North American News
North American Stocks Surge: Bulls on the Run
- Closing changes for the main North American equity markets
- S&P 500 up +0.85%
- DJIA +1.0%
- Russell 2000 +1.3%
- Nasdaq Comp +0.8%
US August PPI +1.6% y/y vs +1.2% expected
- US producer price index data for August 2023
- Prior was +0.8% y/y
- PPI final demand m/m +0.7% vs +0.4% y/y expected
- Prior was +0.3% m/m (revised to 0.0%)
Ex food and energy:
- +2.2% y/y vs +2.2% expected (prior +2.4%)
- +0.2% m/m vs +0.2% expected (prior +0.3%)
- Goods ex food and energy +0.1% vs 0.0% m/m prior
Breakdown:
- Goods +2.0% vs +0.1% m/m prior
- Services +0.2% vs +0.5% m/m prior
- Foods -0.5% vs +0.5% m/m prior
US initial jobless claims 220K versus 225K estimate
- US initial jobless claims in continuing claims for the current week
- Prior week 216K revised to 217K
- initial jobless claims 220K vs 225K estimate
- 4 week moving average of initial jobless claims 224.5K vs 229.5k prior
- continuing claims 1.688M versus 1.695M.
- Prior week of continuing claims 1.684M versus 1.679 previously reported
Atlanta Fed GDPNow estimate for 3Q growth falls to 4.9%
- Down from 5.6% on September 8
The Atlanta Fed estimate for 3Q growth fell to 4.9%. The last estimate on September 8 came in at 5.6%.
In their own words:
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2023 is 4.9 percent on September 14, down from 5.6 percent on September 8.After recent releases from the US Census Bureau, the US Bureau of Labor Statistics, and the US Department of the Treasury’s Bureau of the Fiscal Service, the nowcasts of third-quarter real personal consumption expenditures growth, third-quarter real gross private domestic investment growth, and third-quarter real government spending growth decreased from 4.0 percent, 11.7 percent, and 2.3 percent, respectively, to 3.5 percent, 10.6 percent, and 1.9 percent.
US August retail sales +0.6% versus +0.2% expected
- US August 2023 retail sales data
- Prior was +0.7% (revised to +0.5%)
Details:
- Retail sales m/m +0.6% versus +0.2% expected
- Ex-autos +0.6% versus +0.4% expected.
- Prior ex autos +1.0%
- Control group +0.1% versus -0.1% expected
- Prior control group +1.0% (revised to +0.7%)
- Retail sales ex gas and autos +0.2%. Prior month +1.0% (revised to +0.7%)
- retail sales total $697.6 billion vs $696.4 billion prior
US July business inventories 0.0% vs +0.1% expected
- US July inventory data
- Prior was +0.0%
- Retail inventories ex-autos 0.0% vs +0.1% prior
Fed to “skip” rate hike in September, hike again by 25 bps in November – Citi
- The firm is of the view that the Fed is not done yet
It’s certainly an interesting view especially with markets not pricing in any more rate hikes for the year.
Goldman Sachs shifts into neutral – only asset class they like is cash
Goldman Sachs has not recommended anything but cash right now:
While a US soft landing has become more likely, it might be less of a tailwind for risky assets from here if upward pressure on bond yields continues.
Morgan Stanley expect no FOMC rate hike in September – US CPI report “a small victory”
A couple of analysts at Morgan Stanley on the US CPI report issued Wedneday and the implication for the Federal Open Market Committee (FOMC).
One:
- The 10% increase in oil prices added 35bp to headline CPI for 3 months
- Just 3bp to core CPI
- Higher energy prices must be sustained for some time to have a greater, more durable effect
- The Fed will look through this
Two:
- Middle-of-the-road CPI report may have disappointed those who were looking for inflation to establish a clear cooling trend
- But given how high oil prices are and how strong recent economic data has been, the fact that the numbers were more or less in line with estimates may be seen as a small victory.
