Market Observations - Aug 28
Uphold Institutional
Uphold provides an edge for institutional investors to succeed in the new digital asset economy.
Econ Brief:?All eyes were on Chairman Powell as he took the stage at precisely 10:05 a.m. E.T. last Friday at the Annual Policy Symposium held in Jackson Hole, WY. As expected, his comments were relatively hawkish in nature as the Committee continues to grapple with higher-than-expected inflation amid a stronger-than-expected economy.
The Chairman noted concerns that the economy has, in fact, not slowed enough, and “persistent signs of above-trend growth could warrant further policy tightening.” He added that tighter credit standards are working with monetary policy initiates to slow the economy, but the consumer remains unexpectedly robust, and the labor market, while cooling, remains tight. Powell said that rebalancing in the labor market continues, but “more progress” is needed. Additionally, he noted that after taking a substantial hit and showing clear signs of slowing, housing has “picked back up.” Inflation, meanwhile, remains “too high.” While the decline has been encouraging, Powell cautioned that even after two months of “good data,” the “process still has a long way to go.” Powell emphasized that there is “substantial further ground” to cover before reaching the Fed’s intended goal of price stability. “We can’t know how much lower readings (on inflation) will continue.” As such, a more restrictive monetary policy is needed to achieve the Committee’s goals of price stability. The “Fed’s job is to bring down inflation,” and “we will do so.” Powell was clear that the Fed maintains a 2% inflation target, eradicating any notion that 3% was the new 2%. “Two percent is and will remain our policy target,” Powell said, reiterating that price stability is needed for the economy to work for everyone. “We will keep at it until the job is done.”
There remains to be uncertainty as to the effect and timing of earlier policy initiatives. As such, the Committee will “proceed carefully,” implying the Fed is willing to tighten policy further as needed and wait to assess incoming data. Even after the Fed deems policy has reached a sufficiently restrictive level, the Committee intends to hold policy at a terminal level until “we are confident inflation is moving down.” The pathway to price stability is increasingly complicated.
What does it all mean:
The Committee remains concerned that the U.S. economy may not be cooling as expected, leaving an upside risk to inflation that remains too high. As such, some additional policy firing may be required in the near term. That being said, given the presumed lag in policy, the Fed does appear equally willing to exercise patience as the full effect of earlier initiatives coupled with adjustments in financial conditions take hold. In other words, while additional rate hike(s) are likely, the Fed is clearly not intending to raise rates consistently until inflation has cooled. Although, policymakers are likely to keep rates elevated for some time as the still-extended deflation process continues to drive costs back down to the target of 2%, underscoring a higher for the longer scenario.
Scores so Far:: Crypto 38.1%, Stocks 13.4%, H.Y. bonds 5.9%, Gold 5.1%, Cash 3.1%, IG 2.9%, Commodities 1.0%, U.S. dollar -0.1%, Gov’t bonds -1.2%, Oil -1.7% YTD.
Tech’s “Magnificent 7” is up 93% vs. U.S. regional banks down 37% & China real estate bonds down 55% YTD...losers still losing & “nouveau bulls” hoping no magnificent double-top in Magnificent 7.
US Friday Market Wrap:?Federal Reserve Chairman Jerome Powell, speaking at the Jackson Hole conclave on Friday, left the door open to further rate increases, saying the central bank would “proceed carefully “as it considers the next steps in its battle against inflation. Short-term treasury yields climbed slightly after the speech, but so did stocks. The S&P rose 0.7%, the Nasdaq rallied 0.9%, and the Dow added 247 points or 0.7%. All of which was good enough for the S&P to get its first weekly gain in August, rising 0.82% for the 5-days. All eleven S&P sectors closed green. Consumer discretionary +1.09% led, and communication services +0.08% lagged.
Canadian software company BlackBerry jumped 18% today on news that private equity firm Veritas Capital has offered to buy the company. BlackBerry executives have been reviewing strategic alternatives for the company since May.
The maker of Twinkies, Hostess Brands, popped 22% on improving financial metrics and rumors of a potential sale.
