Market Synopsis: Stocks Down, Treasury Yields Up, Commodities Higher, Dollar Lower, Crypto Higher
Past Week Events:
This Week's Events:
Retail Sales Rise but Struggle Against Inflation
U.S. Retail sales saw a surge of 0.6% in August, indicating a rebound in spending. However, considering in inflation, the actual profits appear more modest. The increase in sales is commonly attributed to the back-to-school buying season and the distribution of child tax credits. Despite the uptick, the actual purchasing strength of consumers is being eroded by growing inflation, making it hard for sales to keep tempo.
August CPI Indicates Slower Inflation Growth
The Consumer Price Index (CPI) for August 2023 showed a 0.3% increase, which is less than the expected 0.4%. This data suggests that inflation pressures might be easing slightly. On a year-over-year basis, the CPI rose by 5.3%, marking a slight deceleration from July's 5.4% annual increase. Core inflation, which excludes volatile food and energy prices, was up 0.1% for the month and 4.0% for the year.
Stocks Rise as ARM Makes Strong Market Debut
The stock market experienced a boost, with ARM's impressive debut playing a significant role. The broader market sentiment was also buoyed by strong economic indicators, reinforcing the belief in the economy's resilience. This positive momentum in stocks reflects investors' optimism about the economic landscape and the potential for continued growth.
Next Week:
The Federal Reserve interest rate decision comes out on Wednesday of this week. This is extremely anticipated, and its results have large influences on the market. The Federal Reserve has been hiking rates for a while now, and investors are hoping for rate cuts or pauses in the near future. With poor CPI data last week, the Fed is unlikely to pause or cut rates, as they are keen on the 2% inflation rate mark.
U.S. leading economic indicators will be reported next week, and this indicator highlights trends in the broader U.S. economy. The U.S. leading economic indicator (LEI) reported down -0.4% last month, and this upcoming report is forecasted to come in at -0.5% The LEI has seen a contraction in the last 16 months, and analysts forecast this trend to continue. w
The S&P Global Manufacturing and Services PMI Flashes for the month will be reported. These are excellent indicators for the United States’ productivity in manufacturing and service sectors. Last month’s services PMI was at 50.5, indicating growth in the services industries. The Manufacturing PMI was still below 50 at 47.9 last month, indicating a possible contraction in the manufacturing sectors. These indicators are forecasted to roughly stay where they were last month.
Market Snapshot:
This week, the financial markets experienced a blend of optimism and caution, with a clear divergence between 'soft' survey data and 'hard' macroeconomic indicators. Key measures such as the Consumer Price Index (CPI), and the Producer Price Index (PPI) pointed towards rising inflation. Adding to the economic complexity, core retail sales didn't meet expectations, industrial production experienced a slowdown, and the headline consumer sentiment took a hit. This paints a picture of a slowing demand coupled with rising inflation - a challenging combination for any economy. In the stock market, the Nasdaq faced a decline for the second consecutive week, making it the week's most significant underperformer. In contrast, the Dow Jones managed to stay relatively stable. Among sectors, technology stocks bore the brunt of the week's downturn, while utilities managed to outperform, a surprising outcome given the rising interest rates. Energy stocks, on the other hand, remained relatively stable. In the bond market, Treasury yields rose, with the long-end of the yield curve underperforming. The 2-year Treasury yield, a key short-term rate, managed to climb back above the significant 5.00% mark. The dollar ended the week on a lower note. The cryptocurrency market presented a mixed picture, with Bitcoin registering modest gains and Ethereum slightly down. Gold prices rebounded, touching weekly highs after a brief dip to the $1900 mark. Oil prices continued their upward trajectory, with WTI crude oil nearing $91, levels last seen before geopolitical tensions escalated with Russia's invasion of Ukraine.
Quip of the Week:"Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas." - Paul Samuelson
U.S Equities:
Indexes(Week)
SPX 4,450.32(-0.16%), DJIA 34,618.24(0.12%),
NASDAQ 13,708.33(-0.39%), RUT 1,847.03(-0.24%)
Sectors:
The sectors performed a variety of ways this past week, with consumer dictionary ending about 1.8% positive and technology ending about 2.25% down. Despite poor inflation data, consumer discretionary and utilities were top performing sectors this week. This was due to positive market sentiment in these sectors and performance of individual stocks.
Treasuries:
Treasury yields rose, with the long-end of the yield curve underperforming. The 2-year Treasury yield, a key short-term rate, managed to climb back above the significant 5.00% mark. The spike in yields can be attributed to the key indicators of inflation, CPI and PPI, which pointed to higher inflation.
Commodities:
Oil
Oil Prices Reach 10-Month Peak Following China's Oil Reserve Cut
Oil prices rose to a ten-month excessive, catalyzed by China's decision to decrease its reserve requirement ratio. This is expected to enhance the country's economy and, therefore, its demand for oil. This decision by China, the sector's largest oil importer, is seen as a measure to stimulate its economic system amidst issues of slowing growth. The optimism surrounding improved Chinese demand, coupled with global delivery issues, has contributed to the bullish sentiment.
Gold
As data from China showed the Yuan reaching highs on the dollar, the dollar saw a dip which caused gold to rise. Next week’s interest rate report will have a significant impact on gold. If the Fed goes dovish by pausing or cutting rates, gold will likely see a rally, but they will likely hike once again.
Crypto:
BTC -26,629, 5.87% ETH - 1,641, 5.92%
BTC Graph (5-day)
As the recent court hearing stated that FTX’s assets were eligible for sale, crypto saw an overly positive week, setting the tone awaiting next week’s interest rate decision.
Europe:
Stoxx 600- 461.93, 1.60% DAX- 15,893, 0.97% FTSE 100 -7,711, 3.12%
DAX Chart (5-day)
TikTok, the chinese-owned social media platform, has been fined 345$ million for breaching child privacy laws in the European Union. In 2020, the social media giant had fairly lenient restrictings for minors joining the app, which their accounts automatically being set to public and their accounts be established without parent authorization. The social media has been under fire by American and European entities, and time will tell how it is able to hold up against these lawsuits.
Asia:
XJO (Australia)-7,279, 1.71% Shanghai 180 Index-8,018, -0.38% Nikkei 225- 33,533, 2.84%
XJO Chart (5-day)
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