Round up of today’s market news

North American News

NASDAQ Tumbles to Worst Day Since December 2022, While DJIA Hits Record High

The NASDAQ composite index suffered its worst day since December 2022 today, plummeting -3.23% or -512.42 points to 17,996.92. In contrast, the Dow Jones Industrial Average (DJIA) rose to a record high, gaining 0.59% or 243.60 points to close at 41,198.09.

The S&P 500 index fell -1.39% or -78.93 points to 5,588.28, stuck in between the two extremes.

Seven large-cap technology stocks underperformed the NASDAQ today: Nvidia (-6.64%), Meta Platforms (-5.68%), Tesla (-3.14%), Apple (-2.53%), Amazon (-2.64%), Microsoft (-1.33%), and Alphabet (-1.58%).

On the other hand, seven Dow components led the index higher:

UnitedHealth (+4.43%) Johnson & Johnson (+3.67%) Cisco (+2.22%) Chevron (+2.22%) JP Morgan (+1.51%)

After-hours trading saw some notable moves: United Airlines reported a revenue miss but beat earnings expectations. Its stock fell -3.81% in extended hours. Kinder Morgan also missed on revenue and guided lower for Q3, causing its shares to drop -1.02%. Alcoa surprised with better-than-expected EPS and revenues, sending its stock up 1.63%.

What do you think drove the NASDAQ’s sharp decline today? Will this impact the broader market?

US treasury auctions off $13 billion of 20 year bonds at a high yield of 4.466%

• The WI level just ahead of the auction came in at 4.467%

• High yield 4.466% (last month was a little lower at 4.452%)
• WI level at the time of the auction 4.467%
• Tail -0.1 basis points vs six-month average of -0.6 basis points
• Bid to cover 2.68X vs six-month average of 2.63X
• Dealers 8.47% vs six-month average of 12.1%
• Directs 14.32% vs six-month average of 18.2%
• Indirects 77.2% vs six-month average of 69.7%

Atlanta Fed GDPNow growth estimate for Q2 comes in at 2.7% up from 2.5% prior

• The bounce back higher in GDP continues

Just a couple weeks ago, the Atlanta Fed GDP growth estimate was near 1.5%.In its most recent calculation just released, the expected growth rate rose to 2.7% from 2.5% last.Growth goes from below trend to above trend in a short period of time.

In their own words:

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2024 is 2.7 percent on July 17, up from 2.5 percent on July 16.After this morning’s housing starts report from the US Census Bureau and industrial production report from the Federal Reserve Board of Governors, the nowcasts of second-quarter real personal consumption expenditures growth and second-quarter real gross private domestic investment growth increased from 2.1 percent and 7.7 percent, respectively, to 2.2 percent and 8.9 percent.

US June housing starts 1.353M vs 1.300M expected

• Stronger housing starts in June 2024

• Prior was 1.277m (revised to 1.314m)
• Single family -2.2%
• Multifamily +19.6%
• Permits 1.446m vs 1.395m prior

US industrial production for June 0.6% versus 0.3% estimate

• US industrial production capacity utilization for June 2024

Details:

• prior month 0.9% Unrevised
• industrial production 0.6% versus 0.3% expected
• capacity utilization 78.8% versus 78.4% estimate
• prior month revised to 78.3 from 78.7 last month
• manufacturing output 0.4% versus 0.2% estimate. Prior month revised to 1.0% from 0.9%

US MBA mortgage applications w.e. 12 July +3.9% vs -0.2% prior

• Latest data from the Mortgage Bankers Association for the week ending 12 July 2024

• Prior -0.2%
• Market index 214.1 vs 206.1 prior
• Purchase index 140.4 vs 144.3 prior
• Refinance index 613.0 vs 532.3 prior
• 30-year mortgage rate 6.87% vs 7.00% prior

Beige Book: Economic activity maintained a slight to modest pace

• Highlights of the summary of commentary on current economic conditions by Federal Reserve district

