Round up of today’s market news

North American News

NASDAQ and S&P Post Back-to-Back Gains with Second Consecutive Day in the Green

• It’s a start

Admittedly the S&P index only rose marginally (0.02%) yesterday, but it still was a victory in the win column. Today, the gain was a little more respectable at 0.59%.

The final numbers for the major indices are showing:

• Dow industrial average +116.07 points or 0.35% at 33666.35
• S&P index up 25.17 points or 0.59% at 4299.69
• NASDAQ index of 108.42 points or 0.83% at 13201.27

Although higher, the broader indices are still on pace for their worst month in 2023 (since December)

• Dow industrial average is down -3.04%. Its worst month since May
• S&P index is down -4.61%. Its worst month since December
• NASDAQ index is down -5.94%. Also its worst month since December.

Yields in the US are closing near their lows which help to support prices:

• 2 year yield 5.060%, -8.1 basis points
• 5 year yield 4.624%, -8.1 basis points
• 10 year yield 4.578% -4.7 basis points
• 30 year yield 4.706% -2.7 basis points

The 2 – 10 year spread is trading at -48.5 basis points.The yield curve is still 50 basis points negative, but in 2023 it was as low as -109 basis points.

US sells 7-year notes at 4.673% vs 4.670% WI

• Results of the $37 billion 7-year Treasury auction
• Prior was 4.212%

A 0.3 bps tail is on the wrong side of the ledger but follow through has been minimal.

US initial jobless claims 204K vs 214K estimate

• US initial jobless claims and continuing claims for the current week

• Prior week jobless claims 201K revised to 202K
• Initial jobless claims 204K vs 214K est.
• 4-week moving average initial jobless claims 217.25K vs 217.0K last week.
• Continuing claims 1.670M vs 1.675M estimate. Prior week revised to 1.658M from 1.662M previously reported
• 4-week moving average of continuing claims 1.674M vs 1.686M prior week
• The largest increases in initial claims for the week ending September 16 were in Georgia (+1,539), New York (+1,332), South Carolina (+1,103), Texas (+987), and Oregon (+557),
• The largest decreases were in Indiana (-2,761), California (-1,498), Virginia (-631), Iowa (-558), and Kentucky (-375).

US Q2 2023 final GDP +2.1% vs +2.1% expected

• The third reading on second quarter 2023 GDP

• The Q1 second reading was +2.1%
• Final Q1 reading was +2.0% annualized
• Q4 was +2.6% annualized

Details:

• Consumer spending +0.8% vs +1.7% prelim
• Consumer spending on durables % vs -0.3% prelim
• GDP final sales +2.1% vs +2.2% prelim
• GDP deflator +1.7% vs +2.0% prelim
• Core PCE +3.7% vs +3.7% prelim
• Exports -9.3% vs -10.6% prelim
• Imports -7.6% vs -7.0% prelim
• Business investment +5.2% vs +3.9% prelim
• Corporate profits +6.9% vs -10.6% prelim

Percentage point changes:

• Net trade pp +0.04 vs -0.12 pp prelim
• Inventories 0.0 pp vs -0.09 pp prelim
• Govt pp +0.57 vs +0.58 pp prelim

US pending home sales for August -7.1% versus -0.8% expected

• US pending home sales for August 2023

• Prior month 0.9% revised to +0.5%
• Pending home sales -7.1% versus -0.8% estimate.
• Pending home sales index for August 71.8 versus revised 77.3 (was 77.6). Looking at the chart above that takes the index to the lowest level since the pandemic (which was the lowest level going back to 2005 at least)
• Sales down -18.7% year on year

Regionally:

• West -7.7%
• Midwest -7.0%
• South -9.1%
• Northeast -0.9%

KC Fed manufacturing index -8 vs -2 prior

• KC Fed manufacturing data

• Prior was -2
• Production -13
• New orders -14
• Prices paid +2

Selected comments:

• “Inflation (cost of inputs – mostly material costs) is still a significant concern. If energy costs continue to climb it will become more of a challenge. Access to labor is better across all shifts, but quality of applicant is still low. Concerned about macro-level economic conditions; consumer appears to be tapped out.
• “Maintenance remains strong. Discretionary spending has been reduced, which could be caused by the need to keep the aircraft flying.”
• “Currently debt free but have access to line of credit if necessary.”
• “Material prices continue to fall. Gasoline is our biggest inflation problem.”
• “Business softening suddenly this month.”
• “Business has been fairly regular.”
• “Too many unknowns currently making capital expenditures a little more risky. In addition, the cost of financing is high.”

