North American News

Major Indices End a Volatile Week with Mixed Signals: A Closer Look at Diverging Trends

Market Close:

• Dow Jones Industrial Average: +51.05 points, closing at 39,497.54
• Nasdaq Composite: +85.28 points, closing at 16,745.30
• S&P 500: +24.85 points, closing at 5,344.16

Market Overview:

• Index Performance: The major indices posted gains, with the S&P 500 rising by 0.47% and the Nasdaq Composite increasing by 0.51%. The market exhibited mixed action with a lack of strong direction from buyers or sellers.
• Sector Performance:
  • Gainers: Communication services (+1.0%) and information technology (+0.6%) led the sectors with gains.
  • Losers: The materials sector ended in negative territory, down 0.1%, while the industrial sector closed flat.
• Notable Stocks:
  • Eli Lilly (LLY): +5.5%, closing at $891.68, significantly impacting the indices.
  • Apple (AAPL): +1.4%, closing at $216.24.
  • Microsoft (MSFT): +0.8%, closing at $406.02.
  • Amazon.com (AMZN): +0.7%, closing at $166.94.
  • Meta Platforms (META): +1.6%, closing at $517.77.
• Small and Mid-Cap Stocks: The Russell 2000 (-0.2%) and S&P Mid Cap 400 (-0.03%) underperformed relative to larger peers.

Bond Market:

• 2-Year Note Yield: 4.059%, up 1.5 basis points, rising 17.3 basis points for the week.
• 5-Year Note Yield: 3.797%, down 3.5 basis points, rising 18.0 basis points for the week.
• 10-Year Note Yield: 3.943%, down 5.3 basis points, rising 15.0 basis points for the week.
• 30-Year Note Yield: 4.223%, down 6.3 basis points, rising 11.1 basis points for the week.
• Yield Curve: Flattening as the 2-year yield closed near highs and the longer-end yields near lows.

Year-to-Date Performance:

• S&P 500: +11.5%
• Nasdaq Composite: +11.0%
• S&P Midcap 400: +5.6%
• Dow Jones Industrial Average: +4.7%
• Russell 2000: +2.8%

Upcoming Economic Data:

• Monday: July Treasury Budget
• Tuesday: July Producer Price Index
• Wednesday: July Consumer Price Index
• Thursday: July Retail Sales report
• Friday: July Building Permits and Housing Starts

The market showed a mixed tone with gains in major indices, led by tech and communication sectors, despite a lack of strong economic data and fluctuations in bond yields.

BofA: What we expect from next week’s US July inflation print

• The US inflation report is due out on Wednesday

BofA anticipates a partial reversal of June’s downside inflation surprise in the upcoming July CPI report, projecting modest increases in both headline and core CPI, which could influence the Fed’s decision-making for rate cuts in September.

Key Points:

1. Forecasted Headline CPI:
   • Monthly Increase: BofA forecasts a 0.3% month-over-month (m/m) rise in headline CPI, with an unrounded increase of 0.25%.
   • Annual Rate: This rise would keep the year-over-year (y/y) rate steady at 3.0%.
   • NSA Index: The NSA index is expected to print at 314.993.
2. Contributing Factors:
   • Core Services Inflation: A pickup in core services inflation is a significant factor contributing to the monthly rise in headline CPI.
   • Energy Prices: An increase in energy prices is also expected to contribute to the higher headline CPI.
3. Core CPI Forecast:
   • Monthly Increase: BofA projects a 0.2% m/m rise in core CPI, with an unrounded increase of 0.22%.
   • Trend Alignment: While this is slightly higher than June’s figures, it aligns with the prior trend of deflation.
4. Implications for the Fed:
   • Benchmark for Rate Cuts: The projected core CPI increase should meet the Federal Reserve’s benchmark for beginning rate cuts in September, reflecting a continued trend towards deflation and controlled inflation.