• Overall Economic Activity
  • Economic activity maintained a slight to modest pace of growth in a majority of Districts
  • Seven Districts reported some increase in activity, while five noted flat or declining activity
  • Previously two noted no change in activity
• Labor Markets
  • Employment rose at a slight pace in most Districts
  • More mentions of flat or declining employment
  • Several Districts noted a slowing of wage growth due to increased worker availability and less competition for workers​
  • Wage growth continued at a modest to moderate pace
• Consumer Spending
  • Consumer spending was little changed overall.
  • Auto sales varied across Districts, with some noting lower sales due to a cyberattack on dealerships and high interest rates .
• Manufacturing
  • Manufacturing activity was mixed, with reports ranging from brisk downturns to moderate growth
  • Some Districts noted soft demand for manufactured goods .
• Real Estate and Construction
  • Residential real estate showed a typical seasonal slowdown with gradual increases in market inventory.
  • Commercial real estate activity varied, with retail leasing picking up but office leasing remaining weak .
• Banking and Finance
  • Loan demand remained modest overall, with slight increases noted in specific loan types like home equity loans and used auto loans.
  • Deposit levels continued to decline modestly .
• Prices
  • Prices increased at a modest pace overall, with some Districts reporting only slight increases (same as prior)
  • Several Districts noted increased consumer price sensitivity and retailers discounting items .
• Agriculture
  • Agricultural conditions improved slightly, with strong sales reported by cattle farmers and optimism among poultry farmers.
  • Weak demand continued for some row crops like cotton .
• Outlook
  • Expectations for future economic growth were for slower growth over the next six months, influenced by uncertainties around the upcoming election, domestic policy, geopolitical conflicts, and inflation

Fed’s Barkin: Remarkable how strong consumer spending has remained

• Comments from the Richmond Fed

• Expectation of a recession as needed to slow inflation has not played out
• Firms are reluctant to let people go, and some sectors are still short on labor supply
• Clearly on the ‘back end’ of inflation
• Firms are still trying to test their pricing power though that is not a permanent state
• I’m watching the unemployment rate carefully but as open to idea that the policy is not as restrictive as thought
• Fed will debate whether inflation is still “elevated”
• He is sure that the US central bank will debate at July policy meeting whether it is still appropriate to describe inflation as elevated
• Looking for low inflation to sustain and broaden, starting to see the broadening.
• One 25 basis point interest rate cut matters one way or the other, the issue is when to change the narrative.
• US labor market remains quite healthy.
• Recent housing inflation data was encouraging.
• Hes been very encouraged that this inflation is broadening and hopes it continues.
• Still looking for a bit more evidence that this inflation will be sustained.
• The number one way for the Fed to keep its credibility is to do the right thing at the right time

Feds Waller: Second and probably more likely scenario is uneven inflation data ahead that still shows progress, that would make a rate cut in near future more uncertain

• Fed Gov. Waller speaking

• Time for cut in rates is getting closer based on analysis of potential scenarios
• Optimistic scenario is more good inflation and data, which could mean interest rate cut in not too distant future.
• Second and probably more likely scenario is uneven inflation data ahead that still shows progress, that would make a rate cut in near future more uncertain.
• Third scenario, but with low probability, is significant resurgence in inflation in second half of the year.
• US central bank is getting closer to time when cut in policy rate is warranted.
• Current data is consistent with a soft landing, and even less of a trade-off in terms of unemployment.
• Recent inflation data making him more confident Fed will achieve inflation goal.
• On monthly personal consumption expenditures inflation (PCE), need to see a bit more evidence that this will be sustained.
• Moderate consumption growth may continue in second half of the year because personal income data is holding up.
• Labor supply and demand have finally come into rough balance.
• Right now he sees more upside risk to unemployment than has been seen for a long time.
• Wage growth has continued to slow and now consistent with rate needed to support inflation running at 2% in sustained way
• Exact timing of rate cut doesn’t matter a lot.
• Key to easing when conditions just defy it
• Labor market is in a sweet spot, firms have the workers they want
• It is important for the Fed to maintain current labor market conditions.
• We have done our job with the high rates, open question about timing of cut

Fed’s Williams says rate cut could be warranted in the coming months

• New York Fed president, John Williams, comments to the Wall Street Journal

• Latest data getting us closer to a disinflationary trend that we’re looking for
• But would like to see more data to gain further confidence inflation is moving sustainably to 2% goal
• Last week’s data reflects a broad decline in inflation
• Things are moving in the right direction
• Even if Fed begins to cut rates, policy will remain restrictive enough

Trump disagrees with a September Federal Reserve rate cut – wants rates higher for longer

• The front runner for the White House contest wants the Federal Open Market Committee (FOMC) to not cut until later

Trump is ahead on the polling to win the presidential election in November, and he has bad news for borrowers.

