Round up of today’s market news

North American News

Mixed End to the Day for Major Indices Amid Volatility

Market Summary: The major US stock indices closed the day with mixed results, influenced by triple witching hour dynamics, leading to notable end-of-day volatility.

Closing Levels:

• Dow Industrial Average: Up 38.17 points (+0.09%) at 42,063.36
• S&P 500: Down 11.09 points (-0.19%) at 5,702.55
• NASDAQ: Down 65.66 points (-0.36%) at 17,948.32
• Russell 2000: Down 24.81 points (-1.10%) at 2,227.88

Weekly Performance: Despite the mixed closing, all indices showed positive performance over the week:

• Dow Industrial Average: +1.62%
• S&P 500: +1.36%
• NASDAQ: +1.49%
• Russell 2000: +2.08% (despite today’s decline)

Market Sentiment: The overall sentiment reflects resilience in the markets, with the indices ending higher for the week, even as the Russell 2000 faced the steepest decline today. The mixed close signals cautious optimism among investors as they navigate market fluctuations.

Fed’s Bowman explains dissent. Says she would have preferred a smaller rate cut

• Comments from Bowman

• Sees progress on inflation and labor market cooling since mid-2023
• Believes smaller initial move preferable to avoid premature victory declaration
• I see the risk that the Committee’s larger policy action could be interpreted as a premature declaration of victory on our price stability mandate
• Although hiring appears to have softened, layoffs remain low
• Consumer spending reflects a healthy economy
• US economy remains strong with solid growth and near full employment
• Labor market normalizing but measurement challenges create uncertainty
• Inflation still above 2% target, core PCE above 2.5% y/y
• Argues for measured pace toward neutral policy to ensure further inflation progress
• Committed to working with FOMC colleagues despite disagreement on cut size

Fed Harker: There is a risk that inflation decline could stall

• Philadelphia Fed Pres. Harker is on the newswires

• There is a risk that inflation decline could stall
• There is a risk that labor market could soften
• Monetary policy likened to driving a bus – need to balance speed
• Maximum employment involves job quality, not just quantity
• Philadelphia Fed conducts research beyond monetary policy
• Importance of both “hard” and “soft” data in decision-making
• Fed plays crucial role in bank supervision and financial stability
• Fed exploring AI and quantum computing impacts on finance

Fed’s Waller: We’re at a point where the economy is strong and we want to keep it that way

• Fed Governor Chris Waller on CNBC

• The economy is strong and inflation is coming down
• I was open to the idea that we could front-load and the inflation data during blackout pushed me in that direction
• CPI and PPI will feed into core PCE; which will be somewhere around 0.14%
• Over the last four months, core PCE running at 1.8% with very high housing-services inflation
• If you strip out housing services, core PCE would be running under 1% over the past four months
• I can think of several scenarios that will determine the pace of cuts. If it’s fine you can imaging going 25 bps
• If data comes in softer, you can see going at a faster pace
• We could even pause depending on the data
• What’s got me more worried is that inflation is running softer than I thought
• If the data comes in soft, I would be much more willing to be aggressive on rate cuts
• We’re doing exactly what we thought at the start of the year, it just took longer because of Q1 high inflation
• Inflation has reversed on us before, it could reverse again
• Inflation is on the right path as long as we don’t let it get too low
• Don’t hear a lot of firms saying they have pricing power

UBS forecasting many more Federal Reserve rate cuts, forecast S&P 500 to 6200

• S&P 500 to reach 6,200 by June 2025

UBS on the Federal Open Market Committee (FOMC) rate cut and outlook for US equities.

In summary:

• With signs that inflation is being brought under control, the Federal Reserve can now shift its focus to fostering job growth and economic expansion while managing the risk of a recession.
• UBS continue to expect 100 basis points of rate cuts in 2024.
• UBS add that the recent dot plot aligns with their forecast for the pace of monetary easing through the end of 2025.
• On stocks, UBS analysts say that historically stock markets have performed well when the Fed reduced interest rates without the economy being in a recession, and they anticipate the same outcome this time. Their outlook remains that the S&P 500 will reach 5,900 by the end of this year and rise to 6,200 by mid-2025.

