2023 - Week 34
Alessandro Hor - Alpe Veglia - Val d'Ossola - Italy

2023 - Week 34

Markets' overview:

Equity markets concluded the week on a positive note, with the #NASDAQ rising by 2.26% and the #S&P showing a gain of 0.82%. Similar positive trends were mirrored in European and Asian markets, where the #Stoxx 600 increased by 0.66%, the #Nikkei by 0.52%, and the #Hang Seng by 0.25%. The #VIX retraced to its level from two weeks ago, settling at 15.68 from 17.3, while the #Skew Index is gradually returning to a more standard level at 132.27.

?Market participants were eagerly awaiting the speech by the FED president at the #JacksonHole symposium. Powell's call for a "restrictive" monetary policy to reach the Fed's 2% inflation target was a focal point of his address. He acknowledged the potential need for a phase of below-average economic growth and softer labor market conditions. The possibility of an extended period of elevated rates was evident as 2-year Treasury yields briefly reached cycle highs at 5.12%. Powell's cautious stance on potential rate adjustments for inflation control contributed to increased market volatility.

As the holiday season nears its end, it's anticipated that trading volumes will normalize over the next 5 to 10 days.

US

In the US, July saw a 2.2% dip in existing home sales, hitting a six-month low due to limited housing inventory. This scarcity led to a 1.9% year-on-year climb in the median home price, reaching $406,700. Conversely, new-home sales increased by 4.4%.

The Richmond Fed's manufacturing activity remained negative for the sixteenth straight month. The Federal Reserve is contemplating adjusting its inflation target to suit the evolving economic landscape.

In the US, the Purchasing Managers' Index (PMI) indicated overall business activity barely stayed in expansion mode in July. The manufacturing sector continued to struggle, while the services sector experienced a period of cooling off.

Seeking jobless aid, Americans dropped by 10,000 to 230,000, reaching a three-week low and boosting the robust labor market. According to the government, new claims decreased from the prior week's revised 240,000. Despite economic worries, the US economy displays resilience with relatively low unemployment claims.

Amid a mix of economic and inflation data, consumer sentiment slightly waned in August. This followed its prior ascent to nearly two-year highs in July.

Europe

Germany's business activity witnessed a significant downturn, marking its most severe decline since the pandemic's onset. This concerning situation has raised fears that Europe's largest economy might be approaching a recession.

Several PMIs were released for the Eurozone on Wednesday. The S&P Composite PMI recorded its fifth consecutive monthly drop, reaching a reading of 47, driven primarily by the manufacturing sector. While the service sector displayed relatively more resilience compared to manufacturing, its PMI stood at 48.3, still below the critical threshold of 50.

China

Chinese banks have chosen to maintain the key interest rate for mortgages and have made a smaller-than-anticipated reduction to another rate. This decision reflects Beijing's challenge in balancing the imperative to boost economic confidence with the stability of the banking system. The five-year loan prime rate (LPR) remained steady at 4.2%, defying economists' projections of a 15 basis points reduction. This choice follows a previous reduction in a pivotal central bank policy loan rate, seen as a precursor to a decrease in the five-year LPR.

In recent days, an intriguing statistic emerged: "Global investors have divested approximately USD 10 billion from investments in Chinese blue-chip companies over a mere two weeks." This situation prompts a classic "Chicken & Egg" question: Is this the cause of the Chinese stock market's weakness, or rather a result of the country's ongoing economic challenges? These challenges encompass issues within the real estate sector, deficient consumer demand, and subsequently sluggish economic growth.

Definition

PCE

PCE stands for Personal Consumption Expenditures. It is a measure used in economics to track and analyze consumer spending or expenditures on goods and services by individuals and households within a specific time period. PCE is an important component of GDP (Gross Domestic Product) calculation and is often used as an indicator of overall economic activity and consumer behavior. PCE includes various categories such as durable goods, non-durable goods, and services. It provides insights into consumer spending patterns and can be used to assess changes in consumer behavior, inflationary pressures, and overall economic growth.

Upcoming events:

  • August 29: US CB Consumer Confidence (August), JOLTs Job Openings (July)
  • August 30: German CPI (August), US ADP Nonfarm Employment Change (August), US GDP (Q2), China Manufacturing PMI (August)
  • August 31: EU CPI (August), US PCE (July)
  • September 1: US Nonfarm Payrolls (August), ISM Manufacturing PMI (August)

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