Market Synopsis: Stocks Down, Treasury Yields Up, Commodities Mixed, Dollar Up, Crypto Down
Past Week Events:
This Week's Events:
U.S. Job Market Returns to Pre-Pandemic Levels with 187,000 Jobs Added in July: The U.S. job marketplace has shown signs and symptoms of returning to its pre-pandemic state, with 187,000 jobs delivered in July, a figure barely above the month-to-month common in the time before the pandemic. These statistics, launched by the Bureau of Labor Statistics, show a resilient job market with more opportunities than candidates searching for work. The sectors that noticed the most sizable gains had been health care, social assistance, financial activities, and wholesale trade. However, gains within the leisure and hospitality enterprise were more subdued, indicating a slowdown in discretionary spending. The July unemployment rate dropped to 3.5%, a level not seen in over 50 years.
U.S. Services Sector Slows, Prices Rise in July: U.S. Services, which make up over two-thirds of the economy, showed a slowdown in July, with the Institute for Supply Management's (ISM) non-manufacturing PMI falling to 52.7 from 53. Despite the slowdown, the sector continues to prosper, as a PMI above 50 shows expansion. This resilience is attributed to a shift in consumer spending from goods to services. However, businesses in the sector faced higher input costs, leading to an increase in services inflation. The rise in prices, coupled with solid demand, suggests a slow journey towards lower inflation. The services sector is central to the Federal Reserve's efforts to bring inflation down to its 2% target. The recent slowdown in inflation has been largely driven by declining prices for goods, such as energy. However, services prices tend to be less responsive to rate hikes and are generally stickier. The employment in the services sector also slowed in July, posing potential risks to the nonfarm payrolls count for the month.
Next Week:
CPI, Consumer Price Index, will be released next week. CPI is a key indicator of inflation, as it measures the change in prices of a certain basket of goods and services. Headline CPI has been on the decline, as the year over year percent change was reported at 3.0% last month. To compare it was at 6.4% during the January 2023 report. Analysts predict it to, on the contrary, go up, with a forecast being 3.3%. Core CPI is still relatively high with last month’s year over year at 4.8%, but analysts project it to slightly drop to 4.7%.
The PPI, which is closely related to the CPI, will also be released the following week. Consumer pricing changes are tracked by the CPI, whereas producer price changes are tracked by the PPI. PPI year over year was at 0.1% last month, and core PPI was at 2.6% year over year last month, truly marking the difference between core and headline which most analysts fear. Both of these economic indicators are quite important and will be eagerly awaited.
Market Snapshot:
This week, various factors drove markets, including fewer jobs, slowing in the Services and Manufacturing sectors, sticky prices, and surging gas prices. This mix of factors has led to concerns of stagflation, a situation characterized by slow financial growth and comparatively high unemployment, which is at the identical time observed by inflation. In the equity market, Amazon and Apple were the big movers, with the former surging the most since November and the latter tumbling by the most this year because of earnings. The Nasdaq was the week's worst performer, marking its worst week since March. In the bond market, the ugly jobs data sparked a bond-buying panic that reversed some of the major selling, sending shorter-term yields lower later in the week, though the long-end was still up around 20bps on the week. The dollar rallied for the third straight week, although today's dovishness took away some of the optimism. The reversal in the dollar happened right at the pre-Payrolls dump level from July. In the commodities market, oil prices surged to $83 a barrel today after the OPEC panel's recommendation and are up for the sixth straight week, marking the longest streak since June 2022. Gold rallied on the day as the dollar sank but overall was lower for the second week in a row.
Quip of the Week: "The stock market is filled with individuals who know the price of everything, but the value of nothing." - Phillip Fisher
U.S Equities:
Indexes(Week)
SPX 4,478.03(-2.27%), DJIA 35,065.62(-1.11%),
NASDAQ 13,909.24(-2.85%), RUT 1,957.46(-1.21%)
Sectors:
The market was generally negative this past week, with only 1 sector ending in the positive zone. The selloff in the market was due to concerns of inflation and possibly stagflation, as the unemployment rate is extremely low at 3.5% and core inflation is still relatively high. Gas prices did see a spike this past week though, which is the primary reason for energy ending positive. Not an extremely optimistic week for investors.
