Market Report.
📉 Yesterday, federal surveys of available employment in the US (JOLTs) fell more than expected, indicating apparent weakness in the labour market (tomorrow we will know the employment report, which will have the latest answer). Job openings data fell to the lowest level since 2021, weighing on markets. Remember, Fed officials have made clear they are more worried about labor market risks than inflation.Weaker jobs data on Friday could trigger a correction in stocks, with clients already positioning defensively.
💼 Yesterday, Fed President Mary Daly said the central bank will need to lower rates to protect the US labor market. Daly noted rising real rates in a slowing economy could lead to excessive tightening. If inflation has fallen, but interest rates remain high, the spread (real interest rates) has risen. This could cause further slowdown in US job growth, which she said would be unwelcome.
📊 According to the Fed’s Beige Book assessment of regional contacts, published last night, economic activity was either stagnant or falling in the majority of US areas in recent weeks.
📈 A key job market indicator suggests unemployment may rise faster, based on research by Fed Governor Chris Waller. Over the past two years, he argued the Fed could reduce inflation without causing a recession. However, his 2022 paper with Andrew Figura indicated that if the job vacancy rate falls to 4.6%, unemployment would hit 4.5%. In July, the jobless rate was 4.3%, and the JOLTS report showed the vacancy rate dropped to 4.56%, down from 7.4% in March 2022. Recession is coming?
🔍 As we have repeated on multiple occasions, the Fed needs a weakening labour market to justify the rate cut that Wall Street expects. But if that weakening were more aggressive than expected, we could be talking about a recession (Sahm’s rule) and this would no longer be the ‘soft landing’ cited by the Fed, which could send the markets into panic mode and sell-offs.
🚨 24 hours after the news that produced the largest outflow of money in the history of a stock, Nvidia confirms it has been in contact with the DOJ regarding its antitrust probe into the company’s business practices. However, Nvidia clarifies that contrary to reports, it has not been subpoenaed by the DOJ at this time. The DOJ often uses Civil Investigative Demands (CIDs), a type of subpoena, to formally request information from companies under investigation. Sources confirm the DOJ has sent a CID seeking information about Nvidia’s acquisition of RunAI and aspects of its chip business. The company says it is willing to answer any questions regulators may have, though does not directly acknowledge the DOJ’s antitrust concerns.
🇩🇪 German factory orders are surprisingly improving. They have resulted in an increase of 2.9%, against expectations of a contraction of -1.6%. In the UK, the construction PMI comes out weaker than expected, but remains in expansionary territory at 53.6.
🚗 VW confirms fears of plant closures. VW defended considering unprecedented German factory closures, saying car sales are down 500k units equivalent to 2 plants due to weak European demand. Europe faces an industry slowdown as incentives are reduced, leaving manufacturers like VW operating factories unprofitably below capacity. VW’s Wolfsburg plant has capacity for 14M vehicles but produced only 9M last year, raising returns has become harder with rising costs. The CFO said VW has 1-2 years left to turn the brand around and ensure affordable, quality vehicles. Unions will strongly resist any job cuts or closures in Germany.
🏗️ China’s construction crisis spills over to the steel sector. Iron ore futures fell by more than 2% in Singapore, while copper fell below $9,000/tonne and zinc fell by more than 2%. Inventories at Chinese ports exceed 150 million tonnes after production cuts in July and August.
🇪🇸 In Spain, my homeland, the inability of Sanchez’s socialist administration and the largest opposition party, the conservative Popular Party (PP), to agree on a nominee has caused a delay in the selection of the new governor of the Bank of Spain. The central bank governor is chosen by the government, but according to Spanish custom, the decision must be reached in agreement with the biggest opposition party, which then selects the deputy governor. ‘The government appointing a minister as governor is very detrimental to the independence of the Bank of Spain,’ opposition leader Núñez Feijóo told reporters.
Market View:
📈 The S&P 500 manages to stabilise above 5500 points after yesterday’s falls. The calm, in part, is provided by NVIDIA’s recent comments. The Nasdaq 100 stabilised above the 18,800 level. Both indices, however, are unable to regain the lost market.
💹 The dollar index DXY approached 102 yesterday, but has fallen back to the 101 level. This has triggered a technical rebound to the upside in the EURUSD, which has been based at 1.1050 and rebounded above 1.11 at the moment. The US 2 year bond continues to cool, with the yield now falling to 3.77%.
🇪🇺 The European market manages to stop the declines, but like the US, fails to regain the ground lost during yesterday’s session. The DAX 40 is currently above 18,600 points.
💰 Gold has rebounded to $2545 an ounce in the last few hours, but remains within the ranges we have described in previous reports, between $2515 and $2560. Bitcoin continues to weaken slowly, trading at $56,750, but if the trend continues it will approach the $52,000 or $51,500 area.