- There will continue to be bumps in this road, but the Fed is still on track to leave interest rates unchanged after next week’s policy meeting
Fitch still expecting US recession, in H1 2024. Also expecting 1 more Fed rate hike
- Fitch release overnight ICYMI
Fitch says global economic growth is deteriorating, reflecting “the deepening slump in China’s property market is casting a shadow over global growth prospects just as monetary tightening increasingly weighs on the demand outlook in the U.S. and Europe”
- Expects the U.S. to fall into recession in the first half of 2024,
- Federal Reserve “is now close to reaching a peak on rates and we expect just one more 25-basis-point hike to 5.75%.But core inflation is still high — particularly in services — and we have pushed back the date of the first Fed rate cut to May 2024.”
Canada wholesale trade for July 0.2% versus 1.4% estimate
- Canada wholesale trade data for July 2023
- Prior month -2.8% revised to -2.1%
- Wholesale sales (excluding certain products) rose by 0.2% versus +1.4% expected.
- Total wholesale trade came in at $81.3 billion in July.
- The growth was driven by the motor vehicle and building material subsectors, despite declines in most other subsectors.
- Yearly, the wholesale sales (with exclusions) increased by 1.1%.
- Petroleum products and oilseed and grain data are present in tables but excluded from monthly analysis until historical data is available.
- The British Columbia port strike affected supply chains mainly on Canada’s west coast but had a minor effect on the wholesale sector in July.
- Nationally, the port strike affected less than 5% of wholesale businesses.
- Constant dollar sales (with exclusions) also saw a 0.2% rise in July.
Inventories:
- Wholesale inventories (excluding certain products) increased by 0.4% to $128.4 billion in July.
- Four out of seven subsectors reported inventory growth in July.
- The machinery, equipment and supplies subsector led with a rise of 1.5% to $37.8 billion.
- The motor vehicle subsector followed with an increase of 1.6% to $16.2 billion.
- The inventory-to-sales ratio dropped from 1.59 in June to 1.58 in July, indicating the time needed to deplete inventories at current sales rates.
Subsector details:
- Motor vehicle and parts subsector sales increased by 3.9% to $14.1 billion in July.
- This is the third monthly rise since 2023 began.
- Two out of three industry groups reported growth, with the motor vehicle industry group’s sales (+4.2% to $11.4 billion) being the primary driver.
- Exports in this subsector also grew by 2.1% in July.
- Building material and supplies subsector saw a growth of 2.7% to $12.0 billion in July.
- This is the first increase for this subsector since March 2023.
- Two out of three industry groups reported growth, with the lumber and other building supplies group (+4.6% to $5.9 billion) having the most impact.
- Factors like Pacific Northwest wildfires and the British Columbia port workers’ strike led to higher lumber prices and increased sales.
- The machinery, equipment, and supplies subsector declined by 2.2% to $17.4 billion.
- Most industry groups in this subsector reported a decrease in sales.
- The largest declines were in the farm, lawn, and garden machinery group (-13.2% to $2.2 billion) and the computer and communications equipment group (-4.7% to $4.9 billion).
Fitch expects the first Bank of Canada rate cut in April 2024
Fitch comments on Canada:
- reduced its GDP forecasts for this year and next, to 1.1% and 0.7%, respectively
- said Q2 2023 GDP was weaker than expected, partly due to temporary factors such as wildfires and strikes
- “Underlying growth momentum is weak as past tightening takes its toll on domestic demand”
And its BoC outlook, saying they don’t the Bank will need to raise rates any further from the current 5%:
- “Nevertheless, with inflation set to remain above target through 2024, we think the Bank will not rush to cut rates, with the first cut coming only in April next year.”
Commodities
Gold to trade sideways in the short term, brighter outlook in the longer term – SocGen
- Economists at Société Générale analyze the yellow metal’s outlook.
Core inflation remains sticky – easy energy wins in the rearview mirror
In the short term, headline inflation continues to cool, but core inflation remains stubbornly high, and the Fed is near its cyclical peak.As the imminence of a US recession recedes, these developments give the Fed the opportunity and the obligation to keep rates higher for longer to fight inflation.This will keep real rates elevated, which combined with the currently strong Dollar creates headwinds capping Gold prices below or at $2,000 to the end of this year on our estimates.
