Round up of today’s market news

North American News

US Equity Markets Close Lower Amid Tech Sector Weakness and Rate Cut Concerns

Major Indices:

• Dow Jones Industrial Average: -375.56 to 40,380.19 (-1.0%)
• NASDAQ Composite: -389.56 to 16,738.08 (-2.5%)
• S&P 500: -87.21 to 5,416.20 (-1.7%)

Weekly Performance:

• S&P 500: -4.2%
• NASDAQ Composite: -5.8%
• Dow Jones Industrial Average: -2.9%
• Russell 2000: -5.4%

Key Observations:

• Chipmakers Impact: The technology sector, particularly semiconductor stocks, faced significant declines, with Nvidia (NVDA) falling to $102. This sector weakness has contributed to broader market losses.
• Bond Yields: The 10-year Treasury yield settled two basis points lower today, and 20 basis points lower this week, at 3.71%. The 2-year Treasury yield fell 10 basis points today and 28 basis points this week, ending at 3.65%.
• Economic Data Anticipation: Market participants are awaiting critical economic reports next week:
  • August Consumer Price Index (CPI): Scheduled for release on Wednesday.
  • August Producer Price Index (PPI): Scheduled for release on Thursday.
  • Preliminary September University of Michigan Consumer Sentiment Survey: Scheduled for release on Friday.

The equity market closed with substantial losses, reflecting growing concerns over potential Federal Reserve actions and ongoing weakness in the tech sector. The upcoming economic data releases will likely influence market sentiment and provide further insights into inflation and consumer sentiment.

US August non-farm payrolls +142K vs +160K expected

• August 2024 US employment data from the non-farm payroll’s report

• Prior was +114K

Details of the August 2024 jobs report:

• Two-month net revision: -86K versus -29K prior
• Unemployment rate: 4.2% versus 4.2% expected (prior was 4.3%)
• Unrounded unemployment rate: 4.220% vs 4.252% prior
• Participation rate: 62.7% versus 62.7% prior
• Private payrolls +118K vs +139K expected
• Prior private payrolls 97K (revised to 74K)
• U6 underemployment rate: 7.9% versus 7.8% prior
• Average hourly earnings: +0.4% m/m versus +0.3% m/m expected
• Prior avg hourly earnings: +0.2% m/m (revised to -0.1%)
• Average hourly earnings: +3.8% y/y versus +3.7% y/y expected
• Average weekly hours: 34.3 versus 34.2 prior
• Change in manufacturing payrolls: -24K versus +1K prior
• Household survey: +168K versus +67K prior
• Government jobs: +24K versus +17K prior
• Full time: -438K versus +448K prior
• Part time: +527K versus -325K prior

Fed’s Goolsbee: Critical challenge is not letting things turn into something worse

• Comments from the Chicago Fed President on CNBC

• Critical challenge is: Not letting things turn into something worse
• If you look at the Beige Book, you can’t look at it as exciting, if anything it was a fair bit downbeat
• It suggests there are warning signs on the economy
• You only want rates to be this high as long as you have to
• We will get a new dot plot, there has been consensus for inflation to come down but not as fast as it’s been coming down
• In the dot plot, unemployment was expected to rise but not this fast
• What’s most important isn’t the next meeting, it’s getting it right over several meetings
• Inflation is on the path to 2% and we now need for labor market and GDP to stabilize
• Danger signs are when you see things starting to get worse
• The current employment average is too low for population growth
• I worry the percentage chance of a recession might be rising
• We have a little more tolerance for an upside surprise on CPI as the longer arc shows inflation coming down

Fed’s Waller : Forecasts could be wrong, must be nimble as data comes in

• Fed’s Waller speaking:

• Believe maintaining the economy’s forward momentum means time has come to begin reducing policy rate at upcoming meeting
• Data in past three days indicates labor market is softening but not deteriorating; this judgment important to upcoming policy decision
• It is likely a series of reductions in policy rate will be appropriate
• Determining appropriate pace of cuts will be challenging
• Am open-minded on size and pace of cuts, will depend on data
• Will be an advocate for front-loading rate cuts if that is appropriate
• If future data shows significant deterioration in labor market, Fed can act quickly and forcefully
• Would also cut at consecutive meetings if data calls for it as I would be for larger cuts if needed
• Do not believe economy is in a recession or necessarily headed for one soon
• I stand ready to act promptly to support the economy as needed
• Sufficient room to cut policy rate and still remain somewhat restrictive to ensure inflation returns to 2%
• Current batch of data no longer requires patience, it requires action
• August jobs report and other recent data reinforces view there has been continued moderation in the labor market
• In light of ‘considerable and ongoing progress’ toward FOMC’s 2% inflation goal, balance of risks has shifted toward employment
• Monetary policy has to adjust accordingly as balance of risks has shifted to employment side of mandate
• Softening of labor market pattern consistent with moderate growth in economic activity
• Labor market and economy performing in a solid manner and future prospects are good
• See some downside risks to employment, will be watching closely

