🌎 Market Report.
📊 US: PCE inflation data seemed to exert a neutral effect on Friday. Monthly core PCE inflation came out above expectations (negative effect on the market). Annualised core PCE inflation came in below estimates (positive market effect). However, in general terms, US seems to be on track to hit the Fed’s 2% target early next year, supporting a September rate cut. However, very strong consumer spending could make the Fed reluctant to cut aggressively given inflation pressures remain. Income growth remains weak, raising questions around how spending is being financed as savings rates hit lows. A September rate cut is assured based on falling inflation, but the upcoming jobs report this week will determine the magnitude of 25bps or 50bps. Labor market trends when deciding the size of its September reduction.
🇯🇵 Japan’s economic news is still not positive. Capital spending published today comes in weaker than expected at 7.4% versus 9.6%. Asian factory activity showed tentative signs of recovery in August, with China’s Caixin/S&P PMI beating forecasts and exceeding the 50 no-change mark. However, China’s official PMI pointed to ongoing manufacturing decline, and deflation risks remain a concern. Manufacturing expanded in South Korea and Taiwan, while Japan saw a slower contraction rate partly due to strong chip demand and PMI rose to 49.8 in August from 49.1 in July, remaining below 50 but pointing to a slower contraction rate. The IMF expects a soft landing for Asia as inflation cools, allowing monetary easing support growth.
🇪🇺 In Europe, manufacturing PMIs improve, but remain in contraction zones except for the UK and Spain. Output growth nudged up slightly but new orders fell at their sharpest pace this year, both domestic and foreign demand declined. Manufacturers raised prices for the first time in 16 months in some countries, a potential concern for the ECB’s inflation aims. The euro zone inflation rate fell to a three-year low of 2.2% in August, strengthening the case for more ECB policy easing.
🇩🇪 In Germany, A steeper drop in new industrial orders was the main factor weighing on activity, with the decline in incoming work the sharpest since November 2021. Faster reductions were also seen in backlogs of work and employment, indicating spare capacity at factories. Goods producers were less optimistic about growth prospects for the year ahead given the deterioration in new orders.
📈 Market View:
📉 Pending the employment data, and in view of the neutral effect of Friday’s PCE inflation data, the SP500 starts to define a clear resistance at 5650 points. The Nasdaq 100, on the other hand, is more bearish despite having recovered some of its losses, the challenge here would be to break above 20,000 points, currently at 19,540 points. The Russell 2000 has a much more bullish tone.
💵 The dollar index is slowly but surely advancing, and is today above 101.50 points. Consequently, the EURUSD pulls back touching 1.1050 and bouncing slightly higher towards 1.1070 at the moment. The US 2-year bond stands at a yield of 3.9%.
📊 In Europe, the Dax 40 touched all-time highs last week and retreated, currently at 18,870 points.
🛢️ Crude oil weakens again and falls to $77 a barrel Brent. Gold remains firm above $2500 per ounce with resistance around $2560. Bitcoin, meanwhile, is holding above $58,000, up from August’s pullback to $64,000.
🌍 Geopolitics:
🛡️ Russia is revising its nuclear doctrine in response to what it views as escalating Western involvement in Ukraine, raising geopolitical risks. Foreign Minister Sergei Ryabkov said changes are at an “advanced stage” and connected to Western escalation via Ukraine conflict support. Tensions have risen as the West supplies more advanced arms, and Ukraine conducted an incursion into Russian-held territory. US long-range missile systems, with US satellite guidance systems, are being used to attack Russian cities.
🇮🇱 Israel: the killing of more hostages sparked massive protests in Israel calling for an end to the conflict, while violence persisted and vaccinations began during a temporary truce. Protests are demanding the government secure a ceasefire deal with Hamas to free remaining hostages after 6 more were killed. Demonstrations blocked streets in Jerusalem and Tel Aviv, with aerial footage in media showing a highway filled with protesters. Police used water cannons. Senior Hamas officials blamed Netanyahu for the deaths, saying Israel refuses to sign a ceasefire deal. Families of slain hostages also held Netanyahu responsible.
