MONDAY 07 TO FRIDAY 11 AUGUST 2023

(Excerpts from Briefing.com, tradingeconomics.com, marketwatch.com, CNBC )

Mega-Caps Falter In Divergent Week

The Dow Jones Industrial Average eked out a slim gain while the S&P 500, Nasdaq, and Russell 2000 all registered losses. Trading this week reflected a consolidation mindset that has taken root in August after a huge, and nearly unabated, run for the stock market since late March. The S&P 500 for its part closed below the 4,500 level on Friday.

This week also featured some sessions with below-average volume at the NYSE, reflecting a lack of participation on this first week full week of August. 

There were a number of news catalysts that gave market participants an excuse to take money off the table this week. Global growth concerns were piqued  by weaker-than-expected trade data for July and much weaker than expected new yuan loan growth for July out of China, along with a warning from Chinese property developer Country Garden Holdings that it anticipates losing nearly $8 billion in the first half of 2023.

Also, a slate of U.S. economic data was mixed in aggregate. Total CPI and core-CPI were both spot-on with consensus estimates while the Producer Price Index for July was hotter than expected at the headline level, but not really too hot after accounting for downward revisions for June. Initial jobless claims, meanwhile, continue to run well below recession levels. 

Earlier in the week, Moody’s downgraded the credit ratings for 10 smaller U.S. banks and put some bigger banks on watch for downgrade, which also contributed to the consolidation mindset. 

On the earnings front, Dow component Walt Disney (DIS) was a winning standout, jumping 3.2% on the week after reporting results, while UPS (UPS) sank after it issuing disappointing FY23 revenue outlook, citing weakening e-commerce demand and an expectation for lower volumes following the improved labor contract for the lowered guidance.

The S&P 500 energy (+3.5%) and health care (+2.5%) sectors led the outperformers while the information technology sector (-2.9%) saw the largest decline.

Treasury yields continued to climb this week, acting as another limiting factor for equities. The 2-yr note yield rose 11 basis points to 4.89% and the 10-yr note yield rose eleven basis points to 4.16%.

Below are truncated summaries of daily action:

Monday:

There wasn’t a lot of trading action on Monday. Most of the work was done at the open. After that, the broader market fought to retain its gains, and add to them, on a day that was light on market-moving corporate news, light on economic data, and light on volume.

Monday featured buy-the-dip activity that favored blue chip stocks and value plays, which, in some cases, were one in the same. The end result produced a day of healthy gains for the Dow Jones Industrial Average, which saw only three of its 30 components end in negative territory, and the S&P 500 closing above 4,500 and settling near its highs for the session.

The only economic release on Monday was the June Consumer Credit Report, which showed a $17.9 billion increase in consumer credit (consensus $13.0 billion) that was driven entirely by an increase in non-revolving credit. Revolving credit saw its first decline since April 2021.

Tuesday:

Tuesday’s trade had a negative bias following Monday’s gains. The major indices all closed near their highs of the session, albeit still sporting losses, after bouncing back from their worst levels of the day. The S&P 500, Dow Jones Industrial Average, and Nasdaq Composite had been down as much as 1.2%, 1.3%, and 1.6%, respectively, at their morning lows, but ultimately finished down just 0.4%, 0.5%, 0.8%.

Losses were driven by indiscriminate selling that seemed consistent with normal consolidation efforts. There was comparable weakness by market cap and factor, along with losses in eight out of of 11 S&P 500 sectors and 21 of 30 Dow components.

Concerns about global growth created an excuse for market participants to take some money off the table. Those concerns were stirred by weaker than expected trade data out of China for July that featured a 14.5% year-over-year decline in exports and a 12.4% year-over-year decline in imports. The latter marked the fastest contraction in over two years.

Adding onto those concerns, UPS (UPS) issued disappointing FY23 revenue outlook, citing weakening e-commerce demand and an expectation for lower volumes following the improved labor contract for the lowered guidance.

Weak bank stocks also contributed to the negative bias after Moody’s downgraded the credit ratings for 10 smaller U.S. banks and put some bigger banks on watch for downgrade. The SPDR S&P Regional Banking ETF (KRE) fell 1.3% and the SPDR S&P Bank ETF (KBE) fell 1.3%.

Reviewing Tuesday’s economic data:

• July NFIB Small Business