Treasuries:
Buffett Unfazed by Fitch's US Credit Rating Cut:
Despite Fitch's recent downgrade of the US credit rating from AAA to AA+ , Warren Buffett, the renowned investor and CEO of Berkshire Hathaway, remains undeterred. In an interview with CNBC, Buffett said that his company will continue to purchase $10 billion of US Treasuries each Monday, just as it has been doing. Berkshire Hathaway, one of the global's largest company holders of US government debt, had reported $104 billion of short-term investments in US Treasuries at the stop of March. Despite the downgrade, which occurred due to issues related to the country's growing debt, weakening governance, and projected financial deterioration over the subsequent three years, Buffett continues his confidence in US Treasuries and the United States dollar, pointing out, “The dollar is the reserve currency of the world, and everybody knows it”
Commodities:
Oil
Resilient Oil Demand Bolsters Crude Tanker Rates Despite OPEC Cuts
Despite the supply cuts imposed by OPEC and its allies, crude tanker markets are still being buoyed by resilient and unseasonal oil demand growth, according to Euronav, a Belgian tanker operator. The company, which operates a fleet of nearly 70 VLCCs and Suezmaxes(Tanker Ships), reported that crude shipments have not shown the usual seasonal dips during Q2 and Q3, as oil consumption continues to rise in the post-COVID era. Euronav suggested that the impact of seasonal factors this year is far smaller than historically observed, indicating that the large crude tanker market is well-positioned to continue the current upcycle based on strong fundamentals. Despite macroeconomic headwinds, the International Energy Agency still expects global oil demand to grow by 2.2 million barrels a day in 2023.
Gold
Gold was on the decline for the whole week, but the job report at the end of the week made an impact. The job report came in worse than expected, which decreased expectations of rising interest rates, lowering the price of the dollar, thus increasing the price of gold. Gold goes up as the dollar and interest rates go down, because gold is the standard for the dollar and high interest rates increase the opportunity cost for gold making it less attractive.
Crypto:
BTC -29,047, -0.63% ETH - 1,833, -1.21%
BTC Graph (5-day)
Shibu Inc has been the main talk of the crypto world recently, as their coin rallied in a “meme” like manner. But Shibu Inc has established their mission to make Shibu more than just a meme, as they want to become a competitive blockchain.
Europe:
Stoxx 600- 459.28, -2.44% DAX -15.951, -3.14% FTSE 100 -7,564, -1.69%
DAX Chart (5-day)
The ECB stated on Friday that inflation has probably peaked in the first half of 2023, which makes it more likely that they will soon pause their rate hike streak.
Asia:
XJO (Australia)-7,325, -1.06% Shanghai 180 Index-8,540, 0.38% Nikkei 225- 32,192, -1.73%
XJO Chart (5-day)
Last week in an attempt to strengthen the yen and finally adjust their ultra-loose monetary policy, the Bank of Japan finally modified their monetary policy. The BOJ hopes to allow for more fluctuation in interest rates and transition towards a more standard monetary policy, as the destruction of the Yen is too vast to ignore. They did this by increasing their previous interest rate cap (Yield Curve Control).
Sources Cited
Greenberg, N. (n.d.). Service side of the economy slows slightly, ISM finds, but “sales have been steady.” MarketWatch. https://www.marketwatch.com/story/the-service-side-of-the-economy-slows-slightly-ism-finds-3f926ebaBartash, J. (n.d.). U.S. adds 187,000 jobs in July and points to hiring slowdown. Wages still high. MarketWatch. https://www.marketwatch.com/story/u-s-adds-187-000-jobs-in-july-and-points-to-slowdown-in-hiring-f24ac81fBartash, J. (n.d.). U.S. manufacturers remain mired in a slump, ISM finds. MarketWatch. https://www.marketwatch.com/story/u-s-manufacturers-remain-mired-in-a-slump-ism-finds-c225d71eWarren Buffett Is Buying Treasuries Regardless of US Downgrade by Fitch. (2023, August 3). Warren Buffett Is Buying Treasuries Regardless of US Downgrade by Fitch. https://finance.yahoo.com/news/warren-buffett-buying-treasuries-regardless-112513557.htmlOil demand supports crude tanker rates despite OPEC+ cuts: Euronav. (2023, August 3). Oil Demand Supports Crude Tanker Rates Despite OPEC+ Cuts: Euronav | S&P Global Commodity Insights. https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/shipping/080323-oil-demand-supports-crude-tanker-rates-despite-opec-cuts-euronav
“U.S. Economic Calendar.” MarketWatch, www.marketwatch.com/economy-politics/calendar. Accessed 5 Aug. 2023.
“Advanced Graphing and Analytical Tools for Investors.” Koyfin, app.koyfin.com/. Accessed 5 Aug. 2023.
“ECB Says Underlying Inflation Has Peaked in Good Omen for Future.” Reuters, 4 Aug. 2023, www.reuters.com/business/retail-consumer/ecb-says-underlying-inflation-has-peaked-good-omen-future-2023-08-04/.
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