He spoke in an interview with Bloomberg, expressing that he does not want a Fed rate cut in September, as the market is now pricing.

• says Fed should abstain from cutting rates and giving the economy a boost
• Trump says the Fed shouldn’t cut and give Biden a boost.
• Added – wants 15% corporate tax.

Société Générale on US stocks – point to broadening profit cycle, improving breadth

• And a better outcome for stocks

A snippet from Société Générale on US equites, looking favourably at the broadening rally:

• equal-weighted S&P 500 had its biggest one-day outperformance versus its market cap-weighted counterpart since Nov 2020 last week

SocGen says this is a boost of confidence for stocks, comparing narrow with broader breadth:

• narrow breadth often occurs in a bear market or when a few concentrated stocks drive the market into a ‘bubble.’
• we now think improving breadth should be the way for the S&P 500, rather than a recession or concentrated positioning, as our cycle indicators continue to rise over the last five quarters and the profit cycle is broadening beyond Nasdaq-100 stocks

IMF expect only one Fed rate cut this year

• International Monetary Fund (IMF) Chief Economist

International Monetary Fund (IMF) Chief Economist Pierre-Olivier Gourinchas says he still expects just the one rate cut from the Federal Reserve in 2024.

Gourinchas cites a risk that the slow pace of disinflation could mean that rates stay higher for longer.

Teranet-National Bank Canada June house price index 0.0% vs +0.2% m/m prior

• Canadian house price data

• Prior was +0.2%
• Prices up 3.6% y/y vs +5.7% prior led by Alberta
• Prices in Toronto +0.8% y/y

Commodities

China’s Gold Quest: Record Prices Unfazed by Recent Reversal

Gold prices hit an all-time high of $2,483 before reversing lower, but the market remains optimistic about China’s continued gold appetite. Despite earlier reports that Beijing had stopped buying gold reserves last month, a policy insider revealed today that the Chinese central bank is committed to increasing its gold holdings.

The goal? To bring gold to 10% of China’s total reserves from its current level of around 4.9%. This would require an additional $170 billion worth of gold purchases at current prices – roughly equivalent to 70 million ounces, or about 7 times the amount bought by China last year.

While this buying spree will take time, it has already had a significant impact on global gold markets. The People’s Bank of China (PBOC) is no longer price-insensitive in its purchasing decisions, leaving traders uncertain about where prices might head next. While $2,000 could become a floor for gold prices, the ceiling remains unclear unless other buyers step up or Beijing reconsiders. link here.

Crude oil futures settle at $82.85

• Up $2.09 or 2.59%

Crude oil futures aresettling the day at $82.85. That’s up $2.09 or 2.59%.

Yesterday, the price fell below its 100-day moving average currently at $80.61, but could not sustain selling and closed back above the moving average level. Today the price did drift back below the moving average to a low of $80.45, but reversed quickly, and is closing near the high for the day at $82.90.

EIA weekly crude oil inventories -4.870M draw versus expectations of a draw of -0.033M

• Weekly EIA oil inventory data

• Crude oil draw of -4.870M vs expected draw of -0.033M
• Gasoline inventories build of 3.328M vs expected draw of -1.600M
• DIstillates build of 3.454M vs expected draw of -0.833M
• Cushing drawdown of -0.875M vs last week -0.702M draw
• Refining utilization -1.7% versus expected -0.1%. Previous +1.9%

EU News

European major indices close mixed on the day

• German DAX and France CAC lower

As London/European traders finish up the day, the major indices are closing the day mixed:

• German DAX -0.40%.
• France CAC, -0.12%
• UK FTSE 100 +0.28%
• Spain’s Ibex +0.13%
• Italy’s FTSE MIB, +0.03%

Eurozone June final CPI +2.5% vs +2.5% y/y prelim

• Latest data released by Eurostat – 17 July 2024

• Prior +2.6%
• Core CPI +2.9% vs +2.9% y/y prelim
• Prior +2.9%

UK June CPI +2.0% vs +1.9% y/y expected

• Latest data released by ONS – 17 July 2024

• Prior +2.0%
• Core CPI +3.5% vs +3.5% y/y expected
• Prior +3.5%

Both the headline and core annual estimates are unchanged compared to May. This comes as services inflation remains sticky, seen at 5.7%, also unchanged on the month.