Fed’s Barkin: Lost data due to government shutdown would complicate understanding economy

• Comments from Barkin on Bloomberg
• Credit card data is a good alternative data set
• I try to talk to businesses and workers what’s happening in the economy
• Growth still seems ‘solid’ in the economy
• It makes sense that lower and middle-income spending is adjusting to a slower pace
• Growth will moderate from earlier this year
• The data on consumer spending in the past few months has been ‘extraordinary’ but he expects it to slow
• I’ve heard that the middle income consumer is starting to ‘re-prioritize’ spending
• I’m expecting the next quarter to be ‘solid’ no ‘robust’
• Pace of growth in Q1/Q2 is unlikely to continue
• I think we will see demand softening
• It’s very difficult to imagine inflation settling with growth above trend
• We’ve unleashed people’s ability to use price as a lever
• We’re still seeing wage pressure in the skilled trades
• The last five months of inflation data have been encouraging

Feds Goolsbee: Fed will return inflation to target, and can do it without a recession

• Chicago Fed Pres. Goolsby speaking
• Holding to ‘inevitability’ that job losses are needed to slow inflation risks a ‘near-term policy error.’
• Some analysis shows inflation reaching target soon, ‘without further policy tightening’ and only a modest slowdown in growth.
• Fed needs to be ‘extra careful’ of tying policy to historical relationships that may not hold up in the current economy.
• Recent data, with inflation slowing without job losses, have run against past U.S. patterns.
• Fed will return inflation to target, but has a chance to do something rare by accomplishing that without recession.
• Evidence points to the outbreak of inflation in 2021 as largely supply-related; ignoring supply improvements is a recipe for overshooting.
• Long-run inflation expectations are ‘well-anchored,’ can help lower inflation with ‘less economic pain’ than previously.
• Importance of expectations and Fed credibility makes proposals to raise the inflation target from 2% ‘quite risky.’
• Risks to the outlook include oil prices, slowdown in China, possibility of a protracted U.S. auto strike, or a disruptive government shutdown.
• Housing will be key to continued inflation progress in the next few quarters, with the risk that rising home prices could also boost market rents.
• Better productivity could mean long-run potential is not as low as some have feared, allowing more growth without inflation.
• Wages typically lag prices, so short-term movements should not be used to predict inflation.
• If Fed sees lack of progress on the price side, it will have to raise restraint.
• Trying not to put much weight on conventional measures of overheating
• Have not decided what to do at the next meeting
• Recent inflation was mostly supply though there was a demand component
• The Fed will have a legitimate debate about how the current framework worked in this period of inflation
• Inflation targets do risk giving a false sense of precision around a variable that is noisy
• It will matter a lot how long auto strike lasts in terms of its GDP impact
• Auto strikes have not had a historical large impact on inflation. However current capacity and inventory situation is different
• Fed is trying to get a handle on whether an extended strike might lead to different price outcomes
• Have not been a big fan of an explicit fed target
• Once Fed his back to 2% target or on a clear path to it, then it would be perfectly appropriate to discuss the target itself.
• If long continues to increase, Fed will have to take account of that as a form of tightening

Bank of America, higher US rates still to come?

Key Takeaways:

1. US Treasuries as an Attractive Option:

BofA regards US Treasuries (USTs) as a growingly enticing alternative to risk assets.The bank believes U.S. interest rates will continue to rise until we see a slowdown in the real economy, negative reactions from risk assets, or until enough interest rate hikes are priced out, which would in turn limit further significant sell-offs.

2. Reasons for Rising US Rates:

Several factors have driven up US rates:

• Persistent robust US economic data.
• A challenging supply and demand scenario.
• Overextended UST market positioning.

These dynamics have adjusted market expectations from 150bp worth of interest rate cuts in July to just 75bp of cuts for 2024.

The September FOMC meeting played a significant role in triggering the recent sell-off in treasuries.

3. Powell’s Stance:

BofA infers that Federal Reserve Chairman Jerome Powell might not be entirely convinced that the current rates are restrictive enough. This suggests that US interest rates might need to climb further until they start having a noticeable dampening effect

China-US relations beginning to thaw?

