North American News
Stocks Stumble into the Weekend: Nasdaq Hits Technical Correction as Small Caps Lead the Decline
Daily Performance:
- S&P 500: -1.8%
- Nasdaq: -2.4%
- DJIA: -1.5%
- Russell 2000: -3.6%
Weekly Performance:
- S&P 500: -2.1%
- Nasdaq: -3.3%
- DJIA: -2.1%
- Russell 2000: -6.7%
Market Overview:
- Volatility: The week saw significant volatility, with a dramatic decline following an initial post-FOMC rally.
- Technical Correction: The Nasdaq’s 10% drop from its highs indicates a technical correction.
- Sector Performance: Small-cap stocks (Russell 2000) led the decline, highlighting broader market weaknesses.
Closing Notes:
- Despite the rough week, there are some signs of recovery as the market shows resilience into the close, though the broader trend remains negative.
US July non-farm payrolls +114K vs +175K expected
- July 2024 US employment data from the non-farm payroll’s report
- Prior was +206 (revised to +179K)
Details of the July 2024 jobs report:
- Two-month net revision -29K vs -111K prior
- Unemployment rate 4.3% vs 4.1% expected (unrounded 4.252%)
- Prior unemployment rate 4.1%
- Participation rate 62.7% vs 62.6% prior
- U6 underemployment rate 7.8% vs 7.4% prior
- Average hourly earnings +0.2% m/m vs +0.3% expected
- Prior avg hourly earnings +0.3% m/m
- Average hourly earnings +3.6% y/y vs +3.7% expected
- Average weekly hours 34.2 vs 34.3 expected
- Change in private payrolls +97K vs +148K expected
- Change in manufacturing payrolls +1K vs -1K expected
- Household survey +67K vs +116K prior
- Government jobs +17K vs +70K prior
- Full time +448K vs -28K prior
- Part time -325K vs +50K prior
Some notes on sectors:
- Health care continued to add jobs (+55,000)
- Information sector lost jobs (-20,000)
- Government employment showed little change after larger gains in previous months
US June factory orders -3.3% vs -2.9% expected
- US factory orders for June 2024 and revisions to durable goods orders
- Prior was -0.5
- Factory orders ex transportation +0.1 vs +0.5% prior
- Shipments +0.5%
Revisions to durable goods orders
- June durable goods -6.7% versus a -6.6% preliminary. Prior month +0.1%
- Durable goods ex transportation +0.4% versus +0.5% preliminary
- Durable goods non-defense capital goods ex-air +0.9% versus +1.0% preliminary
Fed’s Goolsbee: The job of a central bank is to move in a steady way
- Comments from the Chicago Fed dove
- If we stay restrictive for too long, we have to think about the employment mandate
- If unemployment is going to go up higher than 4.1%, that’s the kind of thing the Fed has to respond to
- The through-line of the data doesn’t change based on one month’s number
- We have been seeing the improvement we’ve wanted on inflation
- We will determine the size of rate cut or if there is any action will be on economic conditions
- If inflation and the job market continue cool, the Fed should cut
- We’ve had multiple goods months of inflation, it’s broad based
Fed’s Barkin not ready to embrace 50 bps cut debate, says +114K jobs is ‘reasonable’
- Pushback from Barkin
“More significant reductions typically would be associated with an economy that feels like it’s deteriorating rapidly. And again, 114,000 jobs, while not as good as we’ve been running, on a long-term basis, is a reasonable number,” Barkin told her.
Citigroup forecasts 50 basis point cuts in September and November
- Citi sees the Fed breaking out the big guns
Economist at Citigroup are now forecasting a 50 basis point cut from the Fed in September and another one in November.
Goldman Sachs now sees three consecutive Fed rate cuts this year
- Goldman Sachs says that if August jobs report is also soft, then a 50 basis point cut is likely
Economists at Goldman Sachs now see the Fed cutting rates by 25 basis points at all three remaining meetings this year. Previously they forecast two cuts.
“Today’s report indicates that the softening in labor market conditions has now gone beyond the amount that was welcome,” Goldman writes.
