MARKET WRAPS
Watch For:
EU business & consumer surveys; CPI data for Germany, North Rhine Westphalia, Hesse, Brandenburg, Baden-Wuerttemberg, Bavaria, Saxony; Italy consumer confidence survey, business confidence survey, industrial turnover; Bank of England effective interest rates; UK monetary & financial statistics, money and credit; trading updates from Prudential, ASR Nederland
Opening Call:
Shares could extend gains in Europe on Wednesday, as investors scrutinize a raft of economic releases. In Asia, stock benchmarks advanced; Treasury yields were mixed; the dollar was steady; while oil rose and gold was barely changed.
Equities:
European stocks may chalk up gains on Wednesday as investors stay positive ahead of economic data due later in the week.
“On Wednesday, Germany will publish its inflation data for August, followed by the second estimate of U.S. 2Q GDP and Energy Information Administration crude-oil inventories,” IG said.
“On Thursday, a plethora of retail sales, industrial production and inflation data should keep investors busy ahead of Friday’s eagerly awaited U.S. non-farm payrolls.”
U.S. data Tuesday added to signs of a cooling economy: employers reported fewer open jobs last month, while a closely watched measure of consumer confidence tumbled in August.
The data increased the chances that the Federal Reserve will ease off on any additional interest-rate hikes.
While anxiety over rising Treasury yields pushed stocks lower, Carson Group said Tuesday’s JOLTS data and the consumer confidence numbers were data points for the doves who hope the Fed is done with rate hikes. Tuesday’s numbers are “not worrying, it’s just telling you the job market is getting a little less hot.”
Other catalysts could come later in the week. In particular, the Fed will be paying close attention to its preferred inflation measure, the July personal consumption expenditures price index, due on Thursday, followed by August employment data on Friday.
Forex:
The dollar was steady amid risk-on sentiment spurred by gains on Wall Street and the release of weak U.S. economic data.
The main theme has been risk-on, Commerzbank said.
The U.S. job openings and labor turnover survey, or JOLTS, fell to the lowest level since early 2021, suggesting a cooling in labor demand, while the U.S. Conference Board’s measure of consumer confidence points to an easing in consumer spending, Commerzbank noted.
The JOLTS data “cast further doubt on the idea that the Fed will need to keep rates high for longer,” Capital Economics said.
The question of what the Fed will do next continues to hang over the market after the central bank’s chair, Jerome Powell, said Friday that inflation remains too high and that officials are open to raising rates further if needed.
Bonds:
Treasury yields were mixed as Tuesday’s data were seen as a sign the U.S. economy isn’t so hot after all.
The Conference Board consumer confidence index came in below expectations, while home prices showed a slowdown in June.
Wednesday’s ADP employment report is expected to show the jobs market cooling, as are Thursday’s weekly claims and Friday’s August payrolls. July core annual PCE inflation on Thursday is forecast at 4.2% in a WSJ poll with economists.
“The question of whether we get more hikes will partly be determined by this week’s data, with several important releases coming up,” said Deutsche Bank.
“In the U.S., the main highlight will be the jobs report on Friday, where our U.S. economists expect nonfarm payrolls to have slowed further to +150k in August. That would be the slowest growth since December 2020, and they see that pushing the unemployment rate up a 10th to 3.6%.”
Markets are pricing in an 86.5% probability that the Fed will leave interest rates unchanged at a range of 5.25%-5.5% on Sept. 20, according to the CME FedWatch Tool. The chance of a 25-basis-point rate hike to a range of 5.5%-5.75% at the subsequent meeting in November is priced at 43.3%
Energy:
Oil prices advanced in Asia amid sustained supply tightness.
Stockpiles at the key storage hub of Cushing, Oklahoma have declined to their lowest level since January, ANZ said.
However, gains may be partially offset by signs of rising Russian supply, as the country’s exports reached an eight-week high of 3.4mb/day in the week of Aug. 27, ANZ added.
Traders continued to monitor Hurricane Idalia’s path and its potential impact on energy operations in the Gulf of Mexico.
“Little impact to crude production is expected this far east in the Gulf, but local disruptions to demand are expected for refined products markets,” StoneX said.
But worries over the global economic outlook have served to limit upside. China’s economic data has routinely disappointed this year, while the country’s troubled property sector has amplified concerns about demand from the world’s second-largest crude consumer.