• WSJ reports that senior Chinese officials are discussing a trip to Washington

Some headlines from the WSJ:

• U.S., China discussing Washington visit by top Chinese economic official, sources say
• Vice Premier He Lifeng would be most senior Chinese official to visit under Biden
• Plans also under way for visit by Chinese Foreign Minister Wang Yi, sources say
• Wang’s trip would prepare for a Biden-Xi summit in November, sources say
• No dates set for He, Wang visits

White House enumerates 4 headwinds for the US economy

Chair of the Council of Economic Advisers, i.e. the White House economic adviser, Jared Bernstein:

• US economy facing headwinds from:
  • possible shutdown,
• student debt restart,
• higher interest rates,
• UAW strike

• US economy expected to keep going in ‘a pretty good way’ absent a policy mistake or exogenous shock
• wages are not particularly implicated in inflation
• believes around a quarter of core, non-housing services inflation is wage-sensitive

Goldman Sachs says the probability of a US government shutdown is now 90%

The latest from GS is that they see the first shutdown as imminent:

• “A shutdown this year has looked likely for several months, and we now think the odds have risen to 90%”
• the most likely scenario is the government will shut down on October 1.
• “While there is still a chance that Congress can reach a last-minute deal to extend funding past Sep. 30, there has been little progress made and there is little time left,”
• “In the seemingly unlikely event Congress passes a short-term extension, we would still expect a shutdown sometime later in Q4.”

Commodities

Gold price sees more losses as Fed policymakers support more rate hikes

• Gold price faces an intense sell-off as Fed Kashkari said he sees one more interest rate hike this year.
• Strength in the US economy due to tight labor market and strong consumer spending have backed the Fed’s hawkish stance.

Gold has been dumped heavily by market participants as Federal Reserve (Fed) policymakers reiterate their hawkish stance on the interest rate outlook. The precious metal continues its three-day losing spell as bets for unchanged interest rates fade amid a resilient US economy. The US Dollar attracts significant bids as strong consumer spending and tight labor market conditions may keep excess inflation persistent.

The US labor market conditions seem strengthening further weekly jobless claims remained below consensus. The US Department of Labor reported that individuals claiming jobless claims for the first time increased by 2K to 204K for the week ending September 22 from the previous week’s release but remained lower than expectations of 215K. Meanwhile, the final reading of real Gross Domestic Product (GDP) for the April-June quarter remained in line with the previous estimate and the market expectation of 2.1% on an annualized basis.

WTI retreats from a 12-month peak on profit taking, and higher rates worries

• WTI dips 1.30% to $92.45, retracting from a 12-month high of $94.99, as traders speculate on profit-booking and the potential economic impact of rate hikes.
• US economy exhibits resilience with a 2.1% growth in Q2 and an anticipated 4.9% GDP growth in Q3, amidst decelerating inflation.
• A possible US government shutdown looms, adding uncertainty to the markets, as Republicans and Democrats debate the 2024 Federal Government budget.

WTI, the US crude oil benchmark, retreats after rising to a new 12-month high on Thursday at $94.99 on speculations that traders book profits. That alongside worries that high-interest rates would weigh on global economies, dented Oil’s demand. WTI is trading at $92.45, losses 1.30%.

Biden administration 5-year off shore oil plan does not include any lease sales for 2024

Info via Reuters:

• Biden administration 5-year off shore oil plan to be released on Friday does not include any sales for 2024
• U.S. 5 year oil lease plan will include the lowest lease sales in history

EIA weekly US natural gas storage bcf+90 bcf vs +88 bcf expected

• The weekly natural gas report
• Prior was +64 bcf

EU News

European equity close: STOXX 600 breaks the summer lows then reverses high

• Closing changes in Europe

• Stoxx 600 +0.3%
• German DAX +0.6%
• Francis CAC +0.6%
• UK’s FTSE 100 +0.1%
• Spain’s IBEX +1.0%
• Italy’s FTSE MIB +0.5%

Spain September preliminary CPI +3.5% vs +3.5% y/y expected

• Latest data released by INE – 28 September 2023

• Prior +2.6%
• HICP +3.2% vs +3.3% y/y expected
• Prior +2.4%

Germany September preliminary CPI +4.5% vs +4.6% y/y expected

• Latest data released by Destatis – 28 September 2023

• Prior +6.1%
• CPI +0.3% vs +0.3% m/m expected
• Prior +0.3%
• HICP +4.3% vs +4.5% y/y expected
• Prior +6.4%
• HICP +0.2% vs +0.3% m/m expected
• Prior +0.4%