Conclusion: BofA expects July’s CPI report to show modest increases in both headline and core inflation, reversing some of the downside surprise from June. These projections align with the Fed’s benchmarks for initiating rate cuts, supporting the likelihood of monetary easing in September.

Fed’s Schmid: If inflation data keeps coming in low, appropriate to lower rates

• Kansas City Federal Reserve Bank President Jeffrey Schmid:

Kansas City Federal Reserve Bank President Jeffrey Schmid, speaking with the Kansas Bankers Association’s annual meeting in Colorado Springs, Colorado:

• If inflation continues to come in low, it will be appropriate to adjust policy.
• Current stance of Fed policy is ‘not that restrictive.’
• Financial conditions can impact real economy, but Fed must remain focused on dual mandate.
• Fed is close but ‘still not quite there’ on reaching 2% inflation goal.
• More confident that inflation is on path to target, given recent ‘encouraging’ inflation data.
• Price data is volatile, should look for the worst in the data rather than the best.
• Has been ‘noticeable cooling’ of labor market, but overall it still appears healthy.
• Cooling labor market is a necessary condition for easing inflation.
• The story could change if conditions were to weaken considerably.
• Path of Fed policy will be determined by data, and strength of economy.
• Would not want to assume any particular path or endpoint for policy rate.

US inflation “modestly firmer” in July, still supportive of a Fed rate cut in September

• Bank of America preview the US CPI due next week

• BoA notes that June’s CPI figures came in lower than anticipated
• expects some of that softness to reverse in July

Fed’s Goolsbee: says the FOMC needs to see more employment data

Federal Reserve Bank of Chicago President Austan Goolsbee:

• The Fed watches the markets, but they don’t drive policy.
• adds that economy is getting back to normal
• The question is if the job market will hold, or keep worsening.
• We need to see more than payrolls and more than one month.
• We are getting back to more normal conditions in the US economy
• Policy is tight
• Whatever the Fed does, someone is going to be unhappy
• All the Fed can do is lay out the criteria for rates to go down, or stay the same, or go up
• We’ve been clear about the reaction function,. we are not in the business of politics

Canada July employment change -2.8K vs +22.5K expected

• Canada July 2024 employment changes details

• Prior month -1.4K
• Employment change -2.8K vs +22.5K expected
• Unemployment rate 6.4% vs 6.4% expected (up 0.9% y/y)
• Prior month employment rate 6.4%
• Full-time employment +62.0K vs -3.4K prior
• Part-time employment -64.4K vs +1.9K prior
• Participation rate 65.0% vs 65.3% prior
• Average hourly wages y/y 5.2% vs 5.4% last month

Key changes by industry:

• Wholesale and retail trade: -44,000 (-1.5%)
• Finance, insurance, real estate, rental and leasing: -15,000 (-1.0%)
• Public administration: +20,000 (+1.6%)
• Transportation and warehousing: +15,000 (+1.4%)
• Utilities: +6,200 (+4.2%)

Here is the kicker:

• Public sector +41K
• Private sector -42K

Year-over-year:

• Public sector +205K
• Private sector +86K

Commodities

Gold Eyes $2,475 Resistance for a Potential Breakthrough

Gold prices have encountered resistance twice at the $2,475 level, but the question now is whether a third attempt could be successful. Recent market action suggests that gold might be gearing up for another push past this significant barrier.

Current Market Overview:

• Session High: Gold recently surged to a session high, raising questions about whether the metal is setting up for a bullish breakout.
• Price Pattern: The recent price action could be indicative of a consolidation pattern rather than a double top formation. The trading range from $2,360 to $2,475 suggests that gold might be forming a base for a potential upward move.

Factors Supporting a Bullish Case:

1. Consolidation vs. Double Top: The pattern in gold prices might be more reflective of consolidation between $2,360 and $2,475 rather than a classic double top. This consolidation could imply a buildup of strength for a possible breakout.
2. Speculative Positioning: Recent data indicates that speculative positions in gold were significantly washed out. The CFTC’s weekly report likely showed a reduction in speculative positions, which could suggest that some of the previous speculative excesses have been cleared out.