From the note:
“Nonfarm payrolls rose 114k in July, below consensus expectations. The industry composition was also soft, as the healthcare sector accounted for over half of the job gains in July and the payrolls diffusion index fell to its lowest level since May 2016. The household survey was also soft, with the unemployment rate increasing 0.2pp to 4.3%. The BLS noted that Hurricane Beryl “had no discernible effect on the national employment and unemployment data for July.” That being said, the number of workers not at work because of weather in the household survey increased 280k (SA by GS), and the number of unemployed workers on temporary layoff increased 249k, accounting for 70% of the increase in the overall number of unemployed workers this month. Our estimate of the underlying pace of job growth based on the payroll and household surveys now stands at 146k after adjusting for the undercounting of immigration in the official statistics. Average hourly earnings increased by 0.2% month over month in July, below expectations. Our estimate of the underlying pace of average hourly earnings growth stands at +3.9%. Today’s report indicates that the softening in labor market conditions has now gone beyond the amount that was welcome. As a result, we now expect an initial string of consecutive 25bp rate cuts in September, November, and December (vs. our previous forecast of cuts every other meeting). We think the slowdown in job growth in the July report likely overstates the decline in the underlying trend, but if the August employment report is also weak and confirms the slowdown in job growth, then a 50bp cut would become likely at the September meeting.”
UBS stick to their end of year S&P 500 forecast of 5,900; “fundamentals remain positive”
- AI still a favourite
UBS says to shake off short term volatility and not miss out on rebounds:
- Market sentiment and positioning had become extended — making a pullback more likely.
- But market fundamentals remain positive, and we continue to expect the S&P 500 to recover and end the year higher at 5,900
UBS still like prospects for long-term growth opportunities in artificial intelligence trend. Expect lower interest rates ahead, so lock in yield on high-grade government and corporate bonds.
ICYMI – the J.P. Morgan Global Manufacturing PMI fell to 49.7 in July from 50.8 in June
- Some major economies still expanding, but overall picture weakens noticeably. Is this a temporary setback or the start of a prolonged downturn?
The latest JPM Global Manufacturing PMI was published on Thursday, it dipped below 50 in July, signaling a slump back into contraction
- J.P.Morgan Global Manufacturing PMI fell to 49.7 in July from 50.8 in June
- First contraction in 2024 so far, ending 6-month expansion streak
- Output growth slowed significantly, new orders declined for first time since January
- US and China saw weaker expansions, euro area remained in downturn, Japan slipped back into contraction
- Only 15 out of 32 nations registered increased manufacturing production
- Employment was unchanged overall, with gains in US and Japan offset by losses in eurozone and China
- Input costs and selling prices continued to rise, but at slower rates
The JPM PMI showed output barely growing and new orders falling, but with some major economies still expanding. The bigger picture has weakened noticeably though. Keep an eye on whether this is just a temporary setback or the start of a more prolonged downturn.
US Treasuries and stocks flipped to a ‘bad news is bad news’ response on Thursday. We’re not accustomed to that after ongoing BTD responses.
US equity index futures continue their slide, NQ has lost over 1% in evening trade
- ES down 0.7%
Global equites being slammed.
ES and NQ off heavily in US Thursday evening trade on Globex.
Commodities
Silver finishes the day off flat
Recent Performance:
- Current Price: Silver is trading around $28.49, showing a slight decline of 0.02%.
- Weekly High: $29.22 before stabilizing.
Technical Outlook:
- Bullish Scenario: If silver closes above the 100-day moving average (DMA) at $28.69, it could lead to a rally towards $29.00 and potentially $29.50.
- Bearish Scenario: If silver falls below $28.00, the next support levels to watch are $27.95, July 29 low of $27.31, and the 200-DMA at $26.00.
Market Context:
- Reaction to Data: Silver’s price action has been influenced by recent US Nonfarm Payrolls data, showing volatility with a brief dip below $28.00 before stabilizing.
- Technical Resistance: The 100-DMA at $28.69 remains a key level; a close above this could signal a potential upward move, while falling below $28.00 might reinforce bearish momentum.
Silver’s current flatline suggests a consolidation phase following recent volatility, with key technical levels to watch for further directional clues.
Baker Hughes Rig Count Update:
U.S. Rig Count:
- Total Rig Count: Down 3 to 586
- Oil Rigs: Unchanged at 482
- Gas Rigs: Down 3 to 98
- Miscellaneous Rigs: Unchanged at 6
- Year-over-Year Comparison: Down 73 rigs from last year’s count of 659
- Oil Rigs: Down 43
- Gas Rigs: Down 30
- Miscellaneous Rigs: Unchanged
- Offshore Rig Count: Down 1 to 20, but up 1 year-over-year
Canada Rig Count:
- Total Rig Count: Up 8 to 219
- Oil Rigs: Up 6 to 150
- Gas Rigs: Up 2 to 69
- Year-over-Year Comparison: Up 31 rigs from last year’s count of 188
- Oil Rigs: Up 32
- Gas Rigs: Down 1
- Miscellaneous Rigs: Unchanged at 0
Market Context:
- EIA Report: Highlighted a significant downward revision in U.S. oil production, which has seen minimal growth over the past year. This revision points to potential supply risks.
