Round up of today's market news *

North American News

US stocks close sharply lower

Broader indices lead the decline

The major indices are closing sharply lower led by the S&P index and the NASDAQ index. The Dow Industrial Average had his worst day since March. The S&P and NASDAQ indices are down 5 and last 6 trading days.

The closing levels are showing:

Dow industrial average fell -388 points or -1.1% at 33618.87
S&P index fell -63.91 points or -1.47% at 4273.54
NASDAQ index fell minus 207.72.4 -1.57% at 13063.60
Russell 2000 fell -22.63 points or -1.27% at 1761.60

With the end of month approaching, the broader indices are on pace for the worst month in 2023:

S&P index is down -5.19%.In December 2022 the index fell -5.9%
NASDAQ index is down -6.92%.In December, the index fell -8.73%
Russell 2000-7.26%.That is the largest decline since September 2022 when the index fell -9.72%.

U.S. Treasury auctions offer $48 billion of to your notes at a high yield of 5.085%

WI level at the time of the auction was at 5.085%

High Yield: The prior auction came in at 5.024% with a six-auction average of 5.085%.
WI level at the time of auction was 5.085%
Tail: 0.0 tail Tail last was at -0.4bps with a six-auction average of -0.1bps.
Bid-to-Cover: 2.73X. The bid to cover was previously at 2.94x with a six-auction average of 3.13x.
Dealers: 13.99%. The dealer participation was previously at 15.0% with a six-auction average of 16.7%.
Directs: 20.99% . The level of Directs (domestic buyers) was previously at 20.0% with a six-auction average of 19.8%.
Indirects: 65.02% The level of indirect (overseas buyers) was previously at 65.0% with a six-auction average of 63.5%.

US August new home sales 675K vs 700K expected

Home sales disappoint in August 2023

Prior was 714K (revised to 739K)
Sales down 8.7% m/m
Prior sales +4.4% (revised to +8.0%)

Dallas Fed services outlook -8.6 vs -2.7 prior

Dallas Fed survey of Texas services

Prior was -2.7
Revenue index +8.7 vs +16.2 prior

Richmond Fed composite manufacturing index for September 5.0 versus -7.0 last month

Richmond Fed manufacturing index for September 2023
Prior month -7.0
Richmond Fed composite manufacturing index 5.0 versus -7 last month. The gain breaks a string of 17 consecutive declines.
Services index 4 verses 4 last month
Shipments 7 versus -5 last month
Employment 7 versus -3 last month
Wages 23 versus 22 last month
Availability of skills needed -10 versus -10 last month
Prices paid 4.06 versus 3.17 last month
Prices received 3.06 versus 3.11 last month

A summary of the current conditions, and components along with the forward looking expectations indices and components for the Richmond Fed area shows:

US September consumer confidence 103.0 vs 105.5 expected

US consumer confidence from the Conference Board

Prior was 106.1

Details:

Present situation index 147.1 vs 144.8 prior (revised to 146.7)
Expectations index 73.7 vs 80.2 prior (revised to 83.3)
1 year Inflation 5.8% vs 5.8% prior
Jobs hard-to-get 13.6 vs 14.1 prior

Philly Fed September non-manufacturing index -16.6 vs -13.1 prior

September Philly Fed services index
Prior was -13.1
Firm-level business activity -5.5 vs -0.5 prior
New orders -9.2 vs -16.0 prior
Full-time employment +6.4 vs +8.1 prior
Wage and benefit cost index 40.3 vs 33.7 prior

US July CaseShiller 20-city house price index +0.9% m/m vs +0.7% expected

US house price data from CaseShiller and the FHFA

Prior was +0.9% m/m
Non-seasonally adjusted +0.6% vs +0.9% prior
y/y prices +0.1% vs -0.3% expected
Prior y/y reading -1.2%

FHFA US July home prices +0.8% vs +0.3% prior

FHFA data on US home prices

Data from the FHFA:

Prices m/m +0.8% vs +0.3% prior (revised to +0.4%)
Prices y/y +4.6% vs +3.1% prior (revised to +3.2%)

Target says it will close nine stores due to theft

Stores on the west coast and New York to close

Target highlighted growing ‘organized theft’ in its latest earnings call and now it’s backing it up with actions. The retail giant will close nine stores:

Three in the San Francisco bay area
Three in Portland
Two in Seattle
One in New York City

The company still has a huge number of stores in all those markets and all the workers will be offered transfers but theft is a real problem in the US and it will get worse when a recession inevitably comes.