Challenges and Considerations:

• Geopolitical Risks: Despite the potential for a bullish breakout, caution remains due to ongoing geopolitical tensions. The market is still factoring in some risk premium related to potential conflicts in the Middle East, particularly between Iran and Israel. While a broader conflict seems less imminent, geopolitical uncertainties continue to influence market sentiment.
• Market Conditions: The recent turbulence in global markets, including sharp declines in major indices and spikes in volatility, have historically been beneficial for gold. However, extreme market conditions can also lead to periods of volatility for the yellow metal.

Outlook:

With the US economy potentially heading into a rate-cutting cycle and signs of economic slowing, there is a solid case for buying gold on dips. If gold can successfully break through the $2,475 resistance level, it could signal the start of a new upward trend. As always, price action will be the ultimate determinant, but the current environment supports a cautious optimism for gold bulls.

Canada’s rig count has decreased by 2 from last week, with a reduction in oil rigs. However, the count is up by 27 from last year’s total of 190, with a notable increase in oil rigs and a slight rise in miscellaneous rigs.

Crude Oil Futures settle up

Crude Oil Futures:

• Settlement Price: $76.84
• Change: +$0.65 (0.85%)

Crude oil futures settled at $76.84, marking an increase of $0.65 or 0.85% on the day. For the trading week, oil prices saw a significant rebound, closing up $3.32 or 4.51%, ending a streak of four consecutive weeks of declines. The weekly low was $71.67, the lowest since February 5.

The price has also been rising for four straight days. Geopolitical tensions in the Middle East, particularly regarding Israel and Iran, and higher-than-expected inflation data contributed to the positive trading tone.

Baker Hughes Rig Count Update: U.S. and Canada

U.S. Rig Count:

• Total: +2 to 588 rigs
  • Oil Rigs: +3 to 485
  • Gas Rigs: -1 to 97
  • Miscellaneous Rigs: Unchanged at 6

The U.S. rig count has increased by 2 from last week, with a rise in oil rigs offsetting a decrease in gas rigs. The current count of 588 rigs represents a decrease of 66 from the previous year’s count of 654, with declines in both oil and gas rigs.

The offshore rig count in the U.S. is down by 1 to 19, although this is up by 1 compared to the same time last year.

Canada Rig Count:

• Total: -2 to 217 rigs
  • Oil Rigs: -3 to 147
  • Gas Rigs: Unchanged at 69
  • Miscellaneous Rigs: +1

Canada’s rig count has decreased by 2 from last week, with a reduction in oil rigs. However, the count is up by 27 from last year’s total of 190, with a notable increase in oil rigs and a slight rise in miscellaneous rigs.

Palladium price recovers from slump – Commerzbank

The prices of precious metals have recovered, Commerzbank’s commodity strategist Carsten Fritsch notes.

Precious metals prices go up

“Silver is trading at $27.5 per troy ounce again. Platinum is priced at $940 per troy ounce and Palladium at $930 per troy ounce. While Silver and Platinum have so far only regained some of their losses, Palladium has completely made up for the decline and is even trading higher than at the start of the week and around $100 above the 7-year low recorded on Monday.

“The price decline was exaggerated. Apparently, market participants took a similar view, with the result that speculative short positions were probably covered in the days that followed. “

EU News

European Equities End the Week on a Positive Note

European Stock Performance:

After a challenging start to the week, European equities managed to close on a high note, finishing stronger across the board.

Daily Performance:

• Stoxx 600: +0.6%
• German DAX: +0.1%
• French CAC: +0.3%
• UK’s FTSE 100: +0.3%
• Spain’s IBEX: +0.7%
• Italy’s FTSE MIB: +0.2%

Weekly Overview:

• Stoxx 600: +0.3%
• German DAX: +0.3%
• French CAC: +0.1%
• UK’s FTSE 100: +0.1%
• Spain’s IBEX: -0.4%
• Italy’s FTSE MIB: -0.7%

Summary:

European stocks rebounded after a rough start to the week, with most indices closing higher on Friday. Despite the positive daily performance, some indices, like Spain’s IBEX and Italy’s FTSE MIB, ended the week in the red, reflecting a mixed sentiment across the region.

