Round up of today’s market news

North American News

US Stocks Finish Higher but Endure Last-Minute Sell-Off

US stock markets showed promise today with early gains, only to see significant selling pressure in the final hour of trading, leaving a disappointing finish for risk assets.

After climbing as much as 2.5% earlier in the session, the gains were pared down to a modest 1% by the closing bell.

Final Closing Changes:

• S&P 500: +1.0%
• Nasdaq Composite: +1.0%
• Russell 2000: +1.5%
• DJIA: +0.8%

The market’s late-session reversal underscores ongoing uncertainties and suggests caution among investors, despite a relatively positive performance throughout the day.

US treasury auctions off $58 billion of 3-year notes at a high yield of 3.810%

• WI level at a time of the auction 3.812%

• High yield 3.810%
• WI level at the time of the auction 3.812%
• Tail -0.2bps vs six with average of 0.0 basis points
• Bid to cover 2.55X versus six-month average is 2.57X
• Directs (a measure of domestic demand) 20.3% six-month average is 18.5%
• Indirects (a measure of international demand) 64.4% six-month average is 65.0%
• Dealers 15.4% vs six-month average is 16.5%

Atlanta Fed GDPNow Q3 tracker 2.9% vs 2.5% prior

• It’s early days for Q3 estimates

In their own words:

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2024 is 2.9 percent on August 6, up from 2.5 percent on August 1. After recent releases from the US Bureau of Labor Statistics, the US Census Bureau, the US Bureau of Economic Analysis, and the Institute for Supply Management, the nowcasts of third-quarter real personal consumption expenditures growth and third-quarter real gross private domestic growth increased from 2.6 percent and 1.6 percent, respectively, to 3.0 percent and 2.8 percent.

US total household debt rose 0.6% in Q2 – NY Fed

• The NY Fed’s Q2 household report

• Total household debt hits $17.8 trillion
• Mortgage balances increase $77 billion to $12.52 trillion
• Credit card balances up $27 billion to $1.14 trillion
• Credit card balances up 5.8% y/y, nominally
• Auto loans up $10 billion to $1.63 trillion
• Total borrowing delinquency rate unchanged at 3.2% vs Q1

US international trade balance for June $-73.1 billion versus $-72.5 billion

• Trade balance for June 2024

• Prior month $-75.1 billion revised to $75.0 billion
• Good trade balance $-96.56 billion versus $-96.84 billion preliminary and $-99.37 billion last month
• Services surplus $24.2 billion

Details:

• Exports -1.5% versus -0.5% last month
• Imports +0.6% versus -0.3% last month
• Capital goods imports $80.18 billion versus $77.95 billion last month
• Total exports $265.94 billion versus $262.01 billion last month
• Total imports $339.05 billion versus $337.01 billion last month.
• US China June trade deficit $-22.80 billion versus a trade deficit of $-23.98 billion

Fed’s Daly says minds are open to cutting rates in coming meetings

• A ‘steady in the boat’ approach works well

Federal Reserve Bank of San Francisco President Mary Daly:

• Risks to fed’s mandates getting in more balance
• Minds are open to cutting rates in coming meetings
• Concern is that we will deteriorate from current place of balance in jobs report; we don’t see that right now
• July jobs report reflected a lot of temporary layoffs, hurricane effect
• Will be watching carefully to see if next job market report reflects same dynamic, or reverses
• Underneath july jobs report is some reason for confidence we are slowing but not falling off cliff
• Fed will do what it takes to ensure we achieve both goal
• If react to one data point, we would almost always be wrong
• A ‘steady in the boat’ approach works well
• Policy needs to be pro-active
• We hear the economy is down shifting
• People are getting inflation relief, but still above 2% target
• Not seeing a move to widespread layoffs yet, that would be an early warning sign
• Its very clear that policy is working in the way intended
• The Fed policy rate will need to be adjusted; when and how much depends on the data
• Too early to tell if the job market is slowing, or if there is real weakness
• The Fed is prepared to do what the economy needs when we are clear on what that is; there is a lot more data before the next Fed meeting
• The two Fed mandates are now equally balanced risks
• Fed’s reaction function is clear, and market interest rates are already adjusting
• Policy adjustments will be necessary in the coming quarters
• Its extremely important that we don’t let the job markets slow so much that it tips into a downturn
• Want to make sure we keep economic momentum
• none of the labour market indicators she looks at are flashing red at present, but she is monitoring carefully
• Fed is prepared to act as we get more information
• It’s clear inflation is coming down, labor market is slowing
• I am more confident we are on a sustainable path to 2%
• Communication itself is a policy adjustment