Fed’s Williams: Unemployment rate still low despite rise

• Comments from the New York Fed President after non-farm payrolls

• Some of the increase in unemployment reflects a cool-down in the labor market from an overheated state
• The labor market is now roughly in balance and therefore unlikely to be a source of inflationary pressures going forward
• Is ready to start the process of rate cuts
• Monetary policy can be moved to a more neutral stance depending on data
• Williams signals readiness to cut rates: “Appropriate to dial down restrictiveness”
• Inflation moving “sustainably toward 2%,” boosting confidence in policy effectiveness
• Labor market “roughly in balance,” no longer a source of inflationary pressure
• GDP growth forecast: 2-2.5% for current year
• Unemployment rate projected at 4.25% by year-end (from 4.220% in today’s jobs report)
• PCE inflation expected to moderate to 2.25% this year, near 2% next year
• Policy can move to more neutral setting over time, depending on data
• Fed remains vigilant on risks: U.S. labor market weakness, global slowdown, inflation surprises
• Future policy decisions to remain data-dependent, focused on dual mandate goals
• Not quite ready to say how big first rate cut should be
• it’s clear labor market imbalances have eased.
• Jobs market more consistent with pre-pandemic environment.
• Clear rates should fall, but pace, destination last clear

Fed’s Goolsbee says trend of economic data justifies multiple rate cuts

• Goolsbee sees mounting warning signs about outlook of labor market

Federal Reserve Bank of Chicago President Austan Goolsbee spoke with Dow Jones / Market Watch (gated), published only minutes ago:

• “The long arc shows inflation is coming down very significantly, and the unemployment rate is rising faster” than Fed officials had expected in June
• Given the more favorable inflation data and the less favorable unemployment data, “it is pretty clear that the path is not just rate cuts soon” … but multiple cuts over the next 12 months
• said he saw “more” warning signs about the cooling labor market
• persistent weakness has raised the possibility that the labor market will keep cooling, and could “turn into something worse”

Goldman Sachs on 4 surprises that could drive Apple’s stock to $276 price target

• Goldman Sachs says that Apple’s iPhone 16 event next week could boost the stock price

The Apple’s iPhone 16 event is scheduled for 10 September at 1pm US Eastern time

Goldman is bullish on the stock, and has increased its Apple price target to $276

GS lists four surprises could drive the stock price higher:

• announcing a price increase for the new iPhones (“AAPL’s investments in iPhone hardware and across the Apple ecosystem in recent years have provided consumers with additional value and should help warrant the price increases”)
• earlier-than-expected launch date for its Apple Intelligence features and apps
• new iPad announcements
• better-than-expected promotions from telecom companies

Federal Open Market Committee (FOMC) blackout period begins on the weekend

• Williams and Waller will speak today to sneak in a few remarks

The ‘blackout’ policy from the Federal Reserve limits the extent to which Federal Open Market Committee participants and staff can speak publicly or grant interviews. The period begins the two Saturdays preceding a Federal Open Market Committee (FOMC) meeting and ends the Thursday following the decision (decisions are always on Wednesdays).

Canada August employment change +22.1 versus +25.0K estimate

• Canada August 2024 employment changes detail

• Prior month -2.8K
• Employment change 22.1K vs 25.0 K estimate
• Unemployment rate 6.6% vs 6.5% estimate.HIGHEST since May 2017 outside of 2020 and 2021 Covid period
• Prior month unemployment rate 6.4%
• Full-time employment -43.6K vs 61.6 K last month.
• Part-time employment 65.7K vs -64.4K last month
• Participation rate 65.1% vs 65.0 K last month
• Average hourly wages YoY 4.9% vs 5.2% last month

Some further detail:

By Demographic:

• Core-aged women (25-54): Employment grew by 20,000 (+0.3%).
• Other major demographic groups: Employment held steady.