Germany July final CPI +2.3% vs +2.3% y/y prelim

• Latest data released by Destatis – 9 August 2024

• Prior +2.2%
• HICP +2.6% vs +2.6% y/y prelim
• Prior +2.5%

Italy July final CPI +1.3% vs +1.3% y/y prelim

• Latest data released by Istat – 9 August 2024

• Prior +0.8%
• HICP +1.6% vs +1.7% y/y prelim
• Prior +0.9%

Ex-ECB Constancio says September rate cut 50-50 – inflation concern

Former ECB Vice President Vitor Constâncio on Thursday, tips a 25bp rate cut from the Federal Open Market Committee (FOMC) in September but the same from the European Central Bank is a coin toss:

Asia-Pacific-World News

PBoC: Will guide reasonable credit growth

• The PBoC issued the Q2 monetary policy implementation report

• Prudent monetary policy should be flexible, moderate, precise and effective.
• Will guide reasonable credit growth.
• Will lower firms’ financing and household credit costs steadily.
• Will promote the steady decline in the cost of comprehensive social financing.
• Will maintain fundamental stability of Yuan exchange rate at a reasonable equilibrium level.
• Will implement measures to prevent and resolve risks in key areas such as real estate, local government debt and small and medium-sized financial institutions.
• Will also keep liquidity reasonably ample.
• Will prevent the formation and self-reinforcement of unilateral uniform expectations, guard against risk of exchange rate overshooting.
• Will conduct stress tests on financial institutions’ bond asset holdings risk exposure and prevent forex risks.
• Will gradually increase the purchase and sale of Treasury bonds in the central bank’s open market operations.
• Will strengthen the authority of policy rates, deliver clearer adjustment target signals of interest rates to market.
• Will strengthen market expectation guidance and focus on changes in long-term bond yields as economy rebound.
• Will strengthen guidance of market expectations, pay attention to changes in long-term bond yields during economic recovery.
• Will increase construction and supply of affordable housing to meet rigid housing needs of wage earners.
• Will satisfy demand for working-class groups, support various improvements to housing demand for households in rural and urban areas.

China treasuries fall after state media says trading accounts must not be borrowed

• Reuters with the info on moves from Chinese authorities

Via Reuters, another move from Chinese authorities to fight the surge in bonds in the country:

• Chinese treasuries fell on Friday after state media said trading accounts must not be borrowed or transferred, following the launch of a probe by regulators into suspected misbehavior in the country’s red-hot bond market.
• Borrowed or transferred interbank bond trading accounts could lead to a rise in non-compliant transactions, distort market prices and increase credit risks, a central bank-affiliated newspaper said on Friday.
• China’s 30-year treasury futures fell as much as 0.7% in early trading on Friday and 10-year bond futures dipped 0.3% at one point.
• Both instruments are headed for a weekly decline, snapping a four-week winning streak. Treasury yields, which move inversely to prices, rose across the board on Friday.

Inflation, both CPI and PPI, data from China for July 2024

China CPI (YoY) (Jul)

• Actual: 0.5%
• Expected: 0.3%
• Previous: 0.2%

China CPI (MoM) (Jul)

• Actual: 0.5%
• Expected: 0.3%
• Previous: -0.2%

China PPI (YoY) (Jul)

• Actual: -0.8%
• Expected: -0.9%
• Previous: -0.8%

PBOC sets USD/ CNY reference rate for today at 7.1449 (vs. estimate at 7.1690)

• PBOC CNY reference rate setting for the trading session ahead

In open market operations:

• PBOC injects 13bn via 7-day RR, sets rate at 1.7%
• 1bn yuan mature today
• net 12bn yuan injection today