Asia-Pacific-World News

Trump wants 60% tariff on China, China can respond by letting the yuan fall

• The People’s Bank of China has already begun loosening its support of the CNY

PBOC sets USD/ CNY mid-point today at 7.1318 (vs. estimate at 7.2630)

• PBOC CNY reference rate setting for the trading session ahead

In open market operations:

• PBOC injects 270bn via 7-day RR, sets rate at an unchanged 1.8%
• 2bn mature today
• thus net 268 injection via OMOs today.

Australian June leading index – economy improving but to remain below trend into 2025

• Westpac-Melbourne Institute Leading Index

• for June 2024
• indicates the likely pace of economic activity relative to trend three to nine months into the future
• rose from -0.28% in May to -0.13% in June

WPAC assessment:

• Lower commodity prices partially offset by stabilising hours worked.
• Economic activity improving but to remain below trend in to early 2025

ANZ forecast an RBNZ interest rate cut in November (previously forecasting February 2025)

• A 25bp rate cut forecast for November, with risk for October

ANZ are forecasting a 25bp rate cut from the Reserve Bank of New Zealand in November 2024:

• Overall, today’s CPI data adds to the growing body of evidence that the RBNZ has done enough. There are now clear signs that weak demand and increasing spare capacity across the economy are flowing through to lower domestic inflation outcomes. In the context of the recent deterioration in domestic activity and labour market indicators, today’s CPI starting point points to downside risk to our medium-term inflation outlook.
• We have brought forward our forecast timing of the first 25bp cut in the Official Cash Rate (OCR) to November, rather than in February. We see the balance of risks around that as tilted towards earlier (October) rather than later. Beyond that, we are forecasting a steady run of 25bp cuts at each meeting to a terminal rate of 3.5% as before.

New Zealand Q2 CPI

• New Zealand data – inflation edging lower towards target, but not there yet

• 0.4% q/q (expected 0.5%)
• 3.3% y/y (expected 3.4%)

Domestic inflation continues to stay stubbornly high:

• non-tradable +0.9% q/q and +5.4% y/y (prior 5.8%)
• Non-tradeable inflation measures final goods and services that do not face foreign competition and is an indicator of domestic demand and supply conditions. However, the inputs of these goods and services can be influenced by foreign competition.

Tradeable inflation 0.3% y/y (prior 1.6%

• Tradeable inflation measures final goods and services that are influenced by foreign markets.

RBNZ’s own preferred inflation model 3.6% y/y (prior 4.2%) for Q2 2024

• The sectoral factor model is the Reserve Bank of New Zealand’s own preferred inflation measure

From the Reserve Bank of New Zealand:

The Bank on its own model:

• We created the sectoral factor model. It estimates the common component of inflation in the CPI basket, the tradable basket, and the non-tradable basket, based upon separate factors for the tradable and non-tradable sectors. The data excludes GST.

Japan top currency diplomat Kanda says no choice but to respond to speculators

• Kanda remark in an interview with Kyodo News

He makes mention that “if speculators cause excessive moves in FX market, we have no choice but to respond appropriately”.

Japan data – Reuters Tankan for July: Manufacturers Index +11 (prior +6)

• Non-manufacturing +27 in July vs. +31 in June

Reuters Tankan survey for June 2024

Manufacturers sentiment index +11 in July vs +6 in June

• first gain in four months
• manufacturers expect the index to fall back to plus 9 over the next three months

Service-sector +27, down from June’s +31

Reuters report some comments from the survey:

• “Domestic price hikes have weakened consumption and a slowing Chinese economy has caused China-bound materials from the Middle East to make inroads into the Japanese market at low prices”
• “The double punches of weak domestic demand and cheap import materials from overseas are curbing our sales volume.”
• “Input prices have risen and remain elevated due to the weak yen as we struggle to transfer costs to our customers.”