By Industry:

• Increased:
  • Educational services: +27,000 (+1.7%)
  • Health care and social assistance: +25,000 (+0.9%)
  • Finance, insurance, real estate, rental and leasing: +11,000 (+0.8%)
• Decreased:
  • Other services: -19,000 (-2.3%)
  • Professional, scientific, and technical services: -16,000 (-0.8%)
  • Utilities: -6,800 (-4.5%)
  • Natural resources: -6,500 (-1.8%)

By Region:

• Increased:
  • Alberta: +13,000 (+0.5%)
  • Nova Scotia: +5,000 (+1.0%)
  • Manitoba: +4,400 (+0.6%)
  • Prince Edward Island: +900 (+1.0%)
• Decreased:
  • Newfoundland and Labrador: -2,400 (-1.0%)

Looking at the total hours:

• Total hours worked:
  • Little changed in August: -0.1%
  • Up 1.4% compared to 12 months earlier
• Average hourly wages among employees:
  • Increased by 5.0% year-over-year in August (up $1.69 to $35.16)
  • Growth of 5.2% in July (not seasonally adjusted)
• There were 1.5 million unemployed people in August 2024, an increase of 60,000 (+4.3%) from July and an increase of 272,000 (+22.9%) from August 2023.

Canada Ivey PMI 48.2 vs 57.6 prior

• Canada manufacturing PMI survey for August

• Prior was 57.6
• Non-seasonally adjusted vs 55.3 prior

Commodities

Gold Retreats from Near Record High Amid Fed Rate Cut Speculation

Gold Price: Down to $2,493
Daily Decline: 0.80%

Gold prices retreated from near record highs on Friday, closing at $2,493 after an unsuccessful attempt to break through the $2,531 resistance level. The retreat came as speculation about Federal Reserve rate cuts intensified following the release of mixed US economic data.

Key Market Dynamics:

• Fed Rate Cut Speculation: Despite an initial rise in expectations for a 50 basis point (bps) rate cut, market sentiment shifted towards a more likely 25 bps cut. The CME FedWatch Tool indicated that at one point, the probability of a 50 bps cut soared to 70%. However, as the session progressed, expectations adjusted with a 73% chance for a 25 bps cut and a 27% chance for a 50 bps cut.
• Economic Data Impact: The US Nonfarm Payrolls (NFP) for August came in below estimates with an increase of 142,000 jobs, missing the forecast of 160,000. July’s figures were revised downwards from 114,000 to 89,000. The Unemployment Rate fell to 4.2% from 4.3%, while Average Hourly Earnings rose to 3.8% YoY from 3.6%.
• Fed Officials’ Comments: Fed policymakers, including New York Fed President John Williams and Fed Governor Christopher Waller, expressed support for easing monetary policy. Williams and Waller both suggested that rate cuts could help maintain a balanced labor market, with Waller indicating openness to varying sizes of cuts. Chicago Fed President Austan Goolsbee also supported reducing borrowing costs.

Market Movers:

• US Dollar Index (DXY): The US Dollar Index recovered above 101.00, adding pressure on Gold prices.
• Interest Rate Futures: Data from the Chicago Board of Trade shows an expectation for at least 104 basis points of Fed rate cuts this year, a slight increase from the previous day’s 103 bps forecast.

Gold’s price action reflects a volatile environment as traders digest conflicting signals from economic data and Fed commentary. The market’s focus remains on upcoming Fed decisions and their potential impact on monetary policy and economic stability.

Baker Hughes Rig Count Report

U.S. Rig Count:

• Total Rig Count: Down by 1 to 582
  • Oil Rigs: Unchanged at 483
  • Gas Rigs: Down by 1 to 94
  • Miscellaneous Rigs: Unchanged at 5
• Year-over-Year Comparison:
  • Total Rig Count: Down 50 from 632
    • Oil Rigs: Down 30
    • Gas Rigs: Down 19
    • Miscellaneous Rigs: Down 1
• Offshore Rig Count: Unchanged at 19, steady year-over-year

Canada Rig Count:

• Total Rig Count: Unchanged at 220
  • Oil Rigs: Down by 1 to 152
  • Gas Rigs: Unchanged at 67
• Year-over-Year Comparison:
  • Total Rig Count: Up 38 from 182
    • Oil Rigs: Up 39
    • Gas Rigs: Down 2

Citi forecasting Brent crude oil into the US$60 range

• Sell the bounce in oil says Citi

Reuters with the info from Citi following the OPEc announcement earlier:

• “We see the OPEC+ unwind delay and ongoing geopolitics and financial positioning providing price support at $70-72 Brent”
• We recommend selling on a bounce toward $80 Brent, as we look ahead to moves down to the $60 range in 2025 as a sizeable market surplus emerges”

JP Morgan forecasts Brent crude oil to low $60s

• Longer horizon projection from JPM

JP Morgan projections come via Reuters oil reporting:

• With the window of opportunity to phase out production cuts now closed, OPEC+ will maintain current production levels at least for another year
• “Under this scenario, our price outlook calls for Brent to average $75 in 2025, with prices dipping into low-$60s by year-end”
• For oil, “$60 is not a good price for neither producers nor consumers, and OPEC would need to cut 1 mbd deeper, were the alliance to adhere to market management”
• “Given oil’s large underperformance in August, we shave our 4Q24 price forecast from $85 to $80, but keep 2025 unchanged”

EU News

Eurozone Q2 final GDP +0.2% vs +0.3% q/q second estimate

• Latest data released by Eurostat – 6 September 2024

• Prior +0.3%

Looking at the breakdown, household consumption was more or less negligible on the quarter and that is the same for changes in inventories. Government expenditure contributed 0.1% while gross fixed capital formation fell by 0.5%. The latter was offset by trade i.e. exports less imports, which contributed 0.5% on the quarter.

Germany July trade balance €16.8 billion vs €21.0 billion expected

• Latest data released by Destatis – 6 September 2024

• Prior €20.4 billion

Germany July industrial production -2.4% vs -0.3% m/m expected

• Latest data released by Destatis – 6 September 2024

• Prior +1.4%; revised to +1.7%

If you exclude energy and construction, the drop on the month is even more profound i.e. -3.2%. The production of capital goods fell by 4.2%, production of intermediate goods by 2.8% and production of consumer goods by 1.2%.

France July trade balance -€5.88 billion vs -€6.09 billion prior

• Latest data released by INSEE – 6 September 2024

• Prior -€6.09 billion; revised to -€5.98 billion

The French trade deficit more or less held steady on the month, with exports falling by 3.3% and imports falling by 3.1% in July.

UK August Halifax house prices +0.3% vs +0.2% m/m expected

• Latest data released by Halifax – 6 September 2024
• Prior +0.8%; revised to +0.9%

House prices in the UK continue to nudge higher, with the latest seeing a typical property now costing £292,505 – its highest since August 2022. Halifax notes that:

“Recent price rises build on a largely positive summer for the UK housing market. Prospective homebuyers are feeling more confident thanks to easing interest rates. That optimism is reflected in the latest mortgage approval figures, now at their highest level in almost two years.

“Such has been the resilience of house prices that the average property is now just £1,000 shy of the record high set in June 2022 (£293,507). While this is welcome news for existing homeowners, affordability remains a significant challenge for many potential buyers still adjusting to higher mortgage costs.

“However with market activity picking up and the possibility of further interest rate reductions to come, we expect house prices to continue their modest growth through the remainder of this year.”

Asia-Pacific-World News

Chinese banks used swaps to build short positions in the dollar of around US$100 billion

• Bloomberg report on China propping up the yuan, and the risks it poses to their state banks

Bloomberg (gated) carry the report on exposures of Chinase state-owned banks.

In summary:

• State run Chinese banks have used FX swaps to prop up the yuan
• Bloomberg cites estimates that the banks have built short positions in the USD of over USD100bn
• Which has created “virtually risk-free returns of about 6% as recently as July for traders who took the other side” … since July, of course, those profits have moderated as the yuan strengthened

Bloomberg add on the shifting of risks:

• It’s the latest side effect of China’s shifting approach to currency management, following a botched devaluation in 2015 that led authorities to burn through $650 billion of foreign-exchange reserves trying to stop the yuan from falling to levels they feared could prompt capital outflow or harm domestic companies who’d borrowed abroad. With banks now bearing the brunt of efforts to support the yuan, China has been able to stabilize the currency without a drop in reserves that might encourage a pile-on by bearish speculators keen to test how much firepower the People’s Bank of China is prepared to deploy.

PBOC sets USD/ CNY reference rate for today at 7.0925 (vs. estimate at 7.0927)

• PBOC CNY reference rate setting for the trading session ahead.