BlackRock is wary of the Federal Reserve 50bp rate cut, watch the word “recalibration”

• BlackRock say Powell’s use of the word “recalibration” could be twisted around in future

Analysts at BlackRock are wary of Wednesday’s move from the Federal Open Market Committee (FOMC), describing the extent of the rate cut as unexpected.

They say that while the 50bp cut might benefit the markets in the short term, they believe it also increases the likelihood of more volatility, especially if growth and inflation don’t align with the Fed’s soft landing forecasts. Balckrock argue that the outlook is highly uncertain, and with opinions split prior to the Fed’s blackout period, the near-consensus in Tuesday’s decision is arguably more surprising than the single dissent.

They warn that with Fed Chair Powell described the policy decision as a “recalibration,” its a term he may refer to later if rate cuts are paused and it becomes evident this isn’t a full easing cycle.

The analysts anticipate that the market’s rate cut expectations will likely be unmet, and any positive developments will come from strong growth instead.

ICYMI: US Treasury Sec Yellen said the Fed rate cut is ‘very positive sign’ for economy

• US Treasury Secretary Yellen upbeat on the Federal Reserve and the economy

US Treasury Secretary Yellen spoke at en event in Washinton DC on Thursday.

Yellen was Chair of the Federal Reserve System before Powell, and is now a political appointee. On the rate cut:

• “It reflects confidence on the part of the Fed that inflation has come way down and is on the path back to the two percent target, and that the risks with respect to inflation have really meaningfully diminished”
• “At the same time, we have a job market that remains strong,”
• Yellen said that bringing down inflation successfully in the context of a robust jobs market — AKA a ‘soft landing’ — is “exactly what we’re seeing in the economy.”

Canada July retail sales +0.9% vs +0.6% expected

• Canada retail sales data for July 2024 and preliminary August data

• Prelim was +0.6%
• August preliminary +0.5%
• Ex-autos +0.4% vs +0.3% expected
• Prior ex-autos +0.3%
• Sales were up in seven of nine subsectors
• Ex-autos and gas +0.6%

For July, new car sales rose 2.2% and that drove much of the beat but it certainly wasn’t the whole story as core sales rose 0.6% with food and beverage retailers up 0.8%, led by a 1.2% rise in supermarkets. Clothing also rose 1.1%. The laggard continues to be anything housing-related with building materials down 1.4%.

Other categories:

• Furniture, electronics and appliances: +0.2%
• General merchandise retailers: +0.8%
• Health and personal care retailers: +1.2%
• Gasoline stations and fuel vendors: -0.6%
• Sporting goods, hobby, book, and miscellaneous: 0.0%

Year-over-year changes (unadjusted for inflation):

• Total retail trade: +0.9%
• Motor vehicle and parts dealers: +1.2%
• Building material and garden equipment: -4.2%
• Food and beverage retailers: +0.2%
• Furniture, electronics and appliances: -2.8%
• General merchandise retailers: +3.8%
• Health and personal care retailers: +5.8%
• Gasoline stations and fuel vendors: +2.8%
• Clothing and accessories retailers: +0.2%
• Sporting goods, hobby, book, and miscellaneous: -4.9%

Canada industrial product prices for August -0.8% versus -0.3% expected

• Canada producer price and raw material price indices for August 2024

Prior IPPI MoM 0.0%

• Prior raw material price (RMPI) MoM 0.7%
• IPPI YoY 0.2% vs 2.9% last month revised to 2.8%
• RMPI MoM -3.1% vs -2.0% estimate
• RMPI YoY -2.5% vs 4.1% last month

For the IPPI

• Lower prices for energy and petroleum products were mainly responsible for the decline. Excluding energy and petroleum products, the IPPI decreased -0.2%.
• The IPPI rose 0.2% year-over-year in August, marking the fifth consecutive increase. The main drivers of this growth were unwrought precious metals (+24.0%) and aluminum (+33.2%), which were boosted by economic uncertainty. Petrochemicals also saw a significant price increase (+12.2%). However, prices fell for diesel fuel (-17.1%), motor gasoline (-11.8%), and grain and oilseed products (-26.9%) over the same period.