Analyst calls for verbal intervention from the Federal Reserve

• Instead of an inter meeting rate cut

ICYMI – A snippet via the news wires overnight from Capital Economics:

• Fed needs to do at least a verbal intervention to calm down financial markets
• Fedspeak might avoid an emergency rate cut
• “At this point it’s really about restoring market functioning–they could damp things down with a few well placed verbal interventions, it wouldn’t necessarily require inter-meeting cuts.”
• says interest rate cuts between meetings “can backfire if the market thinks the central bank knows more than they do”

Canada June trade balance +$0.64 billion vs -$1.84 billion expected

• Canada June 2024 trade balance data

• Prior was -1.93 billion
• Exports $66.65 billion vs $62.45 billion prior
• Imports $66.01 billion vs $64.37 billion prior

• Exports surged 5.5% to $66.65 billion, largest monthly increase since February 2024
• Imports rose 1.9% to $66.01 billion, near all-time high from June 2022
• Crude oil and gold exports drove the gains, accounting for over 75% of the total export increase
• Crude oil exports jumped 13.3%, boosted by higher volumes to Asian countries via expanded Trans Mountain pipeline
• Unwrought gold exports spiked 35.3% amid geopolitical tensions and high demand
• Imports of passenger cars and light trucks hit a record C$6.8 billion, up 8.2%
• Trade surplus with US widened to C$9.4 billion, largest since November 2023
• Trade deficit with rest of world narrowed to C$8.7 billion from C$10.4 billion in May

Commodities

Gold Price Dips Below $2,400 as the Dollar Rebounds

Gold prices have slipped below the $2,400 mark, struggling to maintain key support amid rising US Dollar strength and increasing bond yields. The precious metal’s recent decline reflects a broader market sentiment as investors await crucial economic signals and potential Federal Reserve actions.

Current Market Dynamics

Gold prices have edged lower as the US Dollar and bond yields climb, placing pressure on the precious metal. The market is keenly observing for new indicators that could signal whether the US economy is heading towards a recession. Additionally, expectations are high that the Federal Reserve might implement significant interest rate cuts this year.

Despite the recent pullback, the near-term outlook for gold remains optimistic due to several supportive factors. Rising tensions in the Middle East have enhanced gold’s appeal as a safe-haven asset. Recent escalations between Iran and Israel—marked by Iranian missile strikes in retaliation for the assassination of Hamas leader Ismail Haniyeh—have heightened geopolitical uncertainties, driving investors toward gold.

Economic and Fed Expectations

The Fed is anticipated to cut interest rates by over 100 basis points this year, driven by concerns of a potential economic slowdown. Current fears about a US recession have been fueled by weak labor market demand, rising unemployment rates, and contraction in manufacturing activities. However, the US economy showed robust performance in the first half of the year, expanding by 2.8% in Q2, doubling the growth rate of Q1.

Recent data also suggests that recession fears might be overblown. The ISM Services Purchasing Managers Index (PMI) showed stronger-than-expected growth, with Chris Williamson of S&P Global Market Intelligence noting that the economy continues to grow at a solid pace.