ICYMI – IMF says the Bank of Japan is facing challenges ensuring price stability

• International Monetary Fund (IMF) Chief Economist

International Monetary Fund (IMF) Chief Economist Pierre-Olivier Gourinchas spoke on Tuesday (US time).

• Bank of Japan faces challenge in ensuring price stability in short-to-medium term
• Cuts Japan 2024 economy growth forecast to 0.7% from 0.9% projected in April on auto disruptions.
• Strong outcome of wage talks likely to support turnaround in Japan consumption in H2
• Wage growth with weak productivity gains may make it difficult for firms to moderate price increases.

Singapore Non-oil Domestic Exports (NODX) June 2024: -0.4% m/m vs. +4.1% expected

• Big miss for Singapore exports

Singapore Non-oil Domestic Exports (NODX)

-0.4% m/m

• expected +4.1% m/m, prior -0.1%

-8.7% y/y

• expected -1.2% y/y, prior -0.1%

• weakness in non-electronic products, fell 8.7% y/y

More info via Reuters:

• Maybank economist Chua Hak Bin said Singapore’s port congestion and the logjam from the Red Sea crisis may be dampening the export recovery since manufacturing and electronics sentiment suggest demand remains healthy. “The disruption may persist for a few months, but may imply some pent-up demand and catching up in export volumes by late third quarter,” Chua said.

Cryptocurrency News

Ethereum ETF Issuers File Final Drafts as SEC Reconsideration Looms

In anticipation of a potential launch on July 23, Ethereum ETF issuers have begun filing their final S-1 registration statements. The move comes after Bloomberg analyst Eric Balchunas reported that the Securities & Exchange Commission (SEC) has asked for these drafts to be submitted by today.

21Shares, one such issuer, revealed its updated ETH ETF draft, featuring a 0.21% fee and a six-month waiver on the first $500 million in trading volume under the ticker CETH. The SEC approved spot ETH ETF 19b-4 filings from eight issuers back in May but needs to give final approval for their S-1 registration statements before they can go live.

According to Balchunas, the SEC could grant its blessing and allow these products to trade on Tuesday. Meanwhile, SEC Commissioner Hester Peirce has hinted that reconsideration of staking within Ethereum ETFs might be possible in the future.

“I think certainly something like staking… those are always open for reconsideration as far as I’m concerned,” she said. Earlier this year, issuers had removed staking from their applications due to speculation about the SEC’s comfort with the concept. Now, it seems that door could reopen.

What do you think? Are Ethereum ETFs on track for a successful launch?

Binance Grapples with Money Laundering Allegations and Global Regulatory Pressures

Binance, one of the leading cryptocurrency exchanges by trading volume, is currently embroiled in significant legal and regulatory challenges. The exchange is facing money laundering charges in Nigeria, with the Nigerian court postponing the decision until October 11. This case has attracted international attention, with US Congressmen urging the American Embassy in Nigeria to advocate for the release of Binance executive Tigran Gambaryan on humanitarian grounds.

Amidst these challenges, Binance co-founder He Yi recently addressed the regulatory pressures the exchange faces globally in an interview. He underscored Binance’s commitment to the next phase of crypto adoption through innovations in web3 wallets, its stablecoin business, and addressing global compliance issues. He Yi emphasized that while competitors might view web3 wallets as a secondary option for regulatory evasion, Binance aims to integrate them into its primary offerings to provide essential on-chain services such as staking and transactions .

As Binance navigates these turbulent waters, the outcome of the Nigerian lawsuit could significantly impact its strategy in markets with regulatory uncertainties. This situation is compounded by the fact that Binance is concurrently defending against allegations from the US SEC regarding violations of securities laws. The Nigerian government accuses Binance of contributing to the local currency crisis and manipulating exchange rates, adding further complexity to its legal battles.

Looking ahead, Binance plans to invest in new ventures and continue fostering innovation in the crypto space. The exchange’s addition of “The Square” in 2023 is a strategic move to attract users unfamiliar with crypto, potentially transitioning them towards crypto investments over time.

He Yi stressed the long-term importance of crypto regulation, noting the associated costs and delays in implementing new business models and products. Despite the hurdles, Binance remains focused on leveraging web3 wallets as a significant business opportunity, aiming to bring the next generation of crypto traders into the fold

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