“The economic news seems dominated by China’s troubles, which is bearish, along with the glacial progress in removing sanctions on Iran and Venezuela,” Strategic Energy & Economic Research said. “Also, the summer driving season is nearing an end.”
Metals:
Gold prices were little changed.
The market has lowered its bets on another interest rate hike by the U.S. Federal Reserve at its September meeting, ANZ said, as bond yields fall and the dollar weakens.
Bond yields move inversely to prices, and lower yields tend to boost the appeal of the non-interest-bearing precious metal.
Meanwhile, U.S. job openings continued to drop in July, signaling that the labor market is losing its momentum, while a survey by the Conference Board shows that U.S. consumer confidence fell more than expected in August.
U.S. economic data are the “focus” as those numbers will move the dollar index, and any strength in the dollar index is likely to push gold lower, and vice versa, said Zaye Capital Markets.
For traders, what matters most is the Fed’s monetary policy, Zaye Capital Markets said.
“A tighter job market means that inflation is likely to remain elevated for an extended period of time, which means that there is a threat of further action from the Fed,” it said. “This is keeping the lid on the shining metal’s price.”
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Aluminum rose on prospects of Chinese stimulus.
These measures continue to come in “at a drip,” feeding into hopes that base-metal demand has experienced its cyclical lows, said TD Securities.
However, the Chinese government’s attempts to stoke demand without depending on a “tidal wave” of credit growth or a broad-based fiscal package are unlikely to sustainably boost confidence in the demand outlook, it added.
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Iron-ore futures were higher, supported by high demand.
Molten iron production remains high and iron ore consumption continues to be strong, which is supporting prices, Huatai Futures said.
TODAY’S TOP HEADLINES
Here’s the danger for investors in holding too much cash, says Wells Fargo
For the first time in ages, it pays – even after inflation – to hold cash. But high yields could disguise a pitfall for investors, warned an investment strategist at the Wells Fargo Investment Institute.
In May 2023, the yield on the 30-day U.S. Treasury bill topped 5%, and remains so. It stood at 5.384% late Tuesday morning. Certificates of deposit and high-yield savings accounts paying north of 4% can be found. Meanwhile, inflation as measured by the consumer-price index has fallen from a mid-2022 peak of 9.1% year over year to 3.2% as of July.
The Fed’s monetary policy has lost some of its potency and interest rates may need to rise much higher as a result, economist says
A Wall Street economist says the Federal Reserve is losing its power to influence the U.S. economy.
If he’s right, then it means the central bank will likely need to hike interest rates much higher than it otherwise would have, potentially sparking another selloff in stocks and bonds.
FDIC Proposes Tougher Rules for Regional Banks
The Federal Deposit Insurance Corporation proposed new regulations for regional banks Tuesday aimed at minimizing costs to the FDIC insurance fund and the risk of sector-wide contagion when banks fail.
One rule would require banks with $100 billion in assets to use more long-term debt as a source of funding, meaning they would be less reliant on deposits-both those insured by the FDIC and not-for funding.
In New Step Toward Israel Deal, Saudi Arabia Offers to Resume Palestinian Authority Funding
Saudi Arabia is offering to resume financial support to the Palestinian Authority, said Saudi officials and former Palestinian officials familiar with the discussions, a sign that the kingdom is making a serious effort to overcome obstacles to establishing diplomatic relations with Israel.
Saudi officials say they are trying to secure Palestinian President Mahmoud Abbas’s support for open ties with Israel, providing more legitimacy to any eventual agreement and forestalling any accusations that the kingdom would sacrifice Palestinian efforts to establish an independent state to advance its own goals. Recognizing Israel is especially sensitive for Saudi Arabia because it hosts Islam’s holiest sites, giving it a special status in the Muslim world, where Palestinian statehood remains an emotional rallying cry.
Wagner Leader Prigozhin Is Buried in Private Ceremony Days After Jet Crash
Wagner chief Yevgeny Prigozhin was buried in a private ceremony in St. Petersburg, his official press service and state media said Tuesday, less than a week after the jet he was on crashed, killing him and wiping out a number of top commanders in his paramilitary group.
The funeral took place “behind closed doors” at Porokhovskoye cemetery in the city, the Concord Group said on Telegram, the first time the group, which acts as Wagner’s mouthpiece, has posted since June 26, days after Prigozhin’s short-lived mutiny.
Nvidia’s stock closes at record high, sending AI-chip maker to $1.2 trillion market cap
(MORE TO FOLLOW) Dow Jones Newswires
08-30-23 0015ET
