non-Manu +23 (prior +32)
Not a good set of results:
- Big manufacturers Sept sentiment falls sharply to 4 from August’s 12
- Service sector mood slumps the most since 2020, to 23 from 32 in August
- Both sectors see subdued outlook
- December Manufacturing index seen at +4
- non-manufacturing seen at 21
Reuters summary:
In written comments, many Japanese firms complained about elevated input costs of raw materials as well as weak demand at home and abroad.
- The Ukraine war and heightened Sino-U.S. tensions were also seen as headwinds.
- “Our business conditions are not so good due to uncertainty surrounding the global economy such as geopolitical risks stemming from a prolonged war in Ukraine and rising tension between U.S.-China frictions,” a machinery maker manager wrote in the survey.
- “Overseas markets, particularly in China, are slumping and domestic demand is also languishing,” a chemicals maker manger wrote on condition of anonymity.
Market is pricing the BOJ to end negative rates in January 2024, a massive shift
Bloomberg:
- Most economists say regardless of timing, the next change for YCC will be its scrapping after the bank essentially widened its ceiling for 10-year yields to around 1% in July. “There is a chance of an early policy shift,” said Hiroshi Namioka, chief strategist at T&D Asset Management Co. “Every policy meeting has become live since Ueda took the helm.”
- As of Tuesday, overnight-indexed swaps indicated the central bank would exit negative rates in January, based on data compiled by Bloomberg. After the July policy meeting market pricing suggested an exit in September 2024.
The Nikkei say January seems to be the earliest for an end to negative rates, in brief:
- But there is a sense at the BOJ that December is too soon
- The scheduled Dec. 18-19 meeting may coincide with a discussion of changes to the tax code
- A January decision to end negative interest rates appears to be a more realistic scenario, with practical factors delaying implementation to February.
- The BOJ is set to update its economic and price outlook for fiscal 2023 to fiscal 2025 at that time, giving it material to help explain the basis for the policy change.
- Waiting until April would let the central bank see the actual results of spring wage negotiations
Japan’s Matsuno confirms he will remain as chief Cabinet secretary after the reshuffle
- The latest from the Cabinet reshuffle in Japan
Finance minister, Shunichi Suzuki, will also remain in his post while the economy minister post will go to former internal affairs minister, Yoshitaka Shindo. Trade minister, Yatsutoshi Nishimura, is also to remain in his respective post. In essence, there isn’t much change to the economy team as Kishida is keeping the core members intact.
Putin does not rule out military cooperation with North Korea amid Kim Jong Un’s visit
- Putin and Kim are meeting at Russia’s main spaceport, the Vostochny Cosmodrome
When asked about Russia helping to build satellites for North Korea, Putin says that “that is why we’ve come to the Vostochny Cosmodrome”.Adding that “we will discuss all issues and topics” and that “Kim is showing a big interest in Russian rocket equipment”.
Coming into their meeting, it has been speculated that Kim would ask Putin for food aid and weapons technology in return for military supply as Russia continues its conflict with Ukraine.This reaffirms that somewhat but it also seems like space technology is not out of the question here, with North Korea still trying its hardest to to obtain military spy satellites in particular.
New Zealand data – Food Price Index (August) +0.5% m/m (prior -0.5%)
+8.9% y/y
- prior +9.6%
Cryptocurrency News
FTX receives court approval to liquidate crypto assets
- FTX to liquidate $7 billion in crypto
Earlier this week, the fall in the price of bitcoin was tied back to bankruptcy disclosures from FTX showing that it had nearly $7 billion worth of assets, including about $560 million in bitcoin.
Today the court approved the liquidation of holdings. The dollar value in bitcoin isn’t particularly troublesome for the market but there is $1.1 billion in solana and if that’s not handled carefully, it could be ugly. It’s about 16% of the overall supply.
In its liquidation proposal, FTX would not have to issue advance notice of sales, though would have to alert the trustee privately.
It’s unclear how much creditors of FTX will recover but the lawyers are surely having a field day. Its total assets, including $200m in real estate are valued at $2.2 billion.
Sam Bankman-Fried’s trial is set to begin October 3.
Coindesk says the CEO of Binance US has left the firm, one third of workforce has been cut
Binance.US CEO Brian Shroder has left the crypto exchange
- The company has eliminated one-third of its workforce.
Coinbase citing a spokesperson for the firm.
Binance hold themselves up as being on the side of the little guy, not like establishment firms.
- “The SEC’s aggressive attempts to cripple our industry and the resulting impacts on our business have real world consequences for American jobs and innovation, and this is an unfortunate example of that.”
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