Market Report.
📉 Yesterday’s US initial jobless claims came in below expectations, signalling a surprisingly strong labour market. Yesterday’s US initial jobless claims came in below expectations, signalling a surprisingly strong labour market. They came in at 219k versus 230k expected and 231k in the previous period.
💹 The BOJ kept short-term rates at 0.25% but revised up its view on private consumption, signalling confidence in the recovery. Governor Ueda said rates will rise further if inflation remains on track to hit 2% as projected. Core CPI hit 2.8% in August, the fourth straight monthly acceleration, supporting the case for more hikes. Ueda suggested there’s time to pause given recent yen strength and overseas uncertainties. A new prime minister in late September could impact the pace of hikes depending on their monetary policy views. The October meeting will allow checking forecasts against new data before the next potential hike in December. Stronger wages and growth have eased recession fears, though exports face risks from slowing China and US.
🛍️ UK retail sales rose 1% month-on-month in August, stronger than the 0.4% rise expected. July sales were also revised up to a 0.7% increase from a prior estimate of 0.5% growth. Warmer weather and end-of-season sales boosted some supermarkets and clothing retailers. Sterling rose after the stronger-than-forecast figures were released that, together with the Fed rate cut, has pushed the pound sharply above 1.33 for a few hours.
😟 However, UK consumer confidence crashed 7 points in September to -20, the steepest decline since April 2022. Labour’s warnings about the state of public finances and “tough decisions” to come are seen as fueling uncertainty. The plunge increases pressure on the BOE to step up rate cuts to support growth.
🔍 Catherine Mann, who sets interest rates for the Bank of England, stated today that she has a cautious perspective regarding the possibility of further rate reductions in the upcoming months and emphasised the necessity of keeping policy restrictive. According to the text of a speech that Mann was scheduled to give in Lithuania, “I have a guarded view on initiating a cutting cycle, even though I agree with the majority for a hold at the just concluded meeting.” The BoE said on Thursday that it would proceed cautiously when lowering interest rates since wage growth appeared to be too rapid to be comfortable and because officials couldn’t agree on how quickly longer-term inflation pressures were abating.
🇩🇪 In Germany, according to a Friday report from the federal statistics office, German producer prices declined by 0.8% year over year in August, which was less than anticipated. Another iconic German industry collapses. Mercedes CEO Ola Källenius pledged to do “whatever it takes” to boost returns after cutting profit guidance due to China slowdown. Demand has cooled in China, Mercedes’ largest market, hurting sales of luxury models like the S-Class and Maybach. Younger Chinese drivers are turning more to domestic brands perceived as having better tech features. Sales are also down in Europe amid the broader industry downturn and weak EV demand.
⚠️ Due to the possibility of increasing inflation, yesterday, GIC Chief Investment Officer Jeffrey Jaensubhakij has cautioned that the market’s euphoria following the Fed rate cut may not last long. Tight labor markets across major economies raise the risk of inflation returning sooner than expected. Political incentives to push unnecessary stimulus could further fuel prices ahead of the US election.
🏡 China continues to try to revive its property market. Authorities may end distinctions between first and second home purchases, allowing lower down payments and rates on second homes. Local governments have been given more leeway to stabilize the market, with a focus on absorbing existing housing stock. Refinancing up to $5.4 trillion of mortgages at lower rates is also being explored.
📈 Market view:
💪 S&P 500 futures remain strong at new highs; yesterday they practically reached 5800 points. The Russell 2000 also responded positively with strong gains, accumulating since Wednesday more than 2.5% up. The laggard now is the Nasdaq 100, which despite finally reaching 20,000 points, is down 200 points, still almost 1000 points from its highs.
💵 The dollar continues to hold above 100 points on the DXY. EUR/USD tries to consolidate above 1.1150, and GBP/USD momentarily breached 1.33, thanks to BoE inaction and good UK retail sales data that strengthened the pound. The US 2-year bond has moved between 3.50% and 3.60% in recent hours. Bond markets seem to be normalising.
🇪🇺 In Europe, surprisingly, despite poor macroeconomic data from Germany and bad news from Mercedes, the DAX 40 broke new all-time highs, reaching 19,050 points, but retreating in the last hours to the current 18,850 points. The Eurostoxx 50 also advanced, but then retreated, remaining negative during today’s session in the 4900 point area.
🛢️ Crude oil prices are slowly rising, perhaps fuelled by the veiled tension that is increasing between Israel and its neighbours. Brent crude has reached 74.50 dollars a barrel, having traded a few hours ago at 75 dollars a barrel. Gold continues to make new highs and is currently at 2640 dollars an ounce. Bitcoin is above $63,500, but could face setbacks as the last time it reached these levels it had a sharp correction.
🌍 Geopolitics:
💥 Yesterday, Israel carried out its heaviest air strikes on southern Lebanon since the conflict began in October amid calls for restraint. Hezbollah leader Nasrallah said the device explosions caused this week by Israel, crossed “all red lines” and could be considered “war crimes.” The attacks on Hezbollah communications sowed fear in Lebanon with civilians abandoning devices over bomb fears. Both sides appear to be digging in amid warnings from regional powers like Iran of a crushing response if Israel delivers “a big harsh blow.”
🛡️ Yesterday, in a further step towards chaos, the European Commission authorised the use of weapons against Russian territory. Germany’s AfD MEP told the bureaucrats to go to the front lines themselves to fight. In Russia, Vyacheslav Volodin, a close Putin ally warned that Western, He warned Russia would respond with “more powerful weapons” and that the West had forgotten sacrifices in WWII. Volodin said it would take Russia’s Sarmat ICBM just 3 minutes to hit the city where the European Parliament meets from deployment. NATO chief Stoltenberg said Putin had declared “many red lines” before without escalating, in what sounds more like a provocation, seeking to get Russia to finally respond to NATO.
