Round up of today's market news *

North American News

US Stocks Surge, Small Caps Lead with 3% Gain

US equities closed strong today, with small caps driving the rally, bolstered by Fed Chair Powell’s supportive comments and positive economic data.

Closing Numbers:

S&P 500: +1.2%
Nasdaq Composite: +1.5%
DJIA: +1.2%
Russell 2000: +3.1%

Weekly Performance:

S&P 500: +1.4%
Nasdaq Composite: +1.4%
DJIA: +1.3%
Russell 2000: +3.4%

Market Movers:

Fed Chair Powell’s Speech: Powell’s statement that “the time has come for policy to adjust” provided a lift to the markets, easing investor concerns and driving buying activity.
Sector Rotation: There was notable rotation into pro-cyclical sectors, with small-cap stocks seeing significant gains.
Semiconductors Lead: Semiconductor shares were a key driver of today’s gains, showing strong performance amid broader market strength.
Treasury Yields: Yields fell sharply in response to Powell’s comments and a stronger-than-expected new home sales report for July.

Next Week’s Economic Calendar:

Tuesday: August Consumer Confidence (prior 100.3)
Thursday: Q2 GDP – Second Estimate (prior 2.8%), Q2 GDP Deflator – Second Estimate (prior 2.3%), Weekly Initial Claims (prior 232,000), Continuing Claims (prior 1.863 million)
Friday: July Personal Income (prior 0.2%), Personal Spending (prior 0.3%), PCE Prices (prior 0.1%), Core PCE Prices (prior 0.2%), Final August University of Michigan Consumer Sentiment (prior 67.8)

The strong close today and solid weekly performance reflect growing optimism, with small caps leading the charge and key economic indicators set to provide further direction in the coming week.

US new home sales for July 0.739M vs 0.625M expected

US new home sales for July 2024

Prior was 0.617m (revised to 0.668m)
Median sales price: $429,800 vs $417,300 prior
Seasonally-adjusted estimate of new houses for sale at the end of July 462,000 vs 476,000 prior
Supply at 7.5 months vs 9.1 prior

New Chart Below:

Fed’s Goolsbee: We want to be careful about the employment side of the mandate

Comments from the Chicago Fed President

I don’t like tying our hands for any meeting but Fed funds minus inflation is as high as it’s been in decades
Inflation is on a path to 2%
We’re the tightest we’ve been in this cycle, even though we stopped hiking last July
Fed forecasts show widespread support for rate cuts
It’s hard to put a specific number on where neutral is
By almost all measures the job market has been cooling
The market does not believe we’re going to be stuck at 3% or 2.5%
The size of Fed cuts isn’t important, it’s the path
Almost everyone on the committee thinks inflation is coming down and that there will be multiple cuts over calendar 2024 and 2025
Speed and size of cuts to be determined by economic data
Neutral rates are ‘far from where we are’
There is some question on the strength of the consumer, that said if you look at the spending data, it’s been fairly robust

Powell at Jackson Hole: The time has come for policy to adjust

Highlights of the speech from Jerome Powell at Jackson Hole

We do not seek or welcome further cooling in labour market
We will do everything we can to support strong labor market as we make further progress toward price stability

My confidence has grown that inflation is on a sustainable path back to 2%
Upside risks to inflation have diminished, downside risks to employment have increased
Inflation now ‘much closer to goal’
The cooling in labor market conditions is ‘unmistakable’

“The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”

Quotable Fed Chair Powell:

We will do everything we can to support a strong labor market as we make further progress toward price stability. With an appropriate dialing back of policy restraint, there is good reason to think that the economy will get back to 2 percent inflation while maintaining a strong labor market. The current level of our policy rate gives us ample room to respond to any risks we may face, including the risk of unwelcome further weakening in labor market conditions.