In 2024, the need to keep rates high will likely subside. In line with our outlook for energy and specifically for crude, the easy wins in bringing inflation to heel are likely in the rearview mirror. The soft cap on Fed funds, together with sticky inflation, is the crucial ingredient in our positive outlook for Gold next year. We forecast a depreciating Dollar into 2024 which should provide further tailwinds for commodities and in particular Gold.
WTI crude oil rises above $90 to a fresh high for the year
- WTI crude oil up $1.67 today to $90.20
By this point the story is well-known — OPEC+ is putting a squeeze on the market and it’s under-supplied somewhere in the 1-3 million barrel per day range. That should narrow in October as China backs off a filling inventories but unless OPEC breaks, global inventories will continue to draw down.
Looking ahead technically:
- The next significant target on the daily chart is around the 50% retracement from the June 2022 high, aligning with the peaks of October and November 2022. This range is between $93.64 and $93.78.
- While this target is still a bit distant, it appears to be the bulls’ aim.
- A drop below the $86.72 (38.2% retracement) would challenge the current bullish momentum. A further decline below the $82.43 to $83.44 range would intensify this challenge.
- As of now, the market sentiment leans towards the buyers.
EIA weekly US natural gas inventories +57 vs +48 bcf expected
- A larger build in US natural gas supplies
Natural gas prices were up 3.4% ahead of the report but this should be a drag. The market is worried about falling volumes going into Freeport LNG.
BoA on oil: OPEC+ cuts, Asia demand – “Brent prices could spike past $100/bbl”
- Brent oil forecast from Bank of America
A higher oil price forecast into year-end from analysts at Bank of America, this in summary.
BoA bottom line is:
- Should OPEC+ maintain the ongoing supply cuts through year-end against Asia’s positive demand backdrop, we now believe Brent prices could spike past $100/bbl before 2024
Analysts point to Asia:
- heavy Chinese transportation-sector consumption
- China petroleum fuel export quotas low
- China has continued to build oil inventories, sign of robust domestic demand
- Asian product markets relatively tight
Goldman Sachs on Australian LNG strikes: chance of a lengthy spike in gas prices are low
Goldman Sachs says that while strikes at the Chevron-operated Gorgon and Wheatstone LNG facilities in Australia will raise supply risks, the probability of long outage that could fuel a lengthy spike in gas prices are low. GS reason that:
- “This is both because of the potentially large revenue losses to Chevron, the facility operator, associated with a full LNG export outage, and because of potential regulatory intervention”
Gorgon and Wheatstone account for 5% of global supply,
- work stoppages began last Friday
- the union says it will stop work completely for two weeks starting September 14
- Chevron has asked Australia’s Fair Work Commission to intervene in the dispute
- The FWC will hear the case on September 22
EU News
European equity close: The UK leads strong gains
- Closing changes in Europe
- Stoxx 600 +1.6%
- German DAX +1.0%
- Francis CAC +1.4%
- UK’s FTSE 100 +2.1%
- Spain’s IBEX +1.4%
- Italy’s FTSE MIB +1.5%
ECB raises key rates by 25 bps in September monetary policy meeting
- ECB announces their latest monetary policy decision – 14 September 2023
- Main refinancing rate 4.50% vs 4.25% expected
- Prior 4.25%
- Deposit facility rate 4.00% vs 3.75% expected
- Prior 3.75%
- Marginal lending facility 4.75%
- Prior 4.50%
- Inflation continues to decline but is still expected to remain too high for too long
- Past rate hikes continue to be transmitted forcefully
- Financing conditions have tightened further and are increasingly dampening demand
- ECB considers that key rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target
- Future decisions will ensure that the key rates will be set at sufficiently restrictive levels for as long as necessary
- ECB will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction
The euro has fallen on the headlines as the ECB also lowers its economic projections significantly. Here’s the details:
- 2023 GDP at 0.7% (previously 0.9%)
- 2024 GDP at 1.0% (previously 1.5%)
- 2025 GDP at 1.5% (previously 1.6%)
- 2023 inflation at 5.6% (previously 5.4%)
- 2024 inflation at 3.2% (previously 3.0%)
- 2025 inflation at 2.1% (previously 2.2%)
Switzerland August producer and import prices -0.2% vs -0.1% m/m prior
- Latest data released by the Federal Statistics Office – 14 September 2023
Looking at the breakdown, producer prices were seen down 0.4% on the month and that is offset slightly by higher import prices, which grew by 0.1% on the month.