Westpac revised their RBA forecast, see first rate cut in February 2025

• WPAC acknowledge “risks on both sides of this forecast”

Earlier this week Westpac pushed back their RBA rate cut call to February 2025, from previously in November 2024

• Expects a conservative pace of 25bp cuts per quarter
• New terminal rate forecast of 3.35%, up from 3.10% previously
• RBA seen as more cautious, requiring stronger evidence before easing
• Bank cites RBA’s new analytical tools and focus on full employment indicators
• WPAC forecasts align with RBA on inflation, but more pessimistic on consumption
• Risks: RBA could delay cuts further if inflation surprises to upside
• Alternatively, cuts could come sooner if economy weakens materially

RBNZ monetary policy meeting – Reuters poll is not clear cut, 19 say hold, 12 say 25bp cut

• The Reserve Bank of New Zealand meet next week

The Reserve Bank of New Zealand meeting on August 14 is very much ‘live’.

Some considerations for the RBNZ include:

• inflation has dropped to 3.3%, the lowest in three years but still above the Bank’s target range
• concerns over economic growth and rising unemployment

Comment from ANZ:

• expects no immediate cut
• believes the Bank will signal a quicker easing of rates due to the worsening economic outlook
• “We expect a cut in November, with the risk skewed towards an earlier move”

Other banks views:

• ASB and BNZ are predicting a cut next week
• Kiwibank, and Westpac expect it later in the year

Median forecasts indicate a rate drop to 5.00% by the end of the year

• RBNZ could lower rates by an additional 125 basis points in 2025, bringing the official cash rate to 3.75% by the end of 2025

Japanese stocks to rebound after recent sell-off – SuMi TRUST

• The immediate path ahead will be swayed by JPY developments

Sumitomo Mitsui Trust Asset Management (SuMi TRUST) on Japanese equities – looking for a bounce back after the sharp sell-off:

• Japanese equity market dropped sharply in early August on weak US data and yen strength
• SuMi TRUST strategist Hiroyuki Ueno sees this as temporary correction
• Yen appreciation driven by diverging Fed/BOJ policy expectations
• Ueno: Market should return to uptrend as Japanese corporate earnings remain robust
• Double-digit earnings growth expected for FY2024-25
• Solid demand seen from domestic and foreign investors waiting to enter market
• Overall outlook positive as Japan exits deflation cycle and economy normalizes

Key quotes:

• “In the short-term, the market may continue to be swayed by foreign exchange rates and the monetary policy of both Japan and the US. However, in the mid to long-term the market should calm and return to its former upward trend because Japanese corporate earnings remain robust and Japan’s economy as a whole has been able to escape its deflationary cycle and continues to normalise”
• “Overall, corporate earnings in Japan are robust, and the Japanese economy is exiting its deflationary cycle; these factors will support the market’s return to an upward trend”

“No need for the Bank of Japan to raise interest rates much more than it has done”

• Julius Baer analyst retains his overweight recommendation on Japanese equities

Julius Baer analyst on the BOJ, JPY and Japnese equities.

• no need for the Bank of Japan to raise interest rates much more than it has done
• once markets settle 500-odd basis point interest rate differential between JPY and USD will once again be primary
• do not see the yen appreciating from here

The supports for Japan’s equity market remain unchanged, including:
wage growth of 5+% this year (compared with gains of 7% in the previous 20 years)
corporate reform

• increased dividend pay-outs and share buy-backs
• brand equity that surpasses other Asian countries
• a large and liquid market of around 4,000 listed companies
• hundreds have returns-on-equity in the high teens and over
• earnings’ growth for the Nikkei 225 Index is forecast by the consensus to be 7 per cent this year, and 8 per cent next year.

Bank of Japan is unlikely to raise interest rates again soon

• JP Morgan Asset Management say further tightening hinges on the US economy & Federal Reserve

JP Morgan Asset Management (info comes via a Bloomberg report, gated) says the Bank of Japan is unlikely to raise interest rates again soon. JPAM say further tightening hinges on the US economy’s performance:

• BOJ may move again only if the Federal Reserve cuts rates and stabilizes the US economy.
• believes any further tightening by the BOJ is likely only in 2025, contingent on a stable global environment.