Bavaria September CPI +4.1% vs +5.9% y/y prior

• Latest data released by Destatis – 28 September 2023

The other state readings released at around the same time:

• Hesse CPI +4.7% y/y
• Prior +6.0%
• Brandenburg CPI +5.6% y/y
• Prior +7.1%
• Baden Wuerttemberg +5.1% y/y
• Prior +7.0%

Saxony September CPI +5.4% vs +6.8% y/y prior

• Latest data released by Destatis – 28 September 2023

This just confirms that German annual inflation is set to ease in September, with the estimated reading being 4.6% – down from 6.1% in August. That said, the monthly reading is expected to show a rise in consumer prices with the Saxony reading also seen up 0.3% on the month. And with oil prices continuing to rise, that means the ECB can’t rest on their laurels just yet.

North Rhine Westphalia September CPI +4.2% vs +5.9% y/y prior

• Latest data released by Destatis – 28 September 2023

This fits with expectations for a softer year-on-year figure but the monthly figure still shows a 0.2% increase in consumer prices. Here’s the breakdown for Germany’s industrial state:

Economic institutes forecast 0.6% GDP contraction for Germany this year

• The latest forecast released by five economic institutes on the German economy

The institutes (4 German, 1 Austrian) had previously expected a growth of 0.3% in the German economy during the spring. So, this is a significant revision lower as they expect higher interest rates and high inflation to weigh on consumption activity.

2023 GDP growth is now forecast to be -0.6%, then +1.4% in 2024 and +1.5% in 2025. As for inflation, they see it at 6.1% in 2023, 2.6% in 2024, and 1.9% in 2025.

UK car output fell y/y in August, snapping a six-month growth streak

UK car output slipped in August from a year earlier, snapping a six-month growth streak

• -9.7% y/y in August according to data from the Society of Motor Manufacturers and Traders (SMMT)

The lower result is attributed to manufacturers pausing production to prepare for a shift towards next-generation electric vehicles (EV).

Info via Reuters.

Other News

China to introduce tax exemptions and cuts for affordable housing

• The measures will go into effect from 1 October onwards

Taxes will be exempt for urban land used for the construction of affordable housing projects and stamp duty will also be waived for management firms and buyers of said projects, all starting from 1 October. Adding to that, there will be a reduced deed tax of 1% to be levied on the purchase of affordable housing by home buyers.

Trading in shares of troubled Chinese property developer Evergrande suspended in HK

Hong Kong exchange says trading of shares in the firm has been suspended. Comes after reports that its chairman had been placed under police surveillance.

Suspended:

• Evergrande
• Evergrande Property Services
• Evergrande New Energy Vehicle

Nomura raises China GDP forecast (yes, raise). BoA sees green shoot in China profit data.

Nomura bumped its forecast for 2023 economic growth in China higher, to 4.8% from previously at 4.6%.

Bank of America have dialled back the pessimism on China also. They have been touting improving domestic and investment demand and have now spotted a ‘green shoot’ in the profits data that was released yesterday:

From BoA’s note:

• Both industrial profit & revenue growth improved in August, both turned positive
• Profit growth improvements seen across the board
• within upstream sectors, electricity, heat production & supply improved the most in profitability, while profit growth in other subsectors was also helped by the stabilization in PPI
• A green shoot, while the sustainability likely to persist … which suggests the worst growth may be behind us

Australian August retail sales +0.2% m/m (vs. expected +0.3%)

Australian retail sales data for August 2023 come in at +0.2% m/m, a miss

• expected +0.3%, prior +0.5%

The Reserve Bank of Australia began an an aggressive rate hike campaign in May 2022 and have only just relented in the past 3 months. Higher rates have played a part in sapping consumer confidence and contributing to weaker household spending. the Bank has been trying to claw inflation back towards target, and they are;t close to doing so yet. Higher (rates) for longer applies in Australia as well as elsewhere as inflation has proven itself to be sticky. Earlier this week we got the monthly CPI report for August with the trimmed mean core measure unchanged at 5.6%. Sticky indeed.