For the RMPI:

• The RMPI declined -3.1% month over month in August, led by lower prices for crude energy products (-5.0%). Excluding crude energy products, the RMPI fell -1.8%
• The main driver of the year-over-year decline in August was lower crude energy prices, with conventional crude oil down 5.9% and synthetic crude oil down 8.5%. Other notable price drops included canola (-26.5%) and nickel ores and concentrates (-19.1%), largely due to elevated supply in these markets over the past 12 months

BOC’s Macklem: Adoption of AI could add to inflationary pressures in short-term

• Macklem speech out early

• Inflation could be more-prone than it was in the past 25 years in a shock-prone world
• Central banks need to be closely attuned to how AI is affecting inflation, both indirectly and directly
• AI is expected to boost productivity, when labor productivity is rising, economy can grow more quickly without causing inflation
• AI could destroy more jobs than it creates and people may struggle to find jobs. This is a concern for us all
• We don’t have much evidence that labor is being displaced by AI at rates that would lead to declines in total employment
• AI adoption could also lead to financial stability issues; operation risks could become concentrated in a few third-party service providers
• There is huge potential for central banks to use AI to understand how consumers and businesses are behaving

Commodities

Gold Hits Record Highs Above $2,600

Market Overview: Gold prices have surged to an all-time high, trading above $2,600, fueled by speculation surrounding further Federal Reserve rate cuts and heightened geopolitical tensions.

Key Details:

• Current Price Movement: Gold has climbed to $2,621, marking a 1.37% increase. This rally is driven by safe-haven demand due to escalating tensions between Israel and Hezbollah, alongside expectations of monetary easing from the Fed.
• Fed Insights: Fed Governor Christopher Waller supports a 50 basis point cut, citing a rapidly softening inflation outlook. However, dissenting voice Michelle Bowman advocates for a smaller cut to prevent premature declarations of victory over inflation.
• Market Reactions: Wall Street indices experienced losses, reflecting risk aversion as investors seek the safety of gold. The US Dollar Index (DXY) rose slightly by 0.08% to 100.71, showcasing a complex relationship between gold and the dollar amid rising Treasury yields.

Economic Projections: The Fed projects interest rates to end at 4.4% in 2024 and 3.4% in 2025, with inflation targets expected to reach 2% by 2026. Additionally, the US economy is projected to grow at a 2% pace in 2024, with the unemployment rate potentially rising to 4.4%.

Physical Demand Impact: China and India’s strong physical demand for gold continues to overshadow sluggish inflows into gold-backed ETFs, contributing to the bullish trend. Year-to-date, gold prices have increased over 27%, marking the most significant annual rise since 2010.

Market Sentiment: As traders eye a busy US economic schedule next week, the combination of geopolitical tensions and potential Fed actions keeps the gold market dynamic, with many anticipating further price movements based on upcoming economic data and Fed decisions.

Crude oil futures settled up $0.16 at $71

• The high reached $71.41. The low was at $70.40

The price of the WTI crude oil futures are settling up $0.16 and $71 a barrel. The high price today reached $71.41. The low price was at $70.40.

Oil prices rebounded above $70.00, a level that has largely held sway over the past month, driven by tight supply and short covering by institutional investors. While weak demand from China and slowing Western economies have capped the commodity’s gains, Wednesday’s 50-basis-point rate cut by the US Federal Reserve has sparked hopes of a revitalized US economy, potentially boosting oil demand from the world’s largest consumer.

Baker Hughes US oil rig count: Unchanged at 488

• Oil rigs unchanged, gas rigs down by 1

Switzerland didn’t ship any Gold to China in August – Commerzbank

The Swiss customs authority published data on Gold exports on Thursday. Swiss Gold exports in August show no supplies to China for the first time since January 2021, Commerzbank’s commodity analyst Carsten Fritsch notes.

Demand for physical Gold is low due to high price

“It was noteworthy that there were no shipments to China and only minimal shipments to Hong Kong. The last time this happened was in January 2021. Almost no Gold was shipped to the US either. There was a decline of almost 60% in shipments to the UK.”

“Net inflows into Gold ETFs in August, with US-registered Gold ETFs recording inflows of almost 12 tons and UK-registered inflows of just over 4 tons according to the WGC, would have indicated higher deliveries. On the other hand, Gold exports to India were up almost 40 percent. The significant reduction of the Gold import tax in India may have played a role here.”

