Market Observations - Sep 8
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Econ Brief for 9/7:?This morning, initial jobless claims unexpectedly fell 12k from 228k to 216k in the week ending September 2, the lowest level since February. According to the forecast, jobless claims were expected to rise to 234k. Continuing claims, meanwhile, dropped from 1.72M to 1.68M in the week ending August 26, the lowest level since July. In addition, nonfarm productivity was revised lower from 3.7% to 3.5%, while unit labor costs were revised higher from 1.6% to 2.2% in the final Q2 report.
US Thursday Market Wrap:?The stock market, like Newton, discovered gravity as APPL stock kept falling. Worries over China’s government agencies not to use iPhones at work continue to fester. Apple faces a new competitive threat from China’s Huawei Tech, selling a smartphone capable of super-fast data connectivity. It probably should be taken as a sign that China can keep up with global tech.
Apple shares fell nearly 3%, dragging some Apple suppliers down with it. Away for Tech stocks fare a little better. The Dow edged higher, rising 58 points or 0.17%, the S&P slipped 0.32%, and the Nasdaq dropped 0.89%. Five of eleven S&P sectors closed green. Utilities +1.28% led, and technology -1.46 lagged.
Traditional automakers remain under pressure as next week’s United Auto Workers (UAW) strike deadline approaches. UAW President Shawn Fain called GM’s recent offer ‘insulting,’ suggesting there’s still a long way to go in the negotiations.
Automation software company UiPath jumped 11% after its revenue growth topped expectations. However, analysts remain unclear on how artificial intelligence will materially benefit it.
Speaking of artificial intelligence (AI), the topic remains in focus with public and private companies. Tencent and IBM rolled out new generative AI tools, while startup Imbue raised $200 million for its AI models that can ‘robustly reason.’
The USD is lower against most currencies today as it consolidates ahead of the weekend. The Dollar Index’s eight-week advance is the longest since a 12-week rally 2014. The Chinese yuan is an exception. Its losses were extended today. Against the offshore yuan, the dollar traded above the onshore band, which is most often respected. Equities are extending this week’s slump. All the large bourses in the Asia Pacific region but India fell.
Europe’s SXXP is off for the 8th consecutive session, the longest losing streak of the year.
US index futures are trading lower and have not risen since last Friday.
European benchmark 10-year yields are marginally lower. Italy is a small exception, where its yield is up slightly, perhaps encouraged by reports of the government’s internal debate about how to rein in the budget deficit as the Stability and Growth rules come back into effect next year.
The 10-year US yield is marginally softer, near 4.24%. It and the 2-year yield have risen by about 6bps this week. Gold found support this week near the 20-day moving average (~$1916.50) and enjoys a firmer tone today.?
October WTI is consolidating within Wednesday’s range (~$85.95-$88.10) and is little changed to around $87. Partial strikes at Chevron’s liquefied natural gas facilities in Australia are underpinning LNG prices. The union’s warning strikes will turn into a 2-week stoppage starting September 14. Europe’s benchmark rose by about 7% yesterday and another 8% today. The US futures contract rose 2.75% yesterday and is up another 1.3% today.
China will report its August CPI and PPI figures first thing today. We continue to believe the risk is that sentiment has swung too far--from China standing astride the world to China cannot do anything right until it gives up what it calls communism. The news stream is likely to begin improving, and the inflation data may point in that direction. The deflation that so many observers wrung their hands probably ended. CPI, which was negative in July, is expected to have returned to positive territory, and the deflation that was evident in producer prices is seen moderating. China is having problems post-Covid and with the end of the property bubble, but it is hardly an outlier, and the economy is not contracting.
The Eurozone revised lower Q2 GDP yesterday to 0.1% from 0.3%. The UK grew by 0.2% in Q2. The US has been able to go from strength to strength, with a hiccup (Q1 22 and Q2 22, the economy contracted) by what appears to be a nearly doubling of the budget deficit this year (according to the Committee for a Responsible Federal Budget) and an increase in real wages, while rising default rates on consumer credit points to excesses.
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Japan offered revisions to Q2 GDP. It was shaved to 1.2% from 1.4% quarter-over-quarter. Consumption was slightly weaker (-0.6% vs. -0.5%), but as the recent capex report hinted, the business spending was a bigger drag (-1.0% vs. flat). Bloomberg’s survey conducted late last month found a median forecast for a 1.3% (annualized contraction) this quarter. Net exports were the difference between Japan expanding and contracting in Q2. It was unrevised, contributing 1.8 percentage points to GDP. In Q3, exports are expected to be flat (13.6% in Q2), while imports are expected to rise by 9.8% after dropping 16.2% in Q2. The July current account was also reported, and while the surplus was larger than expected (JPY2.77 trillion vs. the median forecast in Bloomberg’s survey for JPY2.25 trillion, the trade surplus itself was less than half of the projection near JPY68.2b.
The Eurozone’s industrial sector is off to a rough start in Q3. As we noted yesterday, the contraction in German industrial production was twice as large as economists expected (-0.8%) and is the third consecutive monthly decline. France and Spain reported today. French output was stronger than expected, rising 0.8% and nearly offsetting June’s 0.9% decline in full. The median forecast was for a 0.1% gain. Manufacturing itself fared by 0.7% after a revised 1.1% decline in June (initially -1.0%). The auto sector was particularly strong, with output rising by 2.8% in the month. Spain’s industrial production’s 0.2% increase was also better than the slight decline expected after a 1% decline in June. Italy reports Monday, ahead of the aggregate estimate in the middle of next week. Industrial output in Italy is seen falling by 0.1% after a 0.5% increase in June. The combination of some hawkish rhetoric and the weaker euro has encouraged a minor upgrade of the likelihood of an ECB rate hike next week to about 35% in the swaps market from a little less than 25% a week ago.?
The soft-land scenario, which now seems to be the base case for most economists, got more support from yesterday’s weekly jobless claims report. Unexpectedly, initial claims fell to 216k, the lowest in 7 months. The 4-week moving average, used to smooth the week-to-week volatility, fell to 229.2k, a 5-week low. Continuing claims fell to 1.68m, a seven-week low. Today’s wholesale sales and inventories will not draw much attention, but Q2 household net worth and consumer credit will draw interest, even if they have limited market impact. Recall that household net worth jumped by a little more than $3 trillion in Q1, recouping 2/3 of what the $4.6 trillion lost last year (and the losses suffered reduced tax revenues, exacerbating this year’s budget deficit). That is more than the entire GDP of India. The S&P rose by about 8.3% in Q2, and the NASDAQ was up around 12.8%. FHFA house prices slipped by 0.2%. Over the last ten years (40 quarters), household net worth has risen by an average of $1.8 trillion a quarter, which is roughly Russia’s GDP in 2022. Over the last 20 years, US household net worth has risen by an average of about $1.28 trillion, which is a little more than the Netherland’s annual GDP. The US will report on July consumer credit. Consumer credit growth in H1 of $102b (~$17b a month on average) was the weakest six-month period since H1 21, and the $49.6b extended in Q2 was the least since Q1 21. Note that consumer delinquency rates are rising. In Q2, delinquency rates on consumer loans, credit cards, and auto were the highest in a decade.
Crypto Market Rundown
The global crypto market cap is $1.05T, up +0.89% in the past day. Bitcoin was trading above $26k throughout the U.S. night (~5PM ET - 5AM ET) but is now trading around the $25,850 level. Traders are finally seeing a bit of volatility.
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