- WTI Crude Oil Price: Down $3 today, reflecting current market focus on demand rather than production issues.
The rig count reflects ongoing shifts in the oil and gas sector, with notable declines in U.S. oil rigs and increases in Canada. The supply dynamics and revisions in production forecasts are crucial factors influencing market behavior and price movements.
Oil heads up – US hurricane Center warns of a storm gathering in the Gulf
- Straits of Florida or eastern Gulf of Mexico near Florida under threat this weekend.
The US National Hurricane Center warns of a tropical depression likely to form over the Straits of Florida or eastern Gulf of Mexico near Florida this weekend.
EU News
Switzerland July manufacturing PMI 43.5 vs 43.8 expected
- Latest data released by Procure – 2 August 2024
- Prior 43.9
Swiss manufacturing conditions continue to suffer and overall, it points to some weakness in the economy with the services sector also seeing a print below 50 in July. Here is the breakdown for the manufacturing report:
Switzerland July CPI +1.3% vs +1.3% y/y expected
- Latest data released by the Federal Statistics Office – 2 August 2024
- Prior +1.3%
- Core CPI +1.1% y/y
- Prior +1.1%
Asia-Pacific-World News
China Rejects $1 Trillion Housing Rescue Plan Pitched by IMF
Bloomberg – Chinese authorities have rejected a proposal made by the International Monetary Fund to use central government funds to complete unfinished housing, dealing a blow to hopes for more forceful support to an industry that’s been a major drag on the economy.
More at the link here.
PBOC adviser calls for bolder stimulus, lower inflation target
- A risky input given economic discussions in China are very sensitive right now
PBOC adviser Huang Yiping has made a break from the usual restrained tone at the upper echelons of Chinese authority, with a call for bolder stimulus and a lower inflation target
- Urges more fiscal stimulus and consumption boost
- Warns of “low inflation trap” risk for Chinese economy
- Suggests lowering CPI target to 2%-3% from current 3%
- Rare public critique of Beijing’s conservative economic policies
The info comes via Bloomberg (gated).
PBOC sets USD/ CNY reference rate for today at 7.1376 (vs. estimate at 7.2437)
- PBOC CNY reference rate setting for the trading session ahead
In open market operations:
- PBOC injects 1bn via 7-day RR, sets rate at 1.7%
- 358bn yuan mature today
- net 357bn yuan drain today
RBA expected to keep cash rate steady @ 4.35% in upcoming meeting despite easing inflation
- Economists predict no rate cuts until Q1 2025 with market pricing showing 55% chance of cut by end-2024.
Info via Reuters Polling on the upcoming Reserve Bank of Australia meeting, showing that the RBA is expected to keep cash rate at 4.35% on Tuesday, August 6
- No rate cuts seen until Q1 2025 despite inflation easing
- 32 out of 33 economists predict no change at the August meeting
- Market pricing shows 55% chance of a cut by end-2024
- Inflation forecast: 3.4% in 2024, 2.8% in 2025
The poll shows that the Reserve Bank of Australia is set to maintain its hawkish stance, holding rates at 4.35% through 2024 despite recent inflation data showing some moderation.
The Reuters poll of economists suggests the first rate cut won’t come until Q1 2025, with the cash rate expected to end 2025 at 3.60%.
Recent inflation prints have been mixed, with May’s unexpected jump to 4.0% followed by a dip to 3.8% in June. This volatility, coupled with inflation still above the RBA’s 2-3% target, is likely keeping policymakers cautious.
Market pricing indicates a more dovish outlook than economists, with a 55% probability of a cut priced in by end-2024. However, the RBA is expected to lag behind other major central banks like the Fed in its easing cycle.
The upcoming August 6 meeting is nearly unanimously expected to result in no change, with only one economist out of 33 forecasting otherwise. The RBA’s projected path suggests a “slow burn” approach to normalization, with potential for up to three 25bp cuts by end-2025.