Here is the take from WSJ Fedwatcher Nick Timiraos:

Fed’s Bostic: estimates long-run Fed rate at 3%

Comments from Bostic on CNBC

Inflation has come way down
We are close to being ready to cut rates
We’re going to have to think hard about what’s happening in labor markets
Our policy has had its effect and we can start pathway back to normal policy posture
The numbers in the last couple months have come in more positive
Underlying inflation is all flashing red still, we still have a ways to go
Inflation has come down faster than I expected and to me that says it may be appropriate to pull forward easing
You can’t ignore the data, it’s come in a way that shows it’s closer to moving than further
For me, I just want see the next couple of data points
We’re in a pretty good place, but I don’t take that for granted
The markets have been eager to get us to be finished. Patience is going to be warranted
The next step depends on data points
Inflation moved a lot faster than expected
I list the range of potential Fed decisions from no cut to 50 bps
Solid business conditions give the Fed space to be patient

Canada June retail sales –0.3% vs -0.3% expected

Canada retail sales data for June 2024 and preliminary July data

May was -0.8%
Preliminary June was -0.3%
Sales down 0.5% in Q2
Preliminary July +0.6%
Ex autos +0.3% vs -0.2% expected
Prior ex-autos -1.3% (revised to -1.2%)
Ex autos and gasoline +0.4% vs -1.4% prior

The drag in the June report was autos, which fell 2.1%, led by new cars at -2.9%. It’s part of the ongoing weight from high interest rates that’s also dragging down everything housing related.

Within core retail sales, the +0.4% rise was led by higher sales at food and beverage retailers (+1.2%), which were driven by supermarkets and other grocery retailers (except convenience retailers) (+1.8%). Gains at beer, wine and liquor retailers (+0.4%) and specialty food retailers (+0.5%) were offset by lower sales at convenience retailers and vending machine operators (-1.9%).

The largest decrease in core retail sales in June came from sporting goods, hobby, musical instrument, book, and miscellaneous retailers (-0.8%).

Canadian train workers back on the job as the government orders binding arbitration

The lockout lasted one day

Minister of Labour Steven MacKinnon ordered the move:

“These collective bargaining negotiations belong to CN Rail, CPKC and TCRC alone — but their effects, and the impacts of the current impasse, are being borne by all Canadians,” MacKinnon said.

“As Minister of Labour, it is my assessment that the parties are at a fundamental impasse. Therefore, it is my duty and responsibility to invoke my authorities under the Canada Labour Code to secure industrial peace and deliver the short and long-term solutions that are in the national interest.”

Commodities

Macro funds have already caught the Gold bug – TDS

Global markets are pricing a fast return to normalization, a cutting cycle steep enough that it has few historical analogies outside of a recession, TDS Senior Commodity Strategist Daniel Ghali notes.

Markets price quick interest-rate cuts

“While there is an argument to be made that this is consistent with a period of disinflation from elevated levels, we see a low bar to challenge ‘this time is different’ pricing. At the same time, the set-up in Gold is such that a period of high deficits, slowing growth, sticky inflation fears, currency devaluation and an imminent cutting cycle has already attracted macro fund capital to the Yellow Metal’s warm embrace.”

“Macro fund long positioning as a proportion of aggregate open interest is now beyond its 95th percentile, which has historically marked significant turning points for macro narratives as highlighted in our first chart of the day. This time around, the set-up also features ‘max long’ CTAs and Shanghai trader positioning at record highs.”

“Chinese ETF and broad commodity index outflows have already commenced, however. This begs the question: who will blink first?”

UBS target USD2700 / oz for gold

The yellow metal to rise further

UBS analysts on gold:

target US$2,600/oz by the end of 2024

target US$2,700/ oz by the middle of 2025

Citing:

central bank net buying remaining elevated in 2024 and 2025, but at a more moderate pace than in the first half of 2024
small amount of selling by Singapore and China
China announced though that’s its gold reserves sat unchanged for a third consecutivemonth
jewellery demand has also moderated, UBS see seasonal tailwinds rising from Q4 2024

Baker Hughes Rig Count: US and Canada Show Divergent Trends

The latest Baker Hughes Rig Count reveals a slight decline in US drilling activity while Canadian rigs show an increase.