“In this case, we cannot continue operating these stores because theft and organized retail crime are threatening the safety of our team and guests, and contributing to unsustainable business performance. We know that our stores serve an important role in their communities, but we can only be successful if the working and shopping environment is safe for all.”

FTC sues Amazon for illegally maintaining monopoly power

Used a set of punitive and coercive tactics to unlawfully maintain its monopolies

FTC Accusations Against Amazon.com:

Accused of using anti-discounting measures that penalize sellers and discourage other online retailers from offering prices lower than Amazon’s.
FTC is seeking a permanent injunction in federal court to prevent Amazon from continuing its alleged unlawful conduct.
US Federal Trade Commission and 17 US state attorneys general are suing Amazon for ‘illegally maintaining monopoly power’.
FTC Chair Khan accuses Amazon of using coercive tactics to unlawfully uphold its monopolies.
Amazon’s schemes reportedly influence hundreds of billions in retail sales annually, affecting over 100 million shoppers.
Allegedly biases Amazon’s search results to favor its own products over higher quality ones.
Accused of imposing ‘costly’ fees on hundreds of thousands of sellers dependent on Amazon for business.

Amazon replies to lawsuit saying:

if FT C antitrust suit successful, the results would be fewer products to choose from, higher prices, slower deliveries for consumers
FTC lawsuit is wrong on the facts, and the law, and we look forward to making that case in court

Shares of Amazon are trading down $3.95 or -3.01% $127.30.

US 10-year yields turn higher, easing earlier decline

More trouble in the bond market

US 10-year yields are now 0.1 basis points higher on the day at 4.55%.Earlier, they had fallen as low as 4.48% but have now turned around, despite the pain in equity markets.

JP Morgan says ‘higher for longer’ worries markets. Also don’t understand frogs.

A note from analysts at JP Moran on developed market central banks apparently having reached the top of the rate hike cycle, or at least in a ‘pause’. However, adds JPM, the promotion of a ‘higher for longer message from the Banks is a worry for markets.

Our “boiling the frog” narrative incorporates a tension between near-term forces promoting resilience and the seeds being sown for an eventual end to the expansion.
This resilience promotes sticky inflation and a need for sustained restrictive policy stances that should, in turn, compress profit margins and erode balance sheet health.
Timing the point at which building vulnerabilities spark an end to the expansion is difficult.
The Fed’s forecasts last week embraced both sustained growth resiliency and disinflation in projections that presented a genuine soft-landing scenario.
However, the overriding message received by markets from DM central banks is that policy rates will need to remain high-for-long—a signal that aligns with our boiling-the-frog outcome.

Fed’s Kashkari sees a 40% chance of further rate hikes, perhaps ‘significantly’

Kashkari publishes essay

The Fed’s Kashkari has published an essay where he says there is a 60% chance of a soft landing with a 40% chance the Fed will have to hike ‘significantly higher’.

He talks about a ‘Soft landing’ and a ‘High-pressure equilibrium’ as the 60/40 split but it’s the 40% that is worrisome.

In this scenario, the FOMC would then have to raise rates further,potentially going significantly higher to push inflation back down to our target. The case supporting this scenario is that most of the disinflationary gains we have observed to date have been due to supply-side factors, such as workers reentering the labor force and supply chains resolving, rather than monetary policy restraining demand.Indeed, consumer spending and economic activity both continue to exceedour expectations. In addition, the sectors of the economy that are typically most sensitive to interest rates, housing and automobiles, have proven surprisingly resilient and, by some measures, have bottomed and are now showing signs of beginning to recover. These dynamics raise the question, How tight is policy right now? If policy were truly tight, would we observe such robust activity?