The stock market had quite a run through the end of July before hitting some turbulence in August. But as we look ahead at what’s next for the market, investors are searching for the leaders of tomorrow. So far in 2023, the top 5 stocks in the S&P have added more than?$3 trillion?to their market capitalizations and now account for roughly 24% of the index’s weighting.?Despite earnings that beat expectations, many of these stocks experienced lackluster reactions from the market following their reports.?The most recent example is Nvidia, which briefly soared above $500 before dipping back into the mid-$400s. Now, the fear is that growth expectations for these companies are too high, leaving little room for their stock price to grow even if their businesses meet their high bars. Others fear that these names could be running out of things to invest their vast cash piles in, instead choosing to return capital as buybacks. With all of these stocks already up over 30% year-to-date (and Nvidia up big), where will the next leg of leadership come from??Some are pointing to cyclical sectors like industrials and financials.?However, given their smaller weights in the index, they’d have to rally sharply to offset weakness in the tech and consumer discretionary sectors. Time will tell, but this (along with the path of interest rates) is the critical question on everyone’s minds as we head into year-end.
Many market participants sense an inflection point is near. The dollar settled last week beyond key levels against several major currencies, bolstered by higher short-term U.S. rates. The market knows that the Bank of Japan could intervene in the foreign exchange market, with the trading near its best levels of the year and the 10-year JGB yield grinding higher. Beijing cut the tax on equity transactions, restricted IPOs, and urged some funds to buy more equities than they sold. Still, the equity market gave back around 80% of its initial gains and the yuan weakened after a stronger start. London markets are closed for the summer bank holiday, which has thinned market activity in the European morning. The dollar is in a narrow range (~+/- 0.15%) against the G10 currencies. And all but a handful of emerging market currencies are lower. Among the exceptions are the South Korean won and the Mexican peso.
Equities are off to a firm start. All the large bourses in the Asia Pacific region were higher, with the Nikkei’s 1.7% gain leading the way.
Europe’s SXXP is up about 0.55% in the morning, making up for the losses of the past two sessions.
U.S. equity futures are trading with a firmer bias. Note that the S&P 500 has not posted back-to-back gains so far this month. If sustained this week, it would be the first time since April 2002 that the benchmark could not gain in two consecutive days for a month. The streak could be at risk today after the S&P posted a modest gain of nearly 2/3 of 1% before the weekend. European bond yields are mostly 1-2 bps higher, while the 10y U.S. Treasury yield is about 2bps softer near 4.22%.
Gold is little changed in a narrow range of roughly $1913.55-$1917.80.
October WTI is firm in a narrow range near the pre-weekend high, around $80.45.
?Investors and the media continue to debate and digest the significance of the last week’s BRICS summit. The main actionable result was an invitation to six countries to join. It is not clear what membership means. Many aggregate the group’s population and share of world GDP or other economic activity. But this only makes sense if one assumes the BRICS is an alliance or bloc. This does not seem to be the case. China’s attempt to turn into a free-trade bloc was previously rejected. There is no mutual defense pact.
Moreover, Beijing and Moscow pay lip service to India, Brazil, and South Africa’s aspirations for a greater role in the U.N. but have stopped short of endorsing their bid to join the Security Council. References to the U.N. seem gratuitous in light of Russia’s invasion of Ukraine, and China ignores the conclusions of its treatment of the Uyghurs. The G7 may be seen as a caucus within the G20, but there are extensive military and trade ties. China and India have unresolved border issues, which they have come to blows over. The G20 is a larger disparate group, but most recently, it supported the OECD-negotiated global tax reform. Indonesia, which had seemed a likely candidate until the very last minute, reportedly pulled itself out of contention. It claims it needed to focus on its role as ASEAN chair, but many suspect it is a signal to the U.S., from which it will buy around two dozen F-15EX (Boeing) jetfighters. Separately, Argentina's two leading presidential candidates are critical of it joining the BRICS, and one has threatened to withdraw from it if elected.