UK data – house price indicator from RICS hits a 14 year low
Royal Institution of Chartered Surveyors (RICS) house price balance
- measures the difference between the percentage of surveyors seeing rises and falls in house prices
- fell to -68 in August (expected was -56, from -55 in July), weakest since February 2009
Chief economist at RICS:
- A sluggish housing market with little sign of relief in prospect
- “Prices are continuing to slip albeit that the relatively modest fall to date needs to be seen in the context of the substantial rise recorded during the pandemic period”
JP Morgan cut their forecasts for the UK economic growth
In the wake of the super-ugly July data from the UK.
JP Morgan also:
- Cut their full-year growth forecast for the UK’s gross domestic product (GDP) by 20 basis points to 0.4%
- Warn of a recession risk
French finance ministry lowers 2024 GDP forecast to 1.4% from 1.6%
- France lowers growth estimate
- GDP to 1.4% from 1.6%
- Inflation expected at 2.6% next year from 4.6% this year
- Budget deficit falls to 4.4% of GDP from 4.9%
Lagarde: Rates will remain at sufficiently restrictive levels for as long as necessary
- Comments from Lagarde
- Higher inflation forecasts mainly reflect higher energy
- Rates will remain at sufficiently restrictive levels for as long as necessary
- Rates were hiked to ‘reinforce commitment to our target’
- The economy is likely to remain subdued in the coming months
- The services sector, which had been resilient, is now slowing
- Recent indicators suggest a weak Q3
- Labor market remains resilient
- In the coming months inflation will fall
- Most measures of underlying inflation are starting to fall
- The risks to economic growth are tilted to the downside
- We will continue to follow a data dependent model and stand ready to adjust all our instruments
Lagarde Q&A: Some governors would have preferred to pause and wait on more data
- Comments from the ECB President in response to questions from the press
- Some governors would have preferred to pause and wait on more data
- A ‘solid majority’ agreed with the decision
Other News
PBOC cuts RRR by 25 bps, with effect from 15 September
- The Chinese central bank announces cuts to banks’ reserve requirement ratio
The weighed average RRR for financial institutions will be around 7.40% after the latest cut. The central banks adds that it will keep prudent monetary policy and ensure liquidity remains reasonably ample. This might not be the last time they resort to more RRR cuts for the year I would say.
PBOC calls on banks to hold off on immediate dollar purchases – report
- China is said to ask big banks to stagger and adjust their dollar purchases
The report is via Reuters, citing two sources with knowledge of the matter.It is said that the PBOC has asked some of the big banks to refrain from immediately squaring their market positions and to let it run open in order to alleviate further downside pressure on the Chinese yuan.
Adding that the banks have been asked not to square their positions after any US dollar sales to clients, until their spot foreign exchange position hits a certain level. In essence, what they are doing here is trying to ask the banks to absorb the dollar purchases by firms and sit on that before only going back into the market to square those positions later in the day. It would at least temporarily relieve the pressure on the yuan currency but I would be interested to see what rate they would do that.
ICYMI – China says it hasn’t issued any ban on Apple’s iPhone
China’s Foreign Ministry Spokesperson Mao Ning’s press conference on Wednesday brought a statement that China hasn’t issued any laws or rules to ban the use of iPhones or any other foreign phone brand.