US Rig Count:

Total Rigs: Down by 1 to 585
Oil Rigs: Unchanged at 483
Gas Rigs: Down by 1 to 97
Miscellaneous Rigs: Unchanged at 5

Year-Over-Year Comparison:

Total Rigs: Down 47 from last year’s 632
Oil Rigs: Down 29
Gas Rigs: Down 18

Offshore Rig Count:

Total Rigs: Unchanged at 19
Year-Over-Year: Up by 3

Canada Rig Count:

Total Rigs: Up by 2 to 219
Oil Rigs: Up by 2 to 153
Gas Rigs: Unchanged at 66

Year-Over-Year Comparison:

Total Rigs: Up 29 from last year’s 190
Oil Rigs: Up 37
Gas Rigs: Down 8

Overall, while the US rig count sees a slight decline, Canadian drilling activity is on the rise, reflecting differing regional trends in the energy sector.

Citi says upside risk for oil, Brent possible bounce above $80

Crude oil price forecast

Reuters on Thursday with a snippet from Citi analysts, saying they see the possibility for a bounce in Brent crude to the low to mid US$80 range. Citit argue that upside risks in the market remain:

from still-tight balances through August, heightened geopolitical risks across North Africa and the Middle East, the possibility of weather-related disruptions through hurricane season, and light managed money positioning

UBS is expecting Brent crude oil to recover into $85 – 90 range

Oil p[rice forecast

Seeking Alpha (gated) with the info from a note from UBS on oil, expects Brent to recover into an $85-90/ bbl range over the coming months.

On demand and the recent slide in price:

recession fears in the US, ongoing ceasefire hopes in Gaza have lowered crude’s risk premium
weak Chinese crude imports and refinery activity in July sparked fears of poor Chinese oil demand

On supply:

US crude production growth is slowing down
declining US drilling activity doesn’t suggest an acceleration in supply growth in the near term
OPEC+ is likely to stick to its cautious approach when adding back supply

EU News

European equity close: Four gains in five days this week

Great week for European stock markets

On the day:

Stoxx 600 +0.5%
German DAX +0.8%
France CAC +0.7%
UK’s FTSE 100 +0.5%
Spain’s IBEX +1.1%
Italy’s FTSE MIB +1.0%

On the week:

Stoxx 600 +1.4%
German DAX +1.7%
France CAC +1.7%
UK’s FTSE 100 +0.2%
Spain’s IBEX +3.0%
Italy’s FTSE MIB +1.8%

France August business confidence 97 vs 94 prior

Latest data released by INSEE – 23 August 2024

Prior 94
Services confidence 98
Prior 95
Manufacturing confidence 99
Prior 95

UK data – GfK Consumer Confidence steady at -13 in August (expected -12, prior -13)

Stikcs at its highest since September 2021

GfK Consumer Confidence still net pessimistic but holding at its highest since around three years ago.

Joe Staton, client strategy director at GfK:

“This more positive outlook may be due to a mortgage-friendly interest rate cut at the beginning of August, and hopes of more to come”

ECB’s Rehn: European growth outlook is looking somewhat weaker than the US

Comments from the Governor of the Bank of Finland

We already have plenty of data to make our decision in September
Disinflation and a weak economy support a Sept cut
Downtrend in inflation is on track
We are still seeing strong services inflation
The disinflationary process has been ongoing since autumn 2022 and it’s still going on
Asked about 50 bps, says they always have to be open
Says he doesn’t want to commit to anything, data dependent

ECB sources: Broad support starting to form over Sept rate cut

ECB sources from Reuters

Broad support starting to form for Sept cut but not a done deal
Inflation developing as expected, economic growth is weak, wage pressure easing

ECB’s Kazāks: No reason now not to follow through on projection for rate cuts

Remarks by ECB policymaker, Mārtiņš Kazāks

He says that inflation trend in the euro area is consistent with further gradual ECB rate cuts. Adding that with the projections now assuming two more rate cuts by year-end, there is “no reason now not to follow through” on that.