He says the ‘good news’ is that he doesn’t need to make this determination now and will be watching data but even his soft landing scenario contemplates ‘potentially one more 25 basis-point’ hike. If a dove is highlighting that, why is the market only pricing in a 23% chance of a November hike?

He highlights 1994 and the moves at the long end so far as a parallel to what’s happening now.

Fed’s Kashkari says there is still more to be done on services inflation

Federal Reserve Bank of Minneapolis President Neel Kashkari is participating in a question-and-answer session hosted by the Wharton Central Banking Club:

Still more work to do on services inflation
Fed can definitely get back to 2% inflation
May need to cut rates if real rates are tightening.

More from Fed’s Kashkari: Rates probably have to a little higher, held there for longer

Federal Reserve Bank of Minneapolis President Neel Kashkari.

US rates probably have to go a little bit higher, be held there for longer, to cool things off –
Falling inflation next year might justify backing off the federal funds rate to stop it from getting tighter
I am one of the FOMC policymakers who sees one more rate hike this year

Fed’s Kashkari says if government shut down will do best we can with private data

Federal Reserve Bank of Minneapolis President Neel Kashkari:

In case of a government shut down that means we don’t have access to the usual data, we will supplement with the best private data that we have
you always have to do your best with the best data available, I’m confident we’ll be able to make decisions
that the yield curve is un-inverting is not necessarily bad news and it could be good news

Fed’s Bowman: Higher rents underscore the need to curb inflation

Comments from Bowman

Bowman touched on rents in her speech but otherwise it doesn’t explore monetary policy. The title was “Keys to Opportunity in the Housing Market: Research on Strategies for Preserving and Expanding Rental Housing Affordability”

Stocks are at risk as rates market gets everyone to sit up – BofA

Is there more downside for equities this year?

BofA says that it sure looks like markets are starting to sit up as the gap between the optimistic scenario priced in by equities and the much uglier economic situation indicated by bonds is getting bigger. And maybe that is finally translating to diverging moves between equities and bond yields, as the Nasdaq is moving inversely to real US rates.

The firm adds that the risk here is that there is much more downside for stocks as “equities have a long way to go to price in rate sensitivity again”.Adding that the Fed may yet be able to get away with its higher for longer policy view as they won’t rush to conclude that inflation is coming down and that its job is done.

There are reports that US Senate negotiators are near a deal to keep govt open after Oct 1

Bloomberg reporting that negotiators for the two warring factions in the US upper house are nearing a deal on a short-term spending measure to keep the government funded after October 1.

The measure is a stop-gap for 4 to 6 weeks of funding.

If it gets through the Senate it’d go to the House where a whole new battle awaits.

Commodities

Gold continues to consolidate but shows signs of resilience

Gold is still managing to hold above $1,900 despite a break higher in Treasury yields

The yellow metal is down just a touch today but in the big picture, it is holding up relatively well despite a breakout in Treasury yields since last week. Of note, gold is still keeping above the pivotal $1,900 mark as price action continues to consolidate for the time being:

There’s a triangle pattern forming as well that is perhaps worth watching but just outside of that, it looks more that price is hovering in between the $1,900 mark and the 100-day moving average seen at $1,939.97 currently.

And just beyond both those levels, there is stronger support from the August lows near $1,885 and the June and July highs around $1983-87. So, those are also key technical layers to be mindful about.

Oil – private survey of inventory shows a build vs. the small draw that was expected

Crude +1.586 million (-1.650 million exp.)
Gasoline -70,000
Distillates -1.698 million
Cushing -828,000
SPR +300,000

Gold doesn’t like the sound of more Fed hikes, nears a one-month low

Gold down $15 today to $1900

There is a ‘sell everything’ flavour in markets today, with oil as a rare exception. The problem for markets is that Fed dove Neel Kashkari today said there was a 40% chance that the Fed hiking cycle won’t be over this year and the possibility that rates would have to go ‘significantly’ higher to restrain consumers and bring inflation back to target.