- China did not issue any law, regulation or policy document that bans the purchase and use of cellphones of foreign brands, such as iPhone.
- However, recently we did notice media reports about security issues related to iPhone.The Chinese government attaches great importance to cyber and information security and treats Chinese and foreign companies as equals.
- We hope all cellphone companies operating in China will strictly abide by China’s laws and regulations, such as the Data Security Law of the People’s Republic of China and the Personal Information Protection Law of the People’s Republic of China, enhance information security management, protect consumers’ data stored in the cellphones against theft by any individual or organization, and ensure information security.
China – Shenzhen Eases Home Purchase Curbs to Unleash Demand
- Chinese media report on further steps to support China’s property sector.
Caixin report on one of China’s megacities, Shenzen, rolling back some of the nation’s strictest limits on home purchases:
- The city of 17.6 million people introduced a series of measures starting in 2016 aiming to blunt skyrocketing housing prices and speculation
- In late August, Shenzhen adjusted the definition of first-home buyers to allow more people to qualify for lower mortgage rates and lower down payments.
- Last week, the city partly scrapped a long-time restriction and allowed residents from Hong Kong and Macao to invest in nonresidential properties.
- Under the latest measures, Shenzhen will no longer disqualify nonresidents from buying a home if their income tax or social insurance payments in the city have been disrupted for less than six months.
Australia August Jobs +64.9K (vs. +25K expected) & Jobless rate 3.7% (vs. 3.7% exp)
- Australian employment market report for August 2023
The vast bulk of jobs added were part-time. Good news for those with the new jobs but for markets this takes some of the shine off that +64.9K headline number.
The unemployment rate has remained unchanged due to the jump in participation, that 67% result is a record high.
- hours worked -0.5% m/m and +3.7% y/y
Australian Consumer Inflation Expectations for September: 4.6% (vs. prior 4.9%)
- Melbourne Institute Inflation Expectations data
Japan’s new Economy Minister Shindo says its important to decisively end deflation
The new economy minister is not saying anything controversial:
- Will mobilise all possible policy measures to support economy
- Aiming to achieve virtuous growth and wealth distribution while striving to achieve fiscal reform
- Will consider bold measures to ease the pain of price hikes
- Will do the utmost to achieve structural wage hikes
- Important to achieve private demand-led growth
- Important to put decisive end to deflation
Japan data – July Machinery Orders -1.1% m/m (expected -0.9%)
Core machinery orders data is a highly volatile series used as a leading indicator of capital spending in the coming six to nine months.
Cryptocurrency News
FTX exchange’s $3.6 billion crypto liquidation unlikely to cause bloodbath in Solana, Ethereum, Aptos prices
- FTX received the greenlight to liquidate $3.6 billion in crypto assets from a US bankruptcy court in Delaware.
- Solana, Ethereum and Aptos are the top three altcoin holdings of the bankrupt FTX exchange.
- A bloodbath in altcoins is less likely as the liquidation process will be initiated with blocks of $50 million weekly and escalate to $100 million.
FTX exchange received the US bankruptcy court’s nod to shed $3.6 billion in crypto holdings in exchange for fiat.Following the court’s decision, the estate will loop in Galaxy Digital, a crypto asset management firm, to oversee the sale of the assets.
FTX’s crypto liquidation plan has evoked bearish sentiment among investors on X. Investors, counter the narrative and explains that Galaxy Digital is likely to sell the assets via Over-The-Counter deals, while exchange-based selling is unlikely.
MATIC price climbs as Polygon outlines proposals for 2.0 upgrade
- Polygon network developers published three proposals to implement the transition to Polygon 2.0.
- The proposals include the creation of a POL token to replace MATIC as the native gas and staking token of the ecosystem.
- MATIC price has climbed nearly 6% from Monday’s intraday low of $0.4910.
Ethereum network’s largest scaling solution, the Polygon network, officially proposed on Thursday three key changes ahead of its Polygon 2.0 upgrade. The proposals, which still have to be approved by the community, include the creation of a new POL token, which will replace the current MATIC token.
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