RBA cash rate target since May ’22:

In-house data shows Australian retail sales for August is likely to disappoint – preview

Via CBA, citing their proprietary data for their lower-than-consensus estimate:

Retail trade rose by 0.5% in July, buoyed by spending around the FIFAWomen’s World Cup, and following a 0.7% decline in June. OurCommBank Household Spending Insights (HSI) index shows that the pace of retail spending growth moderated in August. We anticipate that retail trade, as measured by the ABS survey, rose by just 0.1%.Retail trade rose by 0.5% in July, buoyed by spending around the FIFAWomen’s World Cup, and following a 0.7% decline in June. Our CommBank Household Spending Insights (HSI) index shows that the pace of retail spending growth moderated in August. We anticipate that retail trade, as measured by the ABS survey, rose by just 0.1%.

• Retail trade rose by 0.5% in July, buoyed by spending around the FIFA Women’s World Cup, and following a 0.7% decline in June.
• Our CommBank Household Spending Insights (HSI) index shows that the pace of retail spending growth moderated in August. We anticipate that retail trade, as measured by the ABS survey, rose by just 0.1%.

New Zealand data – September business confidence improves from August

• ANZ Business Outlook survey with better news for the NZ economy

ANZ business survey data for September 2023.

Activity Outlook 10.9%

• prior 11.2%

Business Confidence 1.5%

• prior -3.7

This table from ANZ’s report, quite a mixed set of sub indexes:

The yield on the 10 year JGB has hit its highest since September 2013

Hits 0.75%.

It won’t be closing the gap to the US 10 year any time soon ….

Japan finance minister Suzuki says its important for currencies to move in stable manner

More verbal JPY intervention from Japan.

Suzuki declined to comment when asked about the prospects of a ‘rate check’.

South Korean automakers Hyundai and Kia are recalling 3.3 million vehicles in the US

That’s A LOT of cars!

Hyundai and Kia are recalling a combined 3.37 million vehicles in the United States due to the risk of engine fires:

• say that internal brake fluid leaks can cause an electrical short that could lead to a fire

The US National Highway Traffic Safety Administration (NHTSA) said owners should follow the advice of automakers and park vehicles outside until repairs are made.

Info comes via Reuters.

Cryptocurrency News

Ethereum climbs 3% on talk of ETF launches

• Ethereum up 3%, bitcoin 2%

Ethereum is at the highs of the day, up 3.1% to $1644. The catalyst is chatter that the SEC is trying to accelerate the launch of futures-based ETFs before the anticipated government shutdown on Monday. If a shutdown occurs, just 8% of SEC staff will stay on the job.

A Bloomberg reported first teased yesterday:

Hearing the SEC wants to accelerate the launch of Ether futures ETFs (bc they want it off their plate bf shutdown) so they’ve asked the filers to update their docs by Fri pm (no small task to jam into 48hrs, esp for indie issuers), so they can go eff Mon and trade Tue.

The scoop was seemingly confirmed by VanEck, who put out a press release today about the ‘upcoming launch’ of their ether ETF, even offering up a symbol (EFUT).

Coinbase receives regulatory approval to launch derivative trading for non-US customers

• Coinbase received approval from the Bermuda Monetary Authority (BMA) to offer derivatives trading through its international exchange.
• The exchange would now be able to tap into the services that contribute to 75% of the global crypto trading volume.
• The exchange was Coinbase’s answer to the regulatory crackdown in the US after the SEC filed a lawsuit against it.

Coinbase is emerging as the biggest entity to defy the enforcement actions pursued by the Securities and Exchange Commission (SEC) after successfully launching its International exchange in Bermuda in Q2 this year.The exchange is now expanding to meet the demands of its users by bringing derivatives services.

Coinbase exchange receives derivatives trading approval

Coinbase announced on September 28 that it received the necessary regulatory approval in order to provide its users with derivatives trading services.The approval came from the Bermuda Monetary Authority (BMA) to extend its perpetual futures trading services to non-US retail customers.

The world’s second-biggest exchange noted in the announcement that about 75% of the global crypto trading volume comes from the derivatives market alone, and tapping it would significantly ameliorate the revenue generated by the exchange.

As is, Coinbase International Exchange has already registered over $5.5 billion in spot trading volume and derivatives trading conducted by the institutions.

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