Another case of the September effect?

Another case of the September effect?
  • Global market indices
  • Currencies
  • Cryptocurrencies
  • Fixed Income
  • Commodity sector news
  • Key data to move markets this week
  • Global macro updates

US Stock Indices

Nasdaq 100 -0.84% MTD and +40.51% YTD
Dow Jones Industrial Average -0.23% MTD and +4.51% YTD
NYSE -0.68% MTD and +4.66% YTD
S&P 500 -0.24% MTD and +17.12% YTD

US stocks fell this week as traders focused on a still resilient economy and rising energy prices putting pressure on the Fed to keep another hike in mind, with rate cut expectations in 2024 also falling.

Mega caps: A challenging week for the mega caps as they were hit by rising bond yields with Appledownon news that Chinese agencies are barring the use of Apple iPhones at work. The growth stock giants Alphabet, Amazon, Meta Platforms, Tesla andNvidia are downas expectations of a Fed hold in September may be dissipating. Microsoft remains up.

Alphabet, Amazon, Meta Platforms, Microsoft, and Apple were among six tech firms designated as "gatekeepers'' under the EU's Digital Markets Act. They will have six months to comply with the new regulations that are intended to prevent them from abusing their market power. Failure to comply could lead to fines of up to 10% of the company's total worldwide turnover, or 20% in the event of repeated violations. The European Commission can also require a “gatekeeper” to sell off a business or parts of it, or prevent it from acquiring another firm.

Energy stocks had a great week as worries over tighter energy supplies lifted shares. Apa Corp (US), Exxon Mobil, ConocoPhillips, Chevron, Phillips 66, Occidental Petroleum, Shell, Halliburton, Baker Hughes, and Energy Fuelsare all up this week.

Materials and Mining stocks were mixed this week with copper falling as a stronger USD weighed on metal prices. Yara International, Freeport-McMoRan, CF Industries Holdings were up, while Mosaic, Nucor Corporation, Newmont Mining, Sibanye Stillwater, and Albemarle Corporation are all down this week.

European Stock Indices

Stoxx 600 -0.85% MTD and +6.92% YTD
DAX -1.29% MTD and +13.06% YTD
CAC 40 -1.68% MTD and +11.13% YTD
IBEX 35 -2.01% MTD and +13.19% YTD
FTSE MIB -2.15% MTD and +19% YTD
FTSE 100 -0.17% MTD and -0.34% YTD

European stocks fell this week, heading for their longest losing streak since 2018 as the economy contracted the most in almost three years. Germany, the bloc’s largest economy, appears to be leading the decline with industrial production continuing to fall and weakening consumer demand suggesting a contraction in Q3 growth.

Other Global Stock Indices 

MSCI World Index -0.32% MTD and +12.98% YTD
Hang Seng +0.37% MTD and -6.73% YTD

Currencies

The USD strengthened this week against major currencies with the dollar hitting its highest in six months on Wednesday after stronger-than-expected US services sector data suggested that inflation pressures remain, causing a rise in US yields. The USD was also supported by global growth concerns as the Eurozone and China saw further signs of falling business activity and oil jumped on Russia and Saudi Arabia’s production cut promises. Sterling hit a near three-month low against the USD on Wednesday. The GBP is +3.32%YTD but -1.37% for the month against the USD. The EUR is +0.19% YTD but -1.10% for the month against the USD.

Cryptocurrencies

Bitcoin -1.40% MTD and +54.86% YTD
Ethereum -1.26% MTD and +35.88% YTD

Cryptocurrencies came under pressure this week due to a strengthening USD and rising yields as data emerged of a still resilient US economy reducing the need for the Fed to consider easing monetary policy. However, the Financial Accounting Standards Board’s (FASB) decision to approve a rule dictating that public and private companies with crypto on their balance sheets use fair-value accounting when reporting holdings was supportive.

Fixed Income

US 10-year yield to 4.29%.
German 10-year yield to 2.65%.
UK 10-year yield to 4.53%.

US yields rose this week due to a rush of new issuance of corporate debt following the Labour Day holiday. Eurozone yields were up this week after consumer expectations for inflation rose.

The UK’s gilt yields fell after BoE Governor Andrew Bailey's comments to parliament's Treasury Select Committee where he suggested that rates may have peaked.

Commodities

Gold futures to $1,944.20 an ounce.
Silver futures to $23.50 per ounce.
West Texas Intermediate crude to $87.54 a barrel.
Brent crude to $90.66 a barrel.

Oil was up this week as Saudi Arabia and Russia said they would extend voluntary oil cuts to the end of the year. Markets are awaiting US crude inventory data which is anticipated to show a further drawdown. However, there may be some downward pressures emerging due to rising demand concerns related to the uncertain economic outlook for China and rising supplies from Iran.

Gold retreated this week as the USD strengthened and yields climbed as expectations continued to rise for higher-for-longer US interest rates. Global growth concerns demonstrated by falling composite PMIs in the Eurozone and China continued to drive safe-haven flows into the dollar.

Note: As of 5 pm EDT 6 September 2023

Key data to move markets this week

EUROPE 

Thursday: Employment change and GDP.
Friday: German Harmonized Index of Consumer Prices. 
Tuesday: Spanish Harmonized Index of Consumer Prices, Eurozone ZEW Economic Sentiment survey, German ZEW Current Situation and Economic Sentiment surveys.
Wednesday: Eurozone Industrial Production.
Thursday: ECB Monetary Policy Decision Statement and Press Conference.

UK

Thursday: Bank of England Monetary Policy Report Hearings.
Tuesday: Average earnings including bonus, Average earnings excluding bonus, Claimant Count Change, Claimant Count Rate, Employment Change, and ILO Unemployment Rate.
Wednesday: GDP, Industrial Production, and Manufacturing Production.

US

Thursday: Initial jobless claims, Nonfarm productivity, and Unit labour costs.
Wednesday: CPI, CPI ex-Food and Energy, and Monthly Budget Statement.
Thursday: Initial jobless claims, Philadelphia Fed Manufacturing Index, PPI, and Retail Sales.

China:

Saturday: CPI and PPI.

Global Macro Updates

Mixed messages for the Fed? The Institute for Supply Management (ISM) said on Wednesday its non-manufacturing PMI rose to 54.5 last month, the highest reading since February and up from 52.7 in July. However, the Fed’s Beige Book said economic growth was modest during July and August. Growth in labour cost pressures was elevated, often exceeding expectations during the first half of the year. New orders also firmed and businesses paid higher prices for inputs. The labour market remains resilient with nonfarm payrolls growing 187,000 in August despite a rise in the unemployment rate to 3.8%. Higher input prices, a still relatively albeit cooling labour market and rising labour cost pressures will complicate the decision for Fed policymakers. Fed Bank of Boston President Susan Collins said on Wednesday that policymakers will need to be patient as they assess economic data to figure out their next steps and that further tightening may still be required.

The Fed is widely expected to leave its benchmark interest rate in the current 5.25%-5.50% range during its 19-20 September meeting.The difficulty for policymakers is that monetary policy transmission mechanisms work with long and variable lags. Therefore the full effects of the Fed’s aggressive rate hiking cycle may not yet be seen. This means that even if the Fed holds in September, there may be another hike before the end of 2023 if core inflation remains too high.

Don’t bet against the ECB. Due to deteriorating economic activity, with Eurozone Composite PMI falling at its fastest rate in nearly three years and Germany industrial production falling by 0.8% in July compared to June, and inflation expected to remain at July’s 5.3%, markets are anticipating that the ECB will hold on rates at its next meeting on 14 September. However, as noted by Bloomberg News, Dutch, French and German central bank chiefs said the Governing Council's decision was still open. Dutch central bank governor Klaas Knot was quoted as saying investors may be underestimating the chances of a rate hike and that the decision would be "a close call." French Central bank governor Francois Villeroy de Galhau said, "Our options are open at this Council as at the following meetings. We are close, very close to the peak in our interest rates, on the point where we could consider cutting them." The Bundesbank’s President Joachim Nagel said next week's decision would depend on the ECB's new economic projections and that rate cuts were not imminent in any case. " Meanwhile, the OECD has warned in its survey of the European economy that risks to inflation remain “skewed to the upside” and measures of core price increases appear “sticky.” It also said the need to anchor anticipations with tough policy may outweigh concerns that higher borrowing costs will hurt economic output.

“The ECB should stay determined to bring inflation back to target in a timely manner to prevent current high inflation from becoming entrenched in expectations,” the OECD said. “The ECB needs to keep raising interest rates for as long as needed to put inflation back on a sustainable path toward the 2% target.”

Will the BoE hold? BoE governor Andrew Bailey told MPs that "I think we are much nearer now to the top of the cycle. And I'm not therefore saying we're at the top of the cycle because we've got a meeting to come. But I think we are much nearer to it on interest rates on the basis of current evidence.” However, he stressed the central bank was still keeping its options open. He said British inflation was heading for a further marked fall but it was not yet clear how much that would reduce the pace of wage growth, which recently hit a record high 5.5% when it meets on 21 September. 

This article is provided to you for informational purposes only and should not be regarded as an offer or solicitation of an offer to buy or sell any investments or related services that may be referenced here.

While every effort has been made to verify the accuracy of this information, EXT Ltd. (hereafter known as “EXANTE”) cannot accept any responsibility or liability for reliance by any person on this publication or any of the information, opinions, or conclusions contained in this publication. The findings and views expressed in this publication do not necessarily reflect the views of EXANTE. Any action taken upon the information contained in this publication is strictly at your own risk. EXANTE will not be liable for any loss or damage in connection with this publication.

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