“Nevertheless, the Swiss data clearly show that the high price level is having a dampening effect on the demand for physical Gold.”

EU News

European equity close: The shine comes off

• Closing changes for the main European bourses

It was a poor finish to Friday for European stocks and that led to a negative week.

On the day:

• Stoxx 600 -1.5%
• German DAX -1.4%
• France’s CAC -1.5%
• UK’s FTSE 100 -1.2%
• Spain’s IBEX -0.1%
• Italy’s FTSE MIB -0.8%

Eurozone September flash consumer confidence -12.9 vs -13.0 expected

• Eurozone consumer confidence slightly stronger than expected

• Prior was -13.5

Germany August PPI +0.2% vs 0.0% m/m expected

• Latest data released by Destatis – 20 September 2024

• Prior +0.2%

The slight bump in August owes mostly to energy prices (+0.8%). If you strip that out, producer prices were actually flat on the month in Germany. Looking at the other individual breakdowns, intermediate goods prices fell by 0.3%, capital goods prices rose by 0.1%, durable consumer goods rose by 0.2%, and non-durable consumer goods rose by 0.1%.

UK August retail sales +1.0% vs +0.4% m/m expected

• Latest data released by ONS – 20 September 2024

• Prior +0.5%; revised to +0.7%
• Retail sales +2.5% vs +1.4% y/y expected
• Prior +1.4%; revised to +1.5%
• Retail sales (ex autos, fuel) +1.1% vs +0.5% m/m expected
• Prior +0.7%; revised to +1.0%
• Retail sales (ex autos, fuel) +2.3% vs +1.1% y/y expected
• Prior +1.4%

France September business confidence 98 vs 97 prior

• Latest data released by INSEE – 20 September 2024

• Prior 97
• Manufacturing confidence 99
• Prior 99
• Services confidence 98
• Prior 98

UK consumer confidence September: -20 (vs. -13 expected). Lowest since March 2024.

• GfK consumer sentiment survey

UK GfK Consumer Confidence September 2024 is disappointing, turns even more deeply pessimistic.

Comes in at a six-month low of -20 in September, a seven point drop from August

• expected -13, prior -13
• August’s -13 was the (joint) best in nearly three years

GfK comments:

• households appeared to be responding to the messages from PM Starmer about the need for a “painful” budget due at the end of next month and the announcement of some early cost-cutting measures
• “Following the withdrawal of the winter fuel payments, and clear warnings of further difficult decisions to come on tax, spending and welfare, consumers are nervously awaiting the Budget decisions on October 30”

BOE’s Mann: Policy needs to stay restrictive to purge inflationary behaviours

• Remarks by BOE policymaker, Catherine Mann

• It is better to remain restrictive for longer
• We can cut more aggressively later once inflation risk is contained
• There appears to be more upside risks to inflation in the UK
• UK has seen more of an impact on services prices
• Contemplated to vote to cut rates in August but wanted to avoid “boogie-dance” on rates

ECB’s de Guindos: We will have more information in December than in October

• Remark by ECB vice president, Luis de Guindos

• We have left the door totally open

Asia-Pacific-World News

PBOC sets USD/ CNY reference rate for today at 7.0644 (vs. estimate at 7.0637)

• PBOC CNY reference rate setting for the trading session ahead. Strongest for CNY since May 29, 2023.

In open market operations (OMOs):

• PBOC injects 572bn via 7-day RR, sets rate at 1.7%, an unchanged rate
• 236bn yuan reverse repo expire today
• net 510.3 bn liquidity 335 injection into the market

China leaves 1- and 5-year LPR unchanged

• 3.35% and 3.85% respectively

People’s Bank of China leaves 1-year Loan Prime Rate (LPR) unchanged at 3.35%

• and 5-year Loan Prime Rate (LPR) unchanged at 3.85%. The five-year rate is used as a reference for long-term credit including mortgages.

China’s electricity consumption rose 8.9% year on year in August

• The data point was published on Tuesday but is being picked up now on some news sources

China’s power consumption is regularly used as a gauge of economic activity.

It rose 8.8% y/y in August

• power consumption in primary industry and secondary industry rose 8.7% & 8.9% y/y respectively
• service sector +10.8% (was +11.2 in July)

For the first eight months of the year, China’s power consumption rose 9% y/y, unchanged from the January-July period.