BOE’s Bailey: Market events like two weeks ago will happen, test is whether more triggered

Comments from the Bank of England Governor

Market events like those of two weeks ago or so will happen; the test is not whether they happen but whether they trigger wider instability
Cautiously optimistic that inflation expectations are anchored
Communicating when we decide to accommodate short-run shocks or trade-off between inflation and activity is essential but difficult
Too early to declare victory on inflation
The course will be a steady one

Asia-Pacific-World News

PBOC sets USD/ CNY reference rate for today at 7.1358 (vs. estimate at 7.1480)

PBOC CNY reference rate setting for the trading session ahead.

In open market operations:

PBOC injects 379bn via 7-day RR, sets rate at 1.7%
138bn yuan mature today
net 241bn yuan injection today

New Zealand Retail Sales Q2 2024 -1.2% q/q (expected -1.0%)

New Zealand’s quarterly retail sales data provides a key indicator of the country’s economic activity

Q2 Retail Sales -1.2% q/q

expected -1.0%, prior +0.5%

-3.6% y/y

prior -2.4%

For core sales -1.0% q/q

expected -0.8%, prior +0.4%

Some of the points made by Stats NZ:

Eleven of the 15 industries had lower seasonally adjusted sales volumes in the June 2024 quarter compared with the March 2024 quarter.
Eleven of the 15 industries had lower seasonally adjusted sales values in the June 2024 quarter compared with the March 2024 quarter.
Fourteen of the 16 regions had lower seasonally adjusted sales values in the June 2024 quarter compared with the March 2024 quarter.

BOJ Governor Ueda says concerns over US economy slowdown behind recent market rout

Bank of Japan Governor Ueda

Hawkish headline comment from Bank of Japan Governor Ueda

concerns about slowing US economy caused recent market rout
closely watching market moves with a sense of urgency as uncertainties remain
domestic and overseas markets remain unstable
decided to raise rates in July due to risk of price overshoot driven by import costs
economy is moving in line with price target protections
important to communicate with the public on BOJ’s thinking
The Bank of Japan July rate hike decision was based on our inflation forecast and the risk of an inflation overshoot
Japan’s real interest rate remain deeply in negative territory, so accommodative monetary condition is maintained
Closely watch how market move affect price, economy outlook
No change to our stance that we would adjust degree of monetary easing if our economy price outlook is likely to be achieved
Will continue to work coordinate with govt
BOJ ready to scrutinise how market moves affect our economic, price outlook and our view on risks, likelihood of developments moving in line with our forecasts
Need to take time to decide with what to do with ETF held by BOJ
Not thinking about getting rid of ETF immediately

Ueda was asked whether normalisation of monetary policy was too slow:

replied that the BOJ’s policy steps were appropriate.

Bank of Japan Governor Ueda again from parliament:

BOJ’s policy path to neutral interest rate remains highly uncertain
Japan’s short-term interest rate is still very low so if the economy is in good shape, BOJ will move rates up to levels deemed neutral to economy
There is very high uncertainty on where Japan’s policy rate might eventually rise to
Hard to promise when and in what form we can disclose Japan’s estimated neutral rate
if we can sufficiently narrow down estimated neutral rate, we must disclose our findings to public, media, markets
Will narrow down range of expected neutral rate while monitoring how higher interest rates affect economy
July rate hike was done under accommodative conditions
Japan’s current short-term rate, at 0.25%, is still below the bottom range of what is estimated to be Japan’s neutral rate
Not planning to dispose of the BoJ’s ETF assets but when we do, we will aim to avoid causing market disruption and sell at appropriate prices
By keeping current monetary policy stance, will move closer to achieving price target
Decided at July MPM that adjusting degree of monetary easing appropriate from standpoint of stably, sustainably achieving price target
Real rates likely remain negative, easy financial conditions will keep supporting economy
Fx rate determined by various factors
Weak yen since 2022 comes as market participants focused on rate differentials between us and Japan
Important for currencies to move in stable manner reflecting fundamentals
Wage growth momentum is spreading to overall economy but there are some disparities among firms