Australian June home loans value +1.3% m/m (expected +0.1%)
- Lending for housing up
Australian June home loans value +1.3% m/m
- expected +0.1%, prior -1.7%
Owner occupied housing finance +0.5% m/m
- prior -2.0%
Investor housing finance +2.7% m/m
- prior -1.3%
Australian Q2 PPI +1.0% q/q (prior +0.9%) and +4.8% y/y (prior +4.3%)
- ‘Wholesale’ level inflation creeps higher
Australian Q2 PPI
+1.0% q/q
- prior +0.9%
+4.8% y/y
- prior +4.3%
Japan Industry Minister Saito says economic fundamentals aren’t bad
- Japan Industry Minister Saito joins the chorus
- Says economic fundamentals aren’t bad, when asked about sharp fall in stock market
- Says strong movement seen in investment and wage hike continuing
Japan finance minister Suzuki closely watching stock prices
Japan finance minister Suzuki
- Will analyze impact of forex volatility on economy, respond appropriately
- Will continue to closely monitor forex movements
- Stock prices are determined in the market based on various factors such as economic conditions
- Closely watching stock movements with a sense of urgency
- Desirable for currencies to move in stable manner reflecting fundamentals
- Important to keep proper debt management through close dialogue with markets
- Reduction in BOJ’s JGB purchases would increase need for financial institutions to buy JGBs, raising importance of dialogue with markets
- Correction in yen’s weakness could push down import prices, tame consumer prices
- Need conviction that Japan won’t go back to deflation before announcing complete exit from deflation
Japan chief cabinet secretary Hayashi says equity prices are determined in the market
Japan chief cabinet secretary Hayashi:
- Stock prices are determined in the market based on various factors such as economic conditions and corporate activities
- Will continue to pay close attention to markets with sense of urgency
- Important for currencies to move in stable manner reflecting fundamentals
- Closely watching fx moves
- Won’t comment on forex levels
Bank of Korea shrugs off slight rise in inflation – says in line with earlier projection
- CPI in July was higher than expected and higher than the previous month
The Bank of Korea have made a statement, not worried:
- Slight rise in inflation was in line with earlier projection
- Inflation to continue easing from August
- Will make quarterly inflation projection from august given uncertainties in FX market, Middle East tension
South Korean July CPI rises more than expected, and more than in June
- Last mile is the longest?
Inflation data from South Korea for July 2024:
CPI +0.3% m/m
- expected +0.25%, prior -0.2%
CPI +2.6% y/y
- expected 2.4%, prior 2.4%
Cryptocurrency News
Pepe (PEPE) looking to correct
Recent Performance:
- Current Price Action: PEPE price fell below the daily support level of $0.0000105 and declined by 2.5% on Friday.
- Whale Activity: A whale deposited 400 billion PEPE tokens, worth $4.22 million, on Binance, indicating a potential increase in selling pressure.
Technical Outlook:
- Bearish Signal: The breach of the support level at $0.0000105 signals a shift from a bullish to a bearish market structure.
- Selling Pressure: The Network Realized Profit/Loss metric shows upward spikes, suggesting that holders are increasingly selling their assets, contributing to the bearish sentiment.
Key Levels:
- Bearish Confirmation: A daily candlestick close below the support level indicates a bearish trend continuation.
- Bullish Reversal: A close above $0.0000131 would invalidate the bearish thesis and suggest a potential reversal or rally.
Market Context:
- On-Chain Data: The large whale deposit and increased selling activity are reinforcing the negative outlook for PEPE.
- Potential for Correction: Given the current data, PEPE price may face further corrections in the near term unless there is a significant recovery or change in market sentiment.
Ripple’s Q2 2024 Report and Market Activity
Key Points:
- XRP Price Movement: XRP experienced a 6% correction, falling to $0.56 on Friday.
- Q2 2024 Report Highlights:
- Legal Win: Ripple celebrates its landmark victory against the SEC from July 2023, where XRP was ruled as “not a security” in secondary-market transactions. Ripple is optimistic about a fair final ruling from Judge Analisa Torres regarding XRP’s classification in institutional sales.
- Transaction Decline: XRP saw a notable 65.6% decline in transactions QoQ, which Ripple attributes to a broader trend affecting other cryptocurrencies.
- Top Exchanges: Binance, Bybit, and Upbit are identified as the leading exchanges in XRP trading volume.
Market Context:
- XRP Performance: Despite the positive legal developments, XRP’s value declined, reflecting broader market challenges and reduced trading activity.
- Regulatory Outlook: Ripple is awaiting the final decision in its ongoing SEC lawsuit, with confidence in favorable legal clarity regarding XRP’s status.
The report highlights Ripple’s achievements in legal battles and market positioning, while the decline in XRP’s transaction volume and price reflects ongoing volatility and market sentiment.
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