MUFG expect at least one more Bank of Japan rate hike in FY, but JPY needs to calm first

• Japan’s fiscal year (FY) runs from April 1 to March 31

MUFG on the Bank of Japan outlook, a conditional view:

• “If financial markets stabilize and the pace of yen gains slows, then at least one more BOJ hike still appears likely in the current fiscal year.”

MUFG cite the Bank of Japan Summary of Opinions (published yesterday):

• summary sent a clear signal for further interest-rate rises
• showed some board members described the policy rate as significantly low and highly accommodative even after it was raised to 0.25%

Cryptocurrency News

Ethereum’s Market Outlook: Bearish Momentum Weakens Amid ETF Flows and Options Expiry

Current Status:

• Price Movement: ETH is up 0.4% on Friday.
• Recent Market Action: Ethereum’s price had been impacted by a market crash, with ETH dropping to around $2,100.

ETF Flows and Predictions:

• ETHE Outflows: Grayscale’s ETHE saw outflows reduce to $19.8 million, while BlackRock’s ETHA recorded $11.7 million in inflows. Overall, mild net outflows of $2.9 million were noted for Ethereum ETFs on Thursday.
• Future Outlook: Analysts anticipate that the trend of reduced ETHE outflows could lead to consistent net inflows into Ethereum ETFs in the near future. Predictions of ETH ETFs potentially driving ETH to an all-time high of around $5,000 may need adjustment due to recent market volatility.

Options Market:

• Options Expiry: ETH options worth $560 million expired on Friday.
• Market Sentiment: The Put/Call Ratio (PCR) increased from 0.55 to 0.96 over the past week, indicating a shift toward bearish sentiment among options traders. Historically, a rapid rise in PCR often precedes a price reversal.

Regulatory Updates:

• SEC Filing: The SEC extended its decision deadline on Hashdex’s ETF application, which would include Bitcoin and Ethereum, to September 30.

Technical Indicators:

• Support Levels: Ethereum’s recent price action suggests potential for reclaiming key support levels as bearish momentum weakens.
• Technical Outlook: Indicators show that while bearish pressure has been present, there is a possibility of price stabilization or reversal, especially as ETF flows stabilize and options data hints at a potential turnaround.

Overall, despite the recent market challenges and bearish sentiment reflected in the options market, the stabilization of ETF flows and technical indicators suggest Ethereum may be poised for a potential rebound.

XRP Faces Decline Amid SEC Appeal Speculation

Current Status:

• Price: $0.5778 (Down 7% on Friday)
• Key Support Level: $0.60

The legal battle between Ripple and the US Securities & Exchange Commission (SEC) concluded with Ripple being fined $125 million for alleged violations of securities laws. Despite both parties considering aspects of the outcome a win, concerns are mounting about a potential SEC appeal.

Market Reaction: XRP experienced a brief surge in price following the ruling but has since retraced, slipping below the key psychological support level of $0.60. This decline reflects market uncertainty as traders anticipate the possibility of an SEC appeal.

Legal and Market Implications:

• Ruling Summary: Judge Analisa Torres reaffirmed XRP’s status as a non-security in secondary market transactions, although the firm has been found to have potentially violated securities laws.
• Potential Appeal: The SEC may appeal the ruling, which could affect XRP’s legal clarity and market sentiment. Fox Business journalist Eleanor Terret suggested that the SEC has valid grounds to challenge the ruling on XRP’s security status.
• ETF Speculation: Analysts are awaiting news on a potential Exchange Traded Fund (ETF) application for XRP, which could influence market dynamics.

Ripple’s substantial fine, which is nearly twelve times the amount it offered to pay, suggests that the SEC might not contest the fine itself. However, the possibility of an appeal continues to weigh on XRP’s price, impacting its recent gains.

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