Is it the right time for a pause?

• 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 -0.99% MTD and +40.29% YTD
Dow Jones Industrial Average -0.22% MTD and +4.52% YTD
NYSE -0.46% MTD and +4.89% YTD
S&P 500 -1.02% MTD and +16.21% YTD

Mega caps: A mixed week for the mega caps with Apple once again down as the market seemed less than impressed by its latest gadget releases. Nvidia is also down this week despite announcing AI partnerships with Indian conglomerates Reliance Industries and Tata Group to develop cloud infrastructure and language models, as well as generative applications. The growth stock giants Alphabet, Amazon, Meta Platforms, Tesla and Microsoft are all up this week. However, there may be increasing pressure on Alphabet, Amazon, Meta Platforms and Microsoft, as, according to Bloomberg news, a group of lawmakers led by Massachusetts Senator Ed Markey and Washington Representative Pramila Jayapal have written a letter to the chief executives of these and 5 other companies about their use of AI ghost staff and their working conditions.

Energy stocks had a mixed week as markets weighed the slowing growth forecast in China against falling supply from OPEC. Apa Corp (US) and Chevron are down while Exxon Mobil, Marathon Petroleum, ConocoPhillips, Phillips 66, Occidental Petroleum, Shell, Halliburton, and Energy Fuels are all up this week.

Materials and Mining stocks were mixed this week as copper, aluminium and zinc all rose. Yara International, Freeport-McMoRan, Nucor Corporation, and Albemarle Corporation are all down this week while CF Industries Holdings, Mosaic, Newmont Mining, and Sibanye Stillwater are all up this week.

European Stock Indices

Stoxx 600 -0.93% MTD and +6.84% YTD
DAX -1.84% MTD and +12.83% YTD
CAC 40 -1.29% MTD and +11.57% YTD
IBEX 35 -0.86% MTD and +14.32% YTD
FTSE MIB -1.21% MTD and +20.14% YTD
FTSE 100 +1.17% MTD and +1.00% YTD

According to LSEG I/B/E/S data, second quarter earnings are expected to decrease 5.6% from Q2 2022. Excluding the Energy sector, earnings are expected to increase 10.5%. Second quarter revenue is expected to decrease 6.0% from Q2 2022. Excluding the Energy sector, revenues are expected to increase 0.6%. Of the 290 companies in the STOXX 600 that have reported earnings to date for Q2 2023, 52.2% reported results exceeding analyst estimates. In a typical quarter 54% beat analyst EPS estimates.

Other Global Stock Indices 

MSCI World Index -0.94% MTD and +12.28% YTD
Hang Seng -2.03% MTD and -8.96% YTD

Currencies

The USD once again strengthened this week against major currencies. Sterling edged down this week after it was revealed that the UK economy contracted sharply in July as GDP shrank 0.5% from June, below expectations for a 0.2% contraction. The GBP is +3.20% YTD but -1.49% MTD against the USD. The EUR is +0.23% YTD but -1.05% MTD against the USD as higher inflation in the US, rising yields and a still resilient US economy may pave the way for a further Fed rate hike this Autumn and markets await today’s ECB rate announcement.

Cryptocurrencies

Bitcoin +0.76% MTD and +58.17% YTD
Ethereum -2.75% MTD and +22.83% YTD

Cryptocurrencies may start to feel the effects of the decision by Judge John Dorsey of the US Bankruptcy court for the District of Delaware, who approved the sale of $3.4 billion of failed crypto-currency exchange FTX’s crypto assets. According to Coinmarketcap.com, the selling of tokens will be limited to $100 million each week, with the possibility of increasing it to $200 million for individual tokens, subject to explicit court authorization.

Fixed Income

US 10-year yield to 4.25%.
German 10-year yield to 2.65%.
UK 10-year yield to 4.35%.

US yields are starting to reflect the fact that the US is slowing. The tight labour market that has kept the Fed on edge is increasingly showing signs of weakening. Employment growth is falling, wage growth is moving at a slower pace, there are fewer job openings, and the quits rate is lower. However, with CPI jumping up in August, and core inflation still uncomfortably high for the Fed, the tone is likely to remain hawkish with the possibility of further rate hikes not ruled out.

Commodities

Gold futures to $1,932.50 an ounce.
Silver futures to $23.18 per ounce.
West Texas Intermediate crude to $88.52 a barrel.
Brent crude to $91.88 a barrel.

Oil was up this week as fears about falling supply outweighed an increase in US stockpiles. According to the International Energy Agency (IEA), continuing output cuts by Saudi Arabia and Russia will mean a substantial market deficit through the fourth quarter. Demand will eclipse supply by 1.2 million barrels a day on average during the second half of this year. The bullish outlook added momentum to a rally that started in mid-June. US crude oil inventories rose by 4 million barrels in the week to 8 September, the Energy Information Administration said on Wednesday.

