Market Observations - July 31, '23
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Scores so Far:?crypto 78.5%, stocks 17.6%, gold 7.9%, H.Y. bonds 6.6%, I.G. bonds 4.7%, cash 2.6%, govt bonds 1.5%, commodities 1.5%, oil -1.8%, U.S. dollar -2.5% YTD.
What’s interesting: Bank of Japan has set “floor” for global rates past 30 years; BoJ 1st to zero rates (Feb’ 99), 1st to Q.E. (Mar’ 01), 1st to YCC (Sep’ 16), has added $1.3tn to global liquidity past 18 months; BoJ set to expand YCC “target range” from 50bps to 75-100bps = tightening = higher floor for global rates (should lead to good entry back into Nikkei).
New China stimulus reduces “tail risk from banks/real estate, good enough to lift domestic China assets, positive for E.M. assets, but not enough to?lift China GDP forecasts; the old adage used to be that China has two economic gears…4th & reverse; China no longer a boom-bust economic cycle.
Econ brief:?This morning, personal income rose 0.3% in June, less than the 0.5% gain expected following a 0.5% increase in May. Consumer spending, meanwhile, increased 0.5% in June, a tenth of a percentage point more than expected and following a 0.2% gain in May. Year-over-year, consumer spending increased by 5.4%, and personal income rose by 5.3%. The PCE rose 0.2% in June, as expected, following the 0.1% increase in May. Year-over-year, headline inflation increased 3.0%, as expected and at the slowest pace in more than two years. Excluding food and energy, the core PCE rose 0.2% in June, as expected. Core inflation increased 4.1% yearly, following a 4.6% annual increase last month.
The latest data indicates ongoing consumer resilience despite the Fed’s intensifying campaign to root out inflation. While positive, the still modest improvement in income continues to fall short of consumption activity, suggesting an eventual reduction in spending without alternative means to supplement expenditures. Credit accumulation has and will continue to act as a support, although it is far from indefinite.
US Friday Market Wrap: Despite this week’s volatility, the stock market continued to press onward and ended the week green. Nine of eleven sectors closed green. Communication services _1.94% led, and real estate -0.26% lagged. In economic news, the Fed’s preferred inflation metric, Core PCE, continues decelerating. It rose just 4.1% in June, marking its slowest annual pace since September 2021.
Ford raises guidance despite E.V.s weighing on profits.?The U.S. automaker raised its 2023 guidance after strong pricing and demand for its internal combustion engine (ICE) vehicles pushed second-quarter earnings beyond expectations. It now expects full-year adjusted earnings of $11 to $12 billion, up from $9 to $11 billion, despite higher costs causing slower electric vehicle (E.V.) adoption than anticipated.
Intel shares hit 52-week highs after earnings.?It reported a surprise second-quarter profit and revenue beat expectations, catching Wall Street off guard. The chipmaker says the personal computer slump is over, and a comeback will be underway during the year’s second half. Not all parts of its business are recovering as quickly as hoped, with the server part of Intel’s operations weighed down by China and weaker demand from corporate and cloud customers.
AMD is investing $400 million in India.?The chipmaker joins its peers in diversifying its operations, looking to take advantage of India’s $10 billion incentive program designed to spur local tech investment. It plans to set up its largest design center in Bengaluru and invest $400 million in the country by 2028.
The Bank of Japan took the market by surprise with its adjustment of the cap on the 10y yield before the weekend and then stepped in to buy the government bond as yields rose in reaction today. The move helped lift the dollar to JPY142.50. from where it had settled on Friday (~JPY141.15). The dollar is mostly softer, however, with only the yen and Swiss franc weaker.
Asia Pacific equities rallied, with Taiwan being the only notable exception.
Europe’s SXXP has edged higher after falling 0.2% before the weekend.
U.S. index futures are narrowly mixed.
Benchmark 10-year yields are higher. In Japan, the 10-year JGB is near 0.60%. European yields are mostly 3-4 bps higher. The 10-year U.S. Treasury yield is near 3.98%, up 3.5 bps.
Gold is a little lower but inside the pre-weekend range, which was inside last Thursday’s wide range (~$1942.65-$1982.15).
September WTI has rallied for the past five consecutive weeks and is higher today, pushing above $81. The contract reached $81.75 in January and $81.45 in April.
China’s July PMI softened in line with expectations. The manufacturing PMI firmed to 49.3 from 49.0 and is the 4th consecutive month it is hovering around 49.0. The non-manufacturing PMI continued to slow, as it has done since the peak in March. The 51.5 (from 53.1) is the lowest of the year. The slippage in the composite to 51.1 from 52.3 also brings it to a new low for the year. The data may not be relevant in the aftermath of last week’s Politburo meeting and recent efforts to bolster the private sector, property market, and foreign investment. The CSI 300 rallied 4.5% last week, the most since in nearly eight months. It was up another 0.55% today.
The Eurozone reported Q2 GDP and the preliminary July CPI. Neither report was surprising given the national reports at the end of last week. France reported 0.5% growth, helped by the export of a cruise ship. Spain’s economy grew by 0.5%, but the German economy stagnated, making it the best quarter in the past three. Italy reported that it, too, unexpectedly contracted by 0.3% (after growing by 0.6% in Q1).
After a series of mostly stronger-than-expected economic data and softer inflation data, including the Q2 Employment Cost Index, which Fed Chair Powell explicitly called attention to in his press conference following the FOMC’s decision to hike rates after the June pause, attention turns back to the labor market this week. Economists expect nonfarm payrolls to rise by?200k. The private sector is forecasted to have filled 175k jobs in July, after averaging 215k a month in H1 23 and 317k in H2 22. Several labor market indicators point to some easing of the tightness of the labor market, though last week’s weekly initial jobless claims (week ending July 22) to 221k, the lowest in five months. The fact that the U.S. unemployment rate in June was 3.6%, unchanged from March 2022, when the Fed began the historically aggressive tightening, is astounding. The initial estimate of Q2 GDP was 2.4%, the fourth consecutive quarter that the economy grew faster than the Fed thinks is the non-inflation speed limit. The early assessment from the Atlanta Fed’s GDP tracker is for 3.5% growth here in Q3. With such little input this far out, the tracker is not remarkably accurate. Still, the futures market sees less than a 20% chance of a hike in September, and this is too low, especially given that next week’s CPI could see the first increase in the year-over-year rate since last June.
Crypto Market Rundown:
As of 10:00AM ET, the global crypto market cap is $1.19T.
Both Bitcoin and Ethereum have been +/- 1% for the past week. BTC has been trading in the $29,300 range, while ETH has been stuck around the $1,860 range.
Top 5 Gainers on Uphold Ascent in the past 24H:?
The Top 5 Losers on Uphold Ascent in the past 24H:?
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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.