Market Forecast

Traders are forecasting an imminent 50 basis point cut in interest rates for September, with expectations of more than 100 basis points in reductions throughout the year. This outlook is supported by recent dovish statements from Federal Reserve officials, including Chicago Fed President Austan Goolsbee, who indicated a willingness to adjust monetary policy in response to economic weakness.

In summary, while gold prices face short-term pressure from rising dollar and bond yields, the broader market environment—characterized by geopolitical tensions and potential Fed rate cuts—continues to support a positive long-term outlook for the precious metal.

EIA Predicts Crude Oil Price Recovery, Rising Jet Fuel Demand, and Stable Natural Gas Prices

The U.S. Energy Information Administration (EIA) has revised its projections for the energy markets, forecasting a rebound in crude oil prices, a notable increase in jet fuel consumption, and stable natural gas prices in the coming months.

Crude Oil Prices Expected to Rebound

Despite recent declines, crude oil prices are anticipated to rise in the latter half of 2024. The Brent crude oil price closed July at $81 per barrel, down from an average of $85 per barrel for the month. The EIA predicts that Brent crude will recover to between $85 and $90 per barrel by year-end. This projected increase is driven by a decline in global oil inventories, which fell by 0.4 million barrels per day (b/d) in the first half of 2024 and are expected to decrease by 0.8 million b/d in the second half. These inventory withdrawals are partially due to ongoing production cuts by OPEC+. Although prices are set to rise, the EIA has reduced its forecast for the annual average Brent crude oil price in 2025 to $88 per barrel, citing decreased oil consumption.

Global Oil Consumption and Jet Fuel Trends

The EIA forecasts a modest increase in global liquid fuel consumption, with an expected rise of 1.1 million b/d in 2024 and 1.6 million b/d in 2025. This marks a reduction from the previous forecast of 1.8 million b/d, primarily due to slower economic growth in China affecting diesel consumption.

Conversely, jet fuel consumption is on the upswing. The EIA projects a 3% increase in U.S. jet fuel consumption in 2024 compared to 2023, with another 3% growth anticipated in 2025. This trend is expected to drive jet fuel prices higher, surpassing pre-pandemic levels by 2025 due to increased air travel.

Natural Gas Market Insights

Following an unusually hot July, natural gas consumption is expected to decline slightly in August. The EIA forecasts natural gas used for electricity generation to average 46 billion cubic feet per day (Bcf/d) in August, a 2% decrease from July. Production levels are anticipated to remain stable. Consequently, Henry Hub natural gas prices are projected to stay below $2.50 per million British thermal units (MMBtu) through October. However, prices are expected to rise to approximately $3.10/MMBtu from November through March, driven by increased demand for space heating and a rise in liquefied natural gas (LNG) exports from new facilities in Texas and Louisiana.

Electricity Price Outlook

Residential electricity prices are projected to increase at a slower pace due to lower natural gas prices. The EIA estimates a 1% rise in residential electricity rates this year, the smallest increase since 2020. The drop in natural gas prices has reduced electricity production costs, which is being reflected in retail electricity rates as regulatory bodies approve new pricing structures.

Oil – Goldman Sachs base case is a US$75 floor for Brent crude, but see downside risk

• Goldman Sachs eyeing risks for oil falling

Goldman Sachs on Brent crude oil:

• “Base case remains that the $75 floor under Brent oil prices will withstand macro fears”
• But, they add that the uptick in recession risk strengthens their view that the risks to their $75-90 range for Brent skew to the downside, especially for 2025

EU News

European equity’s closed mixed

• Closing changes for the main European bourses

• Stoxx 600 +0.2%
• German DAX -0.1%
• Francis CAC -0.4%
• UK’s FTSE 100 +0.1%
• Spain’s IBEX -0.5%
• Italy’s FTSE MIB -0.7%

Eurozone June retail sales -0.3% vs -0.1% m/m expected

• Latest data released by Eurostat – 6 August 2024
• Prior +0.1%

The trend in retail sales has been rather bumpy so far this year. Here is the breakdown:

Germany July construction PMI 40.0 vs 39.7 prior

• Latest data released by HCOB – 6 August 2024

The decline in total activity eases for another month but it is still at relatively depressed levels. Employment conditions continued to fall as firms remain more pessimistic about the outlook for the sector, even more so than in June. HCOB notes that:

“The most positive thing that can be said about these figures is that the slump in construction has slowed down a bit recently. This is especially true for commercial building activity and civil engineering projects, while residential construction took even a slightly bigger hit in July than in June. We expect a positive impetus in civil engineering from the general renovation of 40 railroad lines, which is scheduled to be completed by 2030 and began in mid-July.

“Overall, the construction sector is still having a rough time. Construction companies lost even more orders in July than in June, and expectations were the most pessimistic for four months. Around 41% of folks in the biz think they’ll be building less next year, while only 9% are optimistic about expanding. Considering that building permits for residential projects in May were down almost 25% from last year, this gloomy outlook isn’t too surprising.

“On the bright side, material prices eased up for the fourth month in a row. However, subcontractors have hiked their prices again. In addition, the quality index for subcontractors is up and above the historical average. This might mean the subcontractor market is starting to consolidate.”

Germany June industrial orders +3.9% vs +0.5% m/m expected

• Latest data released by Destatis – 6 August 2024
• Prior -1.6%; revised to -1.7%

Even if you exclude large orders, industrial orders were seen up 3.3% compared to May. That’s a positive development for the manufacturing sector, although it’s not really showing up on the hard data. That considering that the previous months have been relatively poor to be fair. Looking at the details, the boost owes much to a spike in domestic orders (+9.1%) while foreign orders (+0.4%) were more subdued.

UK July construction PMI 55.3 vs 52.8 expected

• Latest data released by S&P Global – 6 August 2024

• Prior 52.2

A jump in new orders contributed to the quicker rise in construction activity in the UK last month. The good news is that employment conditions also ramped up but price pressures were also seen rising, so that is something to take note of. S&P Global says that:

“The election-related slowdown in growth seen in June proved to be temporary, with the pace of expansion roaring ahead in July. Firms saw the strongest increases in new orders and activity since 2022 as paused projects were released amid reports of improved customer confidence.

“The strength of demand moved the sector closer to capacity, bringing a recent period of improving supplier performance to an end. There were also signs of inflationary pressures picking up, something that will need to be watched closely if demand strength continues in the months ahead.”

BRC UK Retail Sales data for July is a very mixed result

• British Retail Consortium (BRC) data

British Retail Consortium data for July 2024 is mixed:

Total retail sales +0.5% y/y

• -0.2% in June
• average rise of 1.4% over the past 12 months

Like-for-Like sales -0.3% y/y

• June was -0.6%
• Like-for-like sales data strips out the impact of changes in store size.

Data also from Barclays, spending on credit and debit cards -0.3% y/y

• prior -0.6%

Barclays cite:

• Euro 2024 tournament boosted spending in pubs and people stocked up for barbecues on July’s sunny days
• counteracted by less spending due to rainy weather during the month
• bigger picture was one of a recovery in spending power and consumer confidence. “This, coupled with the fact that the Bank of England has begun to reduce interest rates, should translate into stronger underlying spending growth, as we move through the second half of this year and into 2025,”

Reuters report adds:

Both surveys showed a fall in non-essential spending.

Switzerland July seasonally adjusted unemployment rate 2.5% vs 2.5% expected

• Latest data released by SECO – 6 August 2024
• Prior 2.4%

The unadjusted figure remains steady at 2.3% last month, with the number of registered unemployed persons seen increasing to 107,716 people. That is up from the 104,518 persons in June.

UK Chancellor Reeves says wants to strengthen and deepen trade ties with the US

• Says UK taxes too high

UK Chancellor Reeves speaking in a TV interview.

