Market Observations - Aug 21, '23
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The Scores so far:?Crypto 49.6%, stocks 13.0%, H.Y. bonds 6.1%, gold 3.8%, cash 3.0%, IG 2.4%, commodities 0.3%, U.S. dollar -0.1%, oil -1.1%, gov’t bonds -1.6% YTD.
U.S. 30y mortgage 7.6% (23-year high). SPX is now down 2% in Q3, SOX, NYFANG, and Mag7 are off >10% from highs, and a fresh upside in yields flips the script from “good” to “bad” rise in rates…industrials, discretionary, homebuilders most vulnerable.
Equity and credit narrative could flip from “buy-the-dip” in H1 to “sell-the-rip” in H2.
Econ Brief: 8/18/2023:?The notion of higher for longer rates has resulted in a meaningful rise in bond yields in a relatively short period. Since the start of the month, the 10-year yield has rallied 23bps to 4.26%, near the highest level since 2007. Meanwhile, the 2-year and 5-year, which were trading at 4.90% and 4.22% on August 1, are now trading higher at 4.93% and 4.39%, respectively.
While a stronger economy is a welcomed indication that the Fed may be able to achieve a soft landing, such ongoing resilience, however, will probably demand a stronger policy response to ensure a return to price stability – eventually – ensuring a downturn in activity. In other words, the weakness may have differed but not entirely deterred. Meanwhile, expectations for a September rate hike have steadied at just under 10% despite more robust inflation data and rising expectations for Q3 growth. In fact, according to the Atlanta Fed GDPNow model, third-quarter activity could surge as high as 5.8%, while economists anticipate a 1.8% rise, according to Bloomberg data.
Chicago Fed President Austan Goolsbee and Fed Governor Michelle Bowman will speak next Tuesday before the annual Jackson Hole Symposium on Thursday and Friday.
US Friday Market Wrap: Stocks fell for their third week straight as the seasonally weak August period lives up to its name. Seven S&P sectors closed green. Energy +0.96% led, and communication services -0.58% lagged.
Eurozone inflation continues to trend lower, with consumer prices rising 5.3% in July vs. 5.5% during June. Like the U.K., services inflation rose from 5.4% to 5.6% due to sticky wage gains.
In crypto news, the major coins and tokens dove yesterday on news that SpaceX sold all of its Bitcoin holdings. That comes after writing down their value by $373 million in 2022 and 2021.
With the U.S. stock market rallying since October, there’s been much talk about bull markets. But now, we’re hearing the phrase “bear market” creep up again in China. Investors’ worries over the country’s property market exacerbating a slow economic recovery have pushed Hong Kong’s Hang Seng Index into an official bear market. After a roughly 55% rally off its fourth-quarter lows, the index stalled in January and has been drifting lower since. Prices today closed at nine-month lows, down over 20% from their highs, which many market participants view as a sign of a new bear market beginning. With the Eurostoxx 50 and German DAX casually hitting 4.5-month lows today, investors are looking to see if the weakness in China spreads further into other markets. Time will tell!
It’s been a rough ride for clean energy investors recently, with that continuing today. Solar stocks extended their declines this week as the U.S. finalized a decision to impose import duties on solar panel makers who skirted tariffs on Chinese-made goods.?The decision is aimed at boosting domestic manufacturing in the industry.?However, with many solar companies relying on cheap overseas alternatives to buoy their margins, this represents another headwind. Meanwhile, on the demand side, high-interest rates are pressuring consumer demand for these products. Solar panels and projects are typically financed to avoid a significant upfront cost. But with housing activity stalling and the cost of capital rising, the revenue side of the equation remains challenging for the industry. Rising costs and slowing revenue growth are not a great combo, so Solar ETF TAN and other clean energy ETFs have lagged traditional Energy returns for the last two years. The U.S. and developed countries around the globe are strongly advocating for and supporting clean energy efforts. However, investors in the space remain looking for a clear catalyst to reverse the current selling pressure in these stocks.
The new week, which features the BRICS meeting and the Jackson Hold symposium, is off to a quiet start. The failure of Chinese banks to pass through last week’s 15 bps cut entirely into the lending prime rates was a major disappointment, and the logic is not yet clear. While the yuan and yen are softer, as are more local Asian currencies, most of the G10 currencies are posting slight gains against the greenback. Gold is trading little changed after falling, extending its losing streak for the fourth consecutive week.
Asia Pacific equities were mixed. Japan and South Korea, whose officials met with U.S. President Biden at the end of last week, saw gains in equities, while China and Hong Kong saw declines.
Europe’s SXXP is snapping a 4-day slide, up about 0.8% in late morning turnover.
U.S. index futures are posting modest gains.
The adjust of long-term interest rates continues. Most European 10-year yields are 2-3 bps higher, with flat Gilts and Swiss bonds being the exception. The 10-year U.S. Treasury yield is up nearly 4bps to knock on 4.30%. The 10-year Chinese government bond yield slipped below 2.54%, a new low.
September WTI us extending its recovery from that took from around $85 to $78.95. It reached $82.15 today, roughly the 50% retracement. Lastly, we note that the threat of an Australian strike is helping lift European natural gas prices. Since the end of July, the Dutch benchmark has risen by nearly 50%, even though European inventories are running well ahead of schedule.
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Something has to give. On the one hand, the string of strong U.S. economic data. Even if the Atlanta Fed’s GDP tracker looking for 5.8% as of August 16 for Q3 growth is 50% too high, which seems like a significant discount, then Q3 GDP would still be better than Q1 and Q2. On the other hand, the futures market implies a 10% chance of a September rate hike. Now that the Fed has a policy in restrictive territory and inflation is trending lower, there may be little interest in back-to-back hikes. Since the Fed hiked in July, they can afford to wait six weeks until the November 1 meeting. This is where to look for a resolution of the apparent contradiction. The futures market implies about a 33% chance of a hike then, while a survey by Action Economics found that nearly half of the economists also expect a hike. Time will tell!
Crypto Market Rundown
Friend tech has surpassed Tron & Uniswap in generated fees in the last 24 hours, only ten days after it launched.
China aims to implement its social credit system in the metaverse, proposing digital IDs and real-world consequences for actions within it.
Cosmos community split on how to deal with 'accidental' double-signing on consumer chain Neutron
Oman introduces a crypto mining center valued at $350 Million
After the violent drop that occurred last week (BTC down 12+% in 30mins), BTC has been relatively stable, around $26,000. The same goes for Ether, trading steadily around $1,670 today.
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Please note that Uphold and its affiliates do not provide investment, tax, or legal advice. This message is for informational purposes only and takes no account of particular personal or market circumstances, and should not be relied upon as investment, tax, or legal advice. For investment, tax, or legal advice and before taking any action you should consult your own advisors. Note that digital assets such as cryptocurrencies present unique risks for investors. Please see our disclaimer regarding risks specific to holding digital assets before investing.