In open market operations (OMOs):

• PBOC injects 142bn via 7-day RR, sets rate at 1.7%

Former PBOC Gov says China requires proactive fiscal policy, accommodative monetary

• People’s Bank of China

Former People’s Bank of China Governor Yi Gang

• Overall China has weak domestic demand, especially on consumption and investment side
• Hopes in near future china’s GDP deflator will turn slightly positive
• Hopes producer price industry will improve to about zero by the end of this year
• Should go back to proactive fiscal policy in China and accommodative monetary policy

China will cut the retail prices of gasoline and diesel today

• Chinese authorities cite the recent falls in international oil prices

The National Development and Reform Commission of the People’s Republic of China (NDRC) is China’s ‘state planner’.

The NDRC has announced a measure that should serve as a form of stimulus:

• Gasoline and diesel prices will both be reduced by 100 yuan per tonne

Australian July home loans +2.9% m/m (expected +1.0%)

• Australian housing finance data for July 2024

Australia Invest Housing Finance (MoM) (Jul)

• Actual: 5.4%
• Previous: 2.7%

Japan data – July household spending +0.1% y/y (expected +1.2%)

• Japanese consumer not showing up

An ugly miss for this data point. At the margin its not yen supportive.

July household spending +0.1% y/y

• expected +1.2%, prior -1.4%

-1.7% m/m

• expected -0.2%, prior +0.1%

Japan Foreign Reserves (USD) (Aug)

• Actual: 1,235.7B
• Previous: 1,219.1B

Japan Coincident Indicator (MoM) (Jul)

• Actual: 3.0%
• Previous: -3.9%

Japan Leading Index (MoM) (Jul)

• Actual: 0.4%
• Previous: -2.1%

Friday morning trade has been cancelled in Hong Kong due massive storm

• Tropical Cyclone Yagi

HKEX will not trade this morning.

Hong Kong Exchange and Clearing is the operator of the city’s stock exchange. Its cancelled morning trade in the securities and derivatives market after the city issued a Tropical Cyclone Warning

Cryptocurrency News

Ethereum Dips Below $2,300 Amid ETF Outflows and NFP Data

Ethereum Price: Down nearly 5% to $2,290
Daily Decline: 5%

Ethereum’s price took a hit on Friday, dropping below $2,300 following disappointing August Nonfarm Payrolls (NFP) data. The NFP report revealed the US economy added 142,000 jobs, missing the expected 160,000, and the unemployment rate dipped to 4.2% from 4.3% in July. This weaker-than-expected jobs report has contributed to broader market concerns and pressured Ethereum’s price.

ETF Performance Insights:

• Ethereum vs. Bitcoin ETFs: Despite ongoing outflows, Ethereum ETFs have performed similarly to Bitcoin ETFs based on the asset under management (AUM) ratio to market cap, one month after their respective launches.
• ETH ETF Flows: Ethereum ETFs experienced negative flows for the third consecutive day, with a net outflow of $0.2 million. Since launch, ETH ETFs have seen a cumulative $0.56 billion in net outflows, reflecting a challenging environment for these investment products.
• Comparative Analysis: According to JP Morgan analysts, ETH ETFs’ gross AUM made up about 2.3% of Ethereum’s market cap by the end of August, compared to Bitcoin ETFs, which made up 3.0% of Bitcoin’s market cap at a similar stage.

Additional Market Moves:

• VanEck’s ETF Closure: Asset manager VanEck announced it will close and liquidate its Ethereum futures ETF (EFUT) on September 16, possibly due to the launch of its spot ETH ETF and prior closures of its Bitcoin Futures ETF.

Ethereum’s price action and ETF performance continue to reflect a period of turbulence, exacerbated by broader market trends and specific data points. Investors are watching for potential rebounds around the $2,100 level to confirm a sustained bullish trend.

Bitcoin Faces Heavy Decline: Chart Signals Concern

Bitcoin Price: Down $2,500 to $53,540

• Daily Decline: 4.5%

Bitcoin’s chart shows troubling signs after a significant drop today. The cryptocurrency is experiencing a notable decline, breaking through recent support levels and hitting a price point not seen frequently over the past six months. Previously, similar dips have led to sharp drops, with Bitcoin falling to $50,000 in a flash crash.

Key technical observations:

• Recent Performance: Bitcoin has consistently shown lower highs over the past six months, with peaks declining from $72K to $65K.
• Correlation with Tech Stocks: There is a strong link between Bitcoin and tech stocks, especially in the semiconductor sector. As enthusiasm for AI wanes, semiconductor stocks like Broadcom and Nvidia are struggling, with declines of nearly 10% and 4.5% respectively.

Traders should watch for further price action to determine if Bitcoin can stabilize or if it will continue its downward trend.

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