• wants to strengthen and deepen trade ties with the US
• UK tax burden is too high

Asia-Pacific-World News

PBOC sets USD/ CNY central rate at 7.1318 (vs. estimate at 7.1454)

• PBOC CNY reference rate setting for the trading session ahead

In open market operations:

• PBOC injects 620bn via 7-day RR, sets rate at 1.7%
• 216n yuan mature today
• net 404bn yuan drain today

New Zealand GDT price index +0.5%

• The latest auction results for New Zealand dairy

• Prior was +0.4%
• Whole milk powder +2.4%

RBA governor Bullock: A rate cut is not on the agenda in the near-term

• Remarks by RBA governor, Michele Bullock, in her press conference

• Need to stay on course with inflation
• There is still a risk that inflation takes too long to return to target
• Recent volatility is mostly markets adjusting to financial news/developments
• Interest rates might need to stay higher for longer
• But there is also a risk of the other side of the outcome materialising
• There is a high degree of uncertainty still
• A near-term reduction in the cash rate does not align with our current thinking
• We did consider a rate hike, ready to raise rates if needed
• We are vigilant to upside risks to inflation
• If inflation does not track the way we are forecasting, we will raise interest rates
• Hard to draw any red lines on price targets when forecasts are also inherently uncertain
• Need to have caution and calm on market volatility
• Market is pricing in rate cuts too soon, it does not align with the Board’s thinking
• Market expectations are getting a little bit ahead of themselves

RBA leaves cash rate unchanged at 4.35%, as expected

• The Australian central bank announces its August 2024 monetary policy decision

• Prior 4.35%
• Inflation remains above target and is proving persistent
• The outlook remains highly uncertain
• The process of returning inflation to target has been slow and bumpy
• High unit labour costs and inflation persistence suggest there are upside risks to prices
• Wages growth appears to have peaked but is still above the level that can be sustained given trend productivity growth
• Momentum in economic activity has been weak, as evidenced by slow growth in GDP
• There also remains a high level of uncertainty about the overseas outlook
• Inflation in underlying terms remains too high
• It will be some time yet before inflation is sustainably in the target range
• Policy will need to be sufficiently restrictive until confidence returns that inflation is moving sustainably towards the target range
• RBA not ruling anything in or out on next policy steps

Australian job ads fall in July, the sixth straight m/m drop

• ANZ-Indeed data shows job ads down 3% m/m

ANZ-Indeed survey shows Australian job advertisements fell 3.0% in July m/m

• prior -2.7% (revised from -2.2%)
• down 20.8% y/y
• sixth straight month of month-on-month declines
• remain 13.3% higher than pre-pandemic levels

ANZ comment:

“We’ve also seen the share of employers recruiting fall sharply in June to levels last seen during the east coast 2021 lockdowns, while average hours worked per employed person has declined 30 minutes a week since February 2023”

BNZ can’t rule out an August Reserve Bank of New Zealand interest rate cut

• Bank of New Zealand on the RBNZ

BNZ on their outlook for the Reserve Bank of New Zealand:

• while we see the first OCR cut in November, we reiterate that we wouldn’t rule out an earlier start to OCR cuts including at the Bank’s August meeting which we see as live.
• We continue to believe that easier monetary conditions are required.

BNZ see a material reduction in the OCR over the coming year or two citing:

• struggling economic activity
• a trend softening in the labour market
• associated receding inflationary pressure

Japan top currency diplomat says discussed big moves in markets with BOJ and FSA

• Atsushi Mimura took over from Masato Kanda as Japan’s top currency diplomat

• Offers no comment on market moves though
• Government will work closely with BOJ
• Shares view that Japan economy is making a moderate recovery
• Closely watching FX moves, discussed it during meeting
• Important for FX to move in stable manner, reflecting fundamentals