Bank of Japan Governor Ueda still speaking in parliament. More specifically on the yen now:

FX rates could affect economy through various routes
FX moves affect economy through various channels
FX moves at times could affect economy, as well as risks to economic forecast
FX moves could affect BOJ’s median forecast
BOJ hiked rates in July as economy, prices were moving in line with forecast, and there were upside risks to inflation due to rising import costs from weak yen
FX volatility could affect our median forecasts, in which case we will decide what would be appropriate policy response to such change in forecasts
FX volatility could also create upside, downside risks to our forecasts, in which case we will scrutinise degree of risk to determine whether policy response needed

Japan fin min Suzuki says intervention action taken as excess volatility not desirable

Japan finance minister Suzuki:

can’t rule out the possibility of Japan’s economy falling back into deflation
Weak yen has pros and cons
Japan has taken action, including FX intervention, as excessive volatility in forex is not desirable
Important for govt to work closely with BOJ on economic, financial situations
Can’t tell whether strong yen has bigger demerits or merits
Rapid FX moves are undesirable
Important for currencies to move in stable manner, reflecting fundamentals
Intervention was response to speculative move and excessive volatility

Japan data – July CPI Headline 2.8% y/y (vs. 2.7% expected)

Japanese CPI Overall 2.8% y/y

expected 2.7%, prior 2.8%

Core CPI (excluding fresh food) 2.7% y/y

expected 2.7%, prior 2.6%

Core-core 1.9% y/y, first time under 2% since September 2022

expected 1.9%, prior 2.2%
excluding fresh food and energy, this is the closest to US core inflation

Cryptocurrency News

Ethereum Surges Over 5% as Fed Chair’s Rate Cut Signals Boost Confidence

Ethereum experienced a notable rise of over 5% on Friday following Federal Reserve Chair Jerome Powell’s keynote at Jackson Hole, signaling potential rate cuts ahead.

Market Performance:

Ethereum (ETH): Up 5%
ETH Exchange Net Flows: 283.9K ETH outflows, the highest since June 11
ETH ETFs: Six consecutive days of outflows, with notable movements in Grayscale’s ETHE and Fidelity’s FETH

Daily Market Movers:

Fed Chair Powell’s Keynote: Powell’s indication that interest rate cuts could be imminent has bolstered confidence in risk assets, including cryptocurrencies. His statement, “The time has come for policy to adjust,” highlights an imminent shift in monetary policy which typically benefits risk assets like Ethereum.
ETH Exchange Flows: The substantial outflow of 283.9K ETH from exchanges underscores strong buying pressure and investor confidence. The seven-day moving average of ETH exchange net flows also dropped to a two-month low.
ETF Activity: Ethereum ETFs are in their sixth day of negative flows. However, a combination of positive inflows in some ETFs, like Fidelity’s FETH, and large outflows from others, such as Grayscale’s ETHE, could shift sentiment if trends continue.

Technical Outlook:

Resistance Levels: Ethereum’s current upward momentum positions it well for a potential rally. If buying pressure persists, ETH could see a 30% rally by breaking through key resistance levels.

As the market digests these developments, Ethereum’s ability to sustain this rally will depend on continued positive sentiment and buying pressure amidst a shifting monetary policy landscape.

Bitcoin Rallies into the Weekend: Breakout Surge Pushes Price to August Highs

Bitcoin has surged nearly 5% today, reaching its highest point since August 2, signaling a robust rebound from earlier market setbacks.