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WEEKLY ROUND-UP Thru SEP 15th 2023; “Markets are Seasick”

Hey everyone, we are seeing a lot of chops in the markets but not a directional commitment at this time. Get my take one the current markets in this week’s round-up


US indexes closed mostly lower with the DOW the only one just barely in the green for the week. Technology and growth stocks lagged after Apple’s new product introduction event on Tuesday that featured a price increase on its top-of-the-line iPhone 15.

Wednesday’s release of the eagerly anticipated August consumer price index (CPI) data showed that the Federal Reserve has made progress in its fight against inflation, but rising energy prices may prompt the central bank to further tighten monetary policy. The headline CPI numbers showed the largest monthly increase since August 2022, which was the widely expected effect of higher gasoline prices. The core (excluding food and energy) CPI increase was slightly higher than expected, but markets took the news in stride. The August producer price index (PPI) data released on Thursday indicated that headline producer prices climbed more than expected, with core PPI in line with expectations. Retail sales for August were strong, demonstrating that consumers remained willing to spend.

The week’s economic data overall didn’t seem to affect the market’s outlook for the Fed to hold rates steady at its September 19–20 policy meeting. Much of the data appeared to reinforce building expectations for a soft-landing scenario in which inflation cools to the Fed’s target without a deep recession. In fact, Wall Street’s widely followed “fear gauge,” the Chicago Board Options Exchange Volatility Index, or VIX, hit its lowest point since before the onset of the pandemic in early 2020.

In Europe, the ECB raised interest rates for the 10th consecutive time and hinted that it could be nearing the end of its monetary tightening campaign. ECB President Christine “Queen Bee” Lagarde said a “solid majority” of policymakers had backed the quarter-point hike that took the key deposit rate to 4.0%, a record high. Meanwhile, industrial production in the eurozone weakened by more than expected in July, dropping 1.1% sequentially because of sharp declines in the output of durable consumer and capital goods. The European Commission cut its forecast for GDP growth in the eurozone in 2023 to 0.8% from 1.1% and projected that the German economy, the largest in the area, would shrink by 0.4%. The EC’s previous estimate had called for Germany’s GDP to expand by 0.2%. And in the UK, GDP fell 0.5% after rising by the same amount in June.

Bank of Japan (BoJ) Governor Kazuo Ueda suggested that the central bank could have enough data by year-end to judge if wages will continue to rise and thereby determine whether it could end its policy of negative interest rates (given sustained wage growth is key to the achievement of its 2% inflation target). While the yen strengthened following Ueda’s comments, it lost ground to finish the week broadly unchanged at the upper end of the JPY 147 range against the U.S. dollar. Due to the interest rate differential between Japan and the U.S., the yen continues to hover around its lowest level in around three decades.

In China, data for August provided evidence of economic stabilization in the country. Industrial production and retail sales grew more than forecast last month from a year earlier, while unemployment unexpectedly fell from July. Inflation data revealed that consumer prices returned to growth after slipping into contraction in July. The consumer price index rose 0.1% in August from a year earlier, up from July’s 0.3% decline. Meanwhile, the producer price index fell 3% from a year ago as expected but eased from the 4.4% drop the previous month. And finally, the People’s Bank of China (PBOC) cut its reserve ratio requirement by 25 basis points for most banks for the second time this year to inject more liquidity into the financial system.

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Enjoy this Week’s Round-Up