In the safe haven space, gold is facing major competition from bonds. US 2s sold for above 5% at auction today and 10-year notes yield 4.56%. Gold continues to yield zero and a widening of that spread — especially in a risk-averse scenario is a losing hand.

Chevron chair/CEO says oil price going above $100 – “It’s fundamentally supply and demand”

Chevron chairman and CEO Mike Wirth spoke in a US TV interview, CNBC, on Monday.

He wrapped up what’s driving the price higher:

We’ve seen a global economy that is continuing to do pretty well.
We’ve seen some production cutbacks in some of the OPEC countries come on top of a market that was already showing some tightening
It’s fundamentally supply and demand, and prices have been firming here for a number of weeks
I think risks remain more to the upside than the downside

Goldman Sachs 4 reasons higher oil prices merely a “manageable headwind” for US economy

Goldman Sachs says that while a sustained climb in oil prices could slow consumption and economic growth it will be a “manageable headwind” for the U.S. economy.

“While we forecast consumption growth to slow during the fall and winter, we think higher oil prices are unlikely to cause consumer spending and GDP to decline”

The note from GS economists goes on to discuss four key reasons why the Goldman team isn’t too concerned about the surge in oil prices. In summary:

the magnitude of the oil-price increase is relatively small “Oil prices have risen by $20 per barrel — compared to +$40 in the first half of 2008 and +$45 in the first half of 2022 — and our forecast of retail gasoline prices using futures and wholesale markets indicates that most of the rebound has already occurred,”
“offsetting positive effect” of higher energy-sector capital expenditure (CapEx), will give a GDP growth boost from the CapEx change.
the year-to-date pullback in coal and natural-gas prices, as well as the end of the summer heat waves will bring electricity prices lower during the fall … would also boost consumer incomes and likely consumption … offsetting roughly one-quarter of the gasoline headwind
Goldman does not expect the Fed to tighten monetary policy in response to oil prices as long as the price moves tend to be short-lived. “The Fed should worry about the implications for price stability only if higher oil prices contribute to a de-anchoring of inflation expectations … We are relatively unconcerned about this risk and we do not expect the recent oil move to meaningfully boost consumer inflation expectations.”

EU News

European equity close: A second day of selling

The UK is the only market higher in a sea of red

Nearly all major global equity indexes are red today but the UK FTSE 100 bucked the trend, climbing slightly. Otherwise, it was the second day of heavy selling in what’s been a miserable month.

On the day:

Stoxx 600 -0.6%
German DAX -1.0%
Francis CAC -0.7%
UK’s FTSE 100 +0.1%
Spain’s IBEX -0.1%
Italy’s FTSE MIB -0.9%

Italy to cut GDP target this year and next

The outlook worsens

GDP forecast to +0.8% from 1.4%, according to Reuters citing sources familiar
2024 to be lowered to 1.0% from 1.5%

ECB Holzman: Unclear if we are at peak rate levels

ECB Holzman speaking and is a hawk

It is unclear whether we’re at peakrates yet
Cannot exclude further rate hikes
Upside inflation risks are still out there

ECB’s Müller says that as things stand, not expecting any more rate hikes

Remarks by ECB policymaker, Madis Müller

That conforms to market expectations at the moment. The question now is when will rate cuts come around for the ECB? They’re trying to tout a higher for longer game but markets are seeing the first one come in around July next year.

Other News

China’s banning a senior Nomura executive from leaving the country

Reuters have a non-gated piece up now. Reading between the lines it’s a chilling piece if you are going about your business in China:

Yet as China’s policymaking grows fiercer under President Xi Jinping and geopolitical tensions grow, many foreign companies like Apple are diversifying to other countries.Banks have been one of the few notable exceptions. Some financial institutions have quietly relocated roles from Hong Kong to Singapore, but overall the industry has remained committed to building their businesses in the People’s Republic. Chinese executives are regularly detained in China without explanation and sometimes released within days, but Wang’s travel freeze is the most high-profile incident involving a foreign bank.