Bloomberg: China Weighs Removing Major Homebuying Curbs to Boost Demand

• Another effort to boost the economy

Bloomberg carry the report saying that China is considering removing some of the largest remaining restrictions on home purchases. Measures are said to include tier 1 cities to relax restrictions for non-local buyers.

Bloomberg add that ‘after previous measures failed to revive a moribund housing market’. Alongside the moves for the housing sector authorities are also said to be considering new steps to support equity markets.

Bloomberg citing unnamed sources ‘familiar with the matter’.

Reports of China state banks buying USD/CNY

• In an attempt to slow the rise of the yuan. China state banks buying USD/CNY (selling onshore yuan) according to unnamed sources.

ICYMI – China’s state planner promises more stimulus (describes as ‘incremental’)

The National Development and Reform Commission of the People’s Republic of China (NDRC) is the ‘state planner’. From a news conference held late on Thursday:

• Approved 83 fixed-asset investment projects worth a total of 673.1 billion yuan in January-August.
• We are capable and confident of achieving full-year economic and social development goals.
• Will roll out a batch of incremental measures ‘with good effects’ in a timely manner.
• On investment, the key is to let government investment guide and drive up social investment.
• Will strengthen the force of macroeconomic adjustments and control, step up counter-cyclical adjustments.
• Will study the expansion of the national catalogue of industries for foreign investment.
• Will coordinate funds from the central government budget, ultra-long special sovereign bonds, and local government special bonds to support projects to boost a new type of urbanization.

CBA shifts expected RBA rate cut timing to December 2024 (from November)

• Projects 125bp easing by end-2025.

CBA have moved their expected timing of the first Reserve Bank of Australia rate cut from November 2024 to December 2024

• expect a 25bp cut
• recent strength in employment growth coupled with still relatively hawkish rhetoric from the RBA Governor means we now see December as the more likely month for the start of normalising the cash rate

CBA reasoning:

• continue to forecast the Q3 24 trimmed mean CPI to print below the RBA’s expectations

• December Board meeting will be held after the Q3 24 national accounts have been released , which means the Board will have full visibility on how the Australian economy performed over the September quarter
• We expect the Stage 3 tax cuts to have only a minimal positive impact on household consumption in Q3 24 . This in turn should leave the RBA more assured that inflation will return sustainably to the target band , thereby opening the door for a December rate cut .
• We expect the RBA will commence an easing cycle before it declares we have hit full employment given policy is currently restrictive – waiting until the destination is reached before normalising the cash rate means unemployment will rise by more than is both necessary and desired
• We continue to look for 125bp of RBA easing by end – 2025 that would take the cash rate to 3.10%

New Zealand PM Luxon says constrained by limited fiscal space

• New Zealand economic outlook

Christopher Luxon is Prime Minister of New Zealand

Speaking in a TV interview. Luxon says has limited fiscal space to stimulate the economy.

• tighter fiscal policy helps in the fight on inflation

BOJ governor Ueda: Will carefully communicate thinking behind policy decision with markets

• BOJ governor, Kazuo Ueda, begins his press conference

• Uncertainties surrounding Japan’s economy, prices remain high
• Must pay due attention to financial markets and impact on the economy, prices
• Will keep adjusting degree of easing if outlook on economy, prices is to be realised
• Will monitor economic, market trends with extremely high sense of urgency
• Markets remain unstable (referring to Uchida’s take of not raising rates when it is)
• Risk of inflation overshoot have diminished to some extent
• There is some time to make policy decision as upside risks to prices have decreased
• We raised assessment on private consumption as wages are growing
• Recent data suggests we may be able to raise outlook on underlying inflation
• However, overseas trends raise uncertainties on that
• But there is no change to our thinking that will keep raising rates if economy moves in line with outlook
• Not yet able to narrow down Japan’s estimated neutral interest rate
• Will take next policy step if there is enough evidence that economy fits with outlook
• Aware of criticism on communication being insufficient, with regards to post-July meeting market rout
• Would be good to have communicate more frequently on our view on price outlook
• Market rout in early August was temporary
• The impact on consumption and financial system is negligible
• Some evident in CPI data today that wage hikes are reflected in services prices
• But impact of weak yen on import price inflation will mostly fade out
• US economy achieving soft landing is our main scenario
• If US economy achieves soft landing, negative impact on Japan economy would be small
• Japan interest rate is probably still lower than neutral rate despite rate hikes
• We don’t react directly to forex rates but their impact on inflation outlook
• We will not use monetary policy to control forex rates