领英推荐
The hawks at the ECB are still pressing for higher rates, with CPI still above 5%. The swaps market is pricing in about a 40% chance of a hike at the September ECB meeting (and about a 20% chance of a Fed hike). In addition to rate hikes, the central bank balance sheets are falling. Through July this year, the ECB’s balance sheet has lost more than the Fed’s, though it is still larger as a percentage of GDP. The ECB’s balance sheet has fallen from 59.6% of GDP to 52.1%, while the Fed’s has fallen from 33.4% to 31.1% of GDP. The Bank of England’s balance sheet has fallen from 37.3% of GDP at the end of last year to 32.7% in July. The Bank of Japan has gone in the opposite direction, increasing to 129.2% of GDP from 126.5% at the end of 2022. The slower growth translates to more significant fiscal shortfalls, and budget presentations to the E.U. are due shortly, and after a few years of forbearance, the Stability and Growth Pact discipline is to return.
There was little to take away from Powell’s Jackson Hole speech. It was primarily a review of the broad trends in the economy, inflation, policy, and real interest rates over the past year. During Powell’s speech, which ran a little more than 15 minutes, the dollar sold off, rates eased, and stocks were firm. The euro and sterling set session highs as he spoke. The dollar fell to session lows against the yen. As soon as Powell finished speaking, things reversed, in a pattern reminiscent of the reaction around Powell’s press conferences. The euro and sterling recorded new session lows before recovering to straddle the key breakout areas ($1.08 and $1.26, respectively) but settled the week below. The implied odds of a September rate hike increased by about the spread between the bid and offer to around 20%. The odds of a November hike rose to approximately 63% from about 53%, which is the most this month. Speculators extended their net and gross short two-year note position in the futures market to new records. They reduced both long and short positions in the 10-year note futures.
U.S. Commerce Secretary Raimondo is the 4th cabinet-level official to visit China over the past three months. According to conventional wisdom, talking is better than not, but there has been little sign of a change in behaviors. And talking that does not lead to a change in behavior risks undermining the middle ground and strengthening the hawks on both sides. The U.S. did lift restrictions on a little more than two dozen Chinese companies, but at the same time, the U.S. announced new weapon sales to Taiwan, signed a defense deal with Japan and South Korea, which agreed to resist “economic coercion, in a thinly veiled reference to China, without citing it per se (which passes as diplomacy). It has curbed sales of advanced chips and fabrication equipment to China. Beijing has responded by increasing the imports of such equipment before the curbs come into effect. The U.S. also limits investment in strategic sectors like A.I. and quantum computing. Raimondo will reportedly seek to establish two working groups, one on export control and the other on commercial issues. More talking. Carrying the water for U.S. industry, Raimondo may also seek to persuade Beijing to resume purchases of Boeing planes, which have stopped since 2015. Meanwhile, the staff may work on a possible Biden-Xi meeting at next month’s G20 gathering.
Crypto Market Rundown:
JPMorgan research suggests recent crypto sell-offs are ending, hinting at a hopeful market future. Increased demand for Bitcoin futures contracts indicates optimism for price increases.
Hong Kong's financial secretary, Paul Chan Mo-po, supports blockchain technology as the next wave of "breakthrough growth" in digital tech.
Laos' state-owned electricity company, électricité du Laos (EDL), will suspend power supply to crypto mining operations due to power shortages caused by drought conditions.
Plan ?, a joint effort between the city of Lugano and Tether, aiming to accelerate the use of Bitcoin technology for transforming the city's financial infrastructure, partnered with football club, FC Lugano, enabling Bitcoin and Tether payments. The partnership includes a major sponsorship with the Plan ? logo on jerseys during international competitions. Fans can use Bitcoin, Tether, and LVGA to buy tickets, merchandise, food, and drinks at the stadium.
Not much has changed since our Friday report. Bitcoin is still trading around $26,000. Ether is trading around $1,650.
Top 5 Gainers on Uphold Ascent in the past 24H:?
Top 5 Losers on Uphold Ascent in the past 24H:?
Send our team a message if you would like to learn more about our product offerings - Uphold Intelligence (Research) and Uphold Ascent (OTC platform). Reach out to Christopher Robin Siedentopf, Adam Blumenfeld or Austin Sigsworth.
NOT FINANCIAL ADVICE
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.