Japan wages data June 2024: Real wages +1.1% y/y for the first rise in 27 months

• Japan wages data June 2024

Japan wages data is encouraging

Labour Cash Earnings +4.5% y/y

• expected +2.4%, prior +2.0%

Real Cash Earnings +1.1% y/y

• expected –0.9%, prior –1.3%

Japan data – Household spending for June -1.4% y/y (expected -0.9%)

• The Japanese consumer not showing up

Japanese Household Spending for June 2024

+1.1% m/m

• expected +0.2%, prior -0.3%

-1.4% y/y

• expected -0.9%, prior -1.8%

Japan finance minister Suzuki – Seeing bright aspects in Japan’s economy

• Says he will do utmost to manage economy and finance while cooperating with BOJ,

Japan finance minister Suzuki painting an encouraging picture:

• Will continue to monitor, analyse financial market moves and work closely with relevant authorities
• Will do utmost to manage economy and finance while cooperating with BOJ, and make a judgement on the current situation calmly
• Seeing bright aspects in Japan’s economy on wages, investment front
• It’s important to realise resilient economic growth while responding to changes in front of us

Japan chief cabinet secretary Hayashi says wage rises will spread in Japan

Japan chief cabinet secretary Hayashi

• Wage rises will likely spread to part-timers, small businesses toward autumn with strong shunto results, minimum pay hikes
• No comment on day-to-day share moves
• Says important for govt to make a judgement calmly, when asked about volatile Tokyo stocks
• Closely watching market moves with sense of urgency
• Will closely work with BOJ, conduct economic, fiscal policies thoroughly
• Won’t comment on forex levels
• Important for currencies to move stably reflecting fundamentals
• Closely watching fx market moves

Shunto is a Japanese term for the “spring wage offensive”.

South Korean finance minister says will stabilize market if excess volatility

• Intervention threats

South Korean Finance minister says will take market stabilising measures in the case of excessive volatility.

Cryptocurrency News

Ethereum Rebounds as Investors Buy the Dip: ETFs and Whales Drive Strong Market Recovery

Ethereum Market Update:

• Current Trend: Ethereum (ETH) is experiencing a 2% rebound on Tuesday after a significant drop on Black Monday. The recovery comes as both traditional and crypto-native investors buy the dip, suggesting a potential bottoming out.

Key Points:

1. ETF Inflows:
   • Traditional Investors: Spot Ethereum ETFs saw $48.73 million in net inflows on Monday, despite broader outflows from Bitcoin ETFs.
   • Grayscale Ethereum Trust (ETHE): Experienced $46.8 million in outflows, its lowest since the ETH ETFs launch.
   • BlackRock’s ETHA: $47.1 million in inflows.
   • Fidelity’s FETH: $16.2 million in inflows.
   • VanEck’s ETHV: Had its largest buying day since launch with $16.6 million in inflows.
2. Crypto-Native Activity:
   • Exchange Net Outflows: ETH recorded a total net outflow of 152.4K ETH, the highest since June 12, indicating heavy buying.
   • Whale Purchases: Five whale addresses purchased 144,071 ETH, worth over $331.11 million, during the crash.
3. Market Indicators:
   • Exchange Reserves: ETH exchange reserves, which had been rising since early July, have started to decline, reflecting increased buying pressure.
   • Potential Support Level: ETH may have found a bottom and could be poised to reclaim the $2,803 support level.

Outlook:

Ethereum’s recent dip has prompted significant buying from both traditional and crypto-native investors. With increased inflows into ETH ETFs and a notable rise in whale purchases, there are signs that the bearish trend may be reversing and that Ethereum could be set for a rally.

Bitcoin catches a bid in rise above $56,000

• Bitcoin has been a good pre-cursor to the risk trade

Bitcoin is at the highs of the day, up more than 3% and above $56,000.

The highs yesterday early and today peaked at $56,285 and we briefly edged above that. It’s an impressive rebound after falling below $50,000 several times yesterday but it’s still a long ways from the $70,000 level at the end of July.

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