Bank of Japan leaves rates unchanged, as widely expected

• Bank of Japan September 2024 monetary policy decision

Bank of Japan current short-term rate is 0.25%

• Japan’s economy recovering moderately, albeit with some weaknesses
• Inflation expectations heightening moderately
• Inflation likely to be at level generally consistent with BOJ’s price target in second half of our 3-year projection period through fiscal 2026
• Consumption rising moderately as a trend
• Japan’s economy likely to achieve growth above potential
• Must be vigilant to impact of financial, fx market moves on Japan’s economy, prices
• Impact of FX volatility on prices has become larger than in the past

Japan data – August CPI Headline +3.0% y/y (vs. 3.0% expected)

• Later today we get the results of the Bank of Japan meeting, and Governor Ueda speaking

Japanese CPI Overall 3.0% y/y

• expected 3.0%, prior 2.8%

Core CPI (excluding fresh food) 2.8% y/y

• expected 2.8%, prior 2.7%

Core-core 2.0% y/y,

• expected 2.0%, prior 1.9%
• excluding fresh food and energy, this is the closest to US core inflation

Cryptocurrency News

MicroStrategy Expands Bitcoin Holdings with $458 Million Purchase

Market Overview: MicroStrategy has made headlines again, acquiring an additional 7,420 Bitcoin for $458.2 million. This latest purchase is part of the company’s ongoing strategy to accumulate Bitcoin, following a recent financing move.

Key Details:

• Purchase Breakdown: The acquisition was facilitated through the sale of senior convertible notes, raising $1 billion. MicroStrategy purchased the Bitcoin at approximately $61,750 per coin.
• Total Holdings: With this latest acquisition, MicroStrategy now owns a staggering 252,220 BTC, which accounts for about 1.27% of the total Bitcoin supply. The firm’s overall average purchase price for Bitcoin stands at $39,266 per coin, with total costs nearing $9.9 billion.
• Recent Activity: This acquisition follows last week’s substantial purchase of 25,720 BTC for $1.11 billion, marking the firm’s largest buy since 2021. The aggressive buying strategy has been a core part of MicroStrategy’s financial strategy since August 2020, driven by CEO Michael Saylor’s conviction that Bitcoin represents “digital gold.”

Market Sentiment: MicroStrategy’s continued commitment to Bitcoin solidifies its position as a significant player in the crypto market, reflecting ongoing institutional interest. As the company expands its holdings, the potential impact on Bitcoin’s market dynamics and investor sentiment remains a topic of discussion.

XRP Dips to $0.58 as Ripple CLO Highlights Regulatory Gaps

Market Overview: XRP has seen a decline of 1.16% on Friday, trading at $0.5800. Ripple’s Chief Legal Officer (CLO), Stuart Alderoty, has been vocal about the implications of the recent SEC lawsuit loss and the existing regulatory gaps in cryptocurrency regulation.

Key Highlights:

• Regulatory Critique: Alderoty criticized SEC Chair Gary Gensler’s approach to crypto regulation, reiterating concerns over the lack of clarity in the current framework. He highlighted that the SEC’s stance may not be sustainable as leadership changes occur within the agency.
• Gap in Regulation: In his commentary, Alderoty emphasized the need for Congressional action to address the regulatory void in the spot trading market for cryptocurrencies. He pointed out that current securities laws cannot rely on a “decentralization threshold” to determine regulatory applicability.
• Acknowledgment of SEC Loss: Alderoty referenced testimony from Professor Lee Reiners, who recognized the SEC’s loss in the Ripple case, further underscoring the need for clearer regulatory guidance.

Market Sentiment: The overall sentiment surrounding XRP remains cautious, as regulatory uncertainties continue to loom. The focus on regulatory clarity and potential legislative actions will be pivotal for XRP and the broader crypto market moving forward.

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