Hey Folks, as we round out the month of August we are ending on a down note. IN addition, the month of September has also been historically a poor month for market performance. Get my take on the current market activity and where to from here.
Major indexes moved sharply lower as investors became less optimistic that the Feds will be able to tame inflation without causing a significant economic slowdown. Most of the market’s moves came at the end of the week the Fed’s annual symposium in Jackson Hole, WY—and most of investors’ focus appeared to center around Fed Chair “Boom Boom” Powell’s speech on Friday morning. His comments were “resolutely hawkish,” as he perceives taming inflation as the bedrock of the recovery. Much of the week’s economic data surprised on the downside and arguably offered evidence that growth had slowed considerably in recent weeks in response to tightening financial conditions.
On Tuesday, S&P Global announced that its composite gauge of service and manufacturing activity had fallen further into contraction territory and hit its lowest level since early 2020. Sales of new homes in July fell for the sixth month so far this year to the slowest pace since early 2016, and both personal income and spending rose much less than consensus expectations (0.2% versus roughly 0.6% and 0.1% versus 0.4%). However, on the positive side, new orders for nondefense capital goods excluding aircraft, a proxy for business investment, rose 0.4% in July, and weekly jobless claims fell back to their lowest level in a month. The University of Michigan’s index of consumer sentiment also rose more than expected, hitting 58.2 in August after bottoming at a record low of 50 in June.
Despite the mixed economic signals, U.S. Treasury yields moved higher for much of the week. The probabilities of a 75 bps rate hike at the next FED meeting moved slightly higher to over 61% and by the end of 2022 markets are forecasting over 85% probabilities of rates being over 3.75% with the current target rate sitting at 2.25-2.50%.
The minutes from the ECB’s July policy meeting suggested more interest rate hikes could be forthcoming to subdue persistently high inflation that “posed an increasing risk of longer-term inflation expectations becoming unanchored.” Eurozone business activity shrank for a second consecutive month in August, another sign of a possible recession in the third quarter, according to purchasing managers’ surveys. An early reading showed that S&P Global’s Composite Purchasing Managers’ Index (PMI) fell to an 18-month low of 49.2 in August from 49.9 in July. (PMI readings below 50 signal a contraction.) In the UK, business activity almost stagnated in August, with a sharp fall in the manufacturing sector. The S&P Global/CIPS composite PMI fell to an 18-month low of 50.9 in August from 52.1 in July while the services sector expanded at the slowest pace in 18 months.
In Japan, economic data released early in the week did little to boost sentiment, with flash survey numbers showing Japan’s factory activity growth slowed to a 19-month low in August, impacted by persistent rises in raw materials/energy costs and weakening global demand. Japan’s manufacturing sector continued to expand in August, but the 51.0 PMI score ultimately disappointed given it was down from 52.1 in July.
China’s stock markets declined as extreme temperatures and power shortages in some provinces raised concerns about the growth outlook. China’s cabinet, outlined a 19-point policy package adding CNY 300 billion to state policy banks’ investment in infrastructure projects, on top of CNY 300 billion announced in June. IN addition, the People’s Bank of China (PBOC) cut two key interest rates as the central bank stepped up efforts to revive the economy.
Enjoy this Week’s Round-Up;
Don’t Be A Rat Brain Trader – Be the Red Stripe Zebra !!
Trade Smart !