Ex-PBOC Adviser says China’s property market could take as long as a year to recover

Li Daokui is a former member of the People’s Bank of China monetary policy committee from 2010 to 2012.He’s currently director of the Academic Center for Chinese Economic Practice and Thinking at Tsinghua University in Beijing.Was speaking in an interview.

Sales in China’s largest cities could return to growth in the next four to six months, but in smaller cities “it will take anything to between six months to one year for a good recovery
proposed Beijing create a mechanism to increase bank lending to property developers in order to reduce financial contagion risks
about 100 billion yuan ($13.7 billion) will be needed to cushion developers through the current downturn, he estimated
“Some developers are overweight in third and fourth tier cities, so their financial situation won’t be able to improve in the coming six months,”
“In the meantime, increased lending by commercial banks is still extremely important in order to prevent any propagation of liquidity problems. Some policy has to be in place to stop the shrinking of bank lending.”
“When sales recover the lending of commercial banks will be recovered. We’re talking about liquidity support,” Li said. “I’m not saying all developers should survive. What I’m calling for is to stop the panic in financial markets and stop defaults due to slowing sales.”

Japanese Economic Minister Shindo says important for currencies to move in stable manner

Japanese Economic Minister Shindo

Must carefully monitor whether output gap to remain in growth territory
Japan’s consumption turned to contraction due to inflation, seen unstable
Important for currencies to move in stable manner reflecting fundamentals
Won’t comment on forex levels
Weak yen has various effects on economy such as raising import costs for consumers, improving competitiveness of exporters

Adding to remarks earlier from the finance minister:

Currency rates should be set by the market
Rapid FX moves undesirable
Closely watching FX moves with a great sense of urgency
Won’t rule out any steps to respond to disorderly FX moves
Share the view with international authorities that excessive FX volatility is undesierable

Japan data – August PPI Services (Corporate Services Price Index) 2.1% y/y (expected 1.8%)

August PPI Services (Corporate Services Price Index) 2.1% y/y

expected 1.8%, prior 1.7%

Australian Weekly ANZ Roy Morgan Consumer Confidence survey slumps to 76.4 (prior 79.8)

Back to its lowest in 5 weeks.

ANZ notes that every sub index in the measure was lower in the week.

And:

Inflation expectations rose to 5.4%, reversing the falls of the last 2 wks. This is likely to be of interest to the RBA, given petrol prices have averaged over $2/L for 6 wks.

Inflation data is due from Australia mid-week – preview

Australia’s monthly CPI data is due on Wednesday, 27 September 2023

Comments via Commonwealth Bank of Australia on what the Reserve Bank of Australia is watching:

The August figure will provide updates on how market services inflation, with key categories like restaurant meals, hairdressing & other household services being measured. The RBA is concerned about services inflation being sticky.

Cryptocurrency News

Franklin Templeton files a 19b-4 for its spot Bitcoin ETF application

Franklin Templeton, an asset manager with up to $1.5 trillion in assets under management (AUM) has filed a 19b-4 for its spot Bitcoin Exchange-traded fund (ETF) application.

SEC Form19b-4 is a form informing the US Securities and Exchange Commission (SEC) of a proposed rule change by a self-regulatory organization (SRO), or simply, a non-governmental body exercising some degree of regulatory authority over an industry or profession.

SROs must file the form with the SEC before making any changes to its rules, particularly when trading rules are concerned.

With this move, the asset manager has officially started the clock with the US SEC, which has to determine whether the asset manager’s reasons for the proposed changes are justifiable.

WisdomTree files for Bianco Total Return ETF

Exchange-traded fund (ETF) specialist Eric Balchunas has indicated that WisdomTree has filed for the Bianco Total Return ETF.A total return ETF is a type of ETF that invests in a diversified portfolio of bonds and other debt instruments.Based on the report, WisdomTree will use an index created by ⁦Bianco Research that invests in other bond ETFs.

Bianco Research LLC offers macro investment research on financial markets.

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Round up of today’s market news

ByBilals Tech