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WEEKLY ROUND-UP Thru Aug 18th 2023: “More Downside?”

Hey folks, the markets generally thru the August-September time frames can be very tricky. Get my take here on where we can go from here and are we still in a “buy the dip” mode.


US indexes ended lower as sentiment appeared to take a blow from a sharp increase in longer-term bond yields and fears of a sharp slowdown in China.

The notable economic release of the week appeared to be Tuesday’s report from the Commerce Department on July retail sales, which jumped 0.7% over the month, roughly double consensus estimates. Some of the week’s other data seemed to raise the prospect of a “no landing” scenario—the possibility that the economy would continue to expand without experiencing a “soft landing” slowdown or a “hard landing” recession. Industrial production grew by 1.0% in July, roughly triple consensus estimates and its biggest gain since January. The Wednesday release of the minutes from the Federal Reserve’s July policy meeting seemed to raise worries about how policymakers would respond to continued growth signals. Investors appeared to interpret the tone of the minutes as generally hawkish.

The Atlanta Fed’s GDPNow forecast for growth in the current quarter, which is continually revised based on incoming data, jumped to 5.8% as of Wednesday, well above the official second-quarter growth rate of 2.4%. While most expect the actual growth rate in the third quarter to come in substantially lower, the Atlanta Fed’s “Blue Chip” survey of economists indicated that most are also steadily revising higher their growth forecasts. The positive economic surprises pushed the yield on the benchmark 10-year U.S. Treasury yield to its highest level since at least October 2022, although heavy issuance and, thus, supply worries may have also played a role.
Over in Europe we see that UK wage growth accelerated, increasing the pressure on the Bank of England (BoE) to raise interest rates further. Annual UK inflation slowed in July to 6.8% from 7.9% in June, driven lower by falling energy and food prices. But underlying price pressures remained strong, with the core rate, which excludes food, energy, alcohol and tobacco, staying at 6.9%. More troubling is that we saw services prices—seen by the BoE as the best predictor of underlying domestic inflation—quickened to 7.4%, the highest level since March 1992.

Japan’s GDP grew by an annualized 6.0% quarter on quarter in the three months to the end of June 2023, far exceeding the 2.9% expansion forecast by economists. The growth surge was driven largely by external demand, with net export growth ahead of estimates. Japan’s consumer price inflation slowed from the previous month in July but remained elevated at 3.1% year on year (y/y), above the BoJ’s 2% target for the 16th straight month.
Chinese stocks lost ground amid pessimism about the country’s flagging economic recovery. Official data for July revealed that China’s economic activity continued to weaken. Industrial output and retail sales grew at a slower-than-expected pace in July from a year earlier. the People’s Bank of China unexpectedly cut its medium-term lending facility rate by 15 basis points to 2.5%, its largest reduction since 2020, as the country grapples with weak demand.

Enjoy this weeks Round-Up;

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