Gold once again eased this week. The continued strength of the USD and the now widely accepted “higher for longer scenario” are weighing on gold. However, growing expectations that the Fed will leave interest rates unchanged at its policy meeting next week may limit the downside for gold depending on the projected Fed policy trajectory into 2024.

Note: As of 5 pm EDT 13 September 2023

Key data to move markets this week

EUROPE 

Thursday: ECB Monetary Policy Decision Statement and Press Conference.
Friday: Ecofin meeting.
Saturday: Ecofin meeting.
Monday: German Bundesbank Monthly report.
Tuesday: Eurozone Core Harmonized Index of Consumer Prices and Eurozone Harmonized Index of Consumer Prices.
Wednesday: German PPI.
Thursday: Eurozone Consumer Confidence.

UK

Friday: Consumer Inflation Expectations.
Wednesday: CPI, PPI Core Output, PPI, and RPI.
Thursday: Bank of England Interest Rate Decision, Monetary Policy Summary, Bank of England minutes, and GfK Consumer Confidence.

USA

Thursday: Initial jobless claims, PPI, Business Inventories, and Retail Sales.
Friday: Industrial production, University of Michigan Consumer Sentiment Index, UoM 5-year Consumer Inflation Expectations, and Empire Manufacturing index.
Tuesday: Building Permits and Housing Starts.
Wednesday: Federal Reserve Interest Rate Decision, Monetary Policy Statement, and FOMC Economic Projections.
Thursday: Initial jobless claims, Philadelphia Fed Manufacturing Survey, and Existing Home Sales Change.

CHINA

Friday: Industrial Production and Retail Sales.
Wednesday: PBoC Interest Rate Decision.

Global Macro Updates

Will an uptick in inflation alter the Fed’s course? US CPI was up 0.6% in August. In the 12-months through August, CPI rose 3.7%, the fastest pace in 14 months in August, and while that was driven largely by volatile energy costs with gasoline the biggest contributor to the rise, core inflation, which excludes food and energy costs, was also up, rising 0.3% from July, the first acceleration in six months. It was up 4.3% on an annual basis. Although, according to the CME Watch tool, there is a 97% chance of the Fed holding rates at its meeting next week, the stickiness in services inflation, which rose 0.4% from July, the fastest in 5 months, means that the possibility for a rate rise in November remains. Fed Chair Jerome Powell said in August at the Kansas City Fed’s Economic Symposium at Jackson Hole, Wyoming, that inflation remained too high, and that the Fed was prepared to tighten more if necessary.

Will the ECB hold? The ECB will decide today whether to raise its key interest rate another 25 basis points to a record peak of 4% or take a break from its tightening cycle, which has seen nine consecutive rate hikes. Inflation in the Eurozone still remains more than double its 2% target with inflation at 5.3% in August and is not expected to slow to the target level for another two years. But economic growth is slowing with the European Commission revising its growth expectations in the Eurozone downwards to 0.8% in 2023 (from 1.1%) and 1.3% in 2024 (from 1.6%). A recession in the Eurozone may even be a possibility as Germany, its former powerhouse, has seen further drops in its industrial production, falling 0.8% in July. Growth in lending to eurozone companies slowed as well, growing only 2.2% year-on-year in July after a 3.0% reading a month earlier, while household credit growth slowed to 1.3% from 1.7% in June. Retail sales are also down, falling by 0.2% in July from June and were 1.0% lower year-on-year. Given the lagged effect of interest rates transmission, there is the risk that further tightening could drag the Eurozone lower. The ECB must also consider the economic divergence within the Eurozone and how a further rate rise could exacerbate disparities. President Christine Lagarde has said the ECB’s meeting will be between a 10th straight increase and a pause. At the end of the day, it may prove to be about getting the market to believe the central bank messaging. Money markets are pricing in a two-thirds chance the ECB raises interest rates by a quarter of a percentage point.

China’s European car chase. China has reacted to the EU’s anti-subsidies investigation into China’s electric vehicle (EV) industry by saying, “It is a naked protectionist act that will seriously disrupt and distort the global automotive industry chain and supply chain, including the EU, and it will have a negative impact on China-EU economic and trade relations.” As noted by the Financial Times, China’s ministry of commerce said it would protect the “legitimate rights'' of its companies and reminded the EU of the strong presence and long history of European producers in the Chinese automotive market. These remarks followed European Commission President Ursula von der Leyen saying on Wednesday that the global market is overrun with cheap Chinese cars with prices kept “artificially low by huge state subsidies.” According to Refinitiv, China's share of the European EV market has roughly doubled to around 8% this year from 2022 due to state-backed Chinese manufacturers cutting prices to stimulate overseas sales while domestic demand stalls. However, although there is evidence that China does provide tax breaks, funds for plant construction, low interest loans, capped energy costs and subsidies to help consumers buy their products, the EU also offers support to its EV industry. According to Bloomberg news, the probe could take up to nine months and could lead to tariffs close to the 27.5% level already imposed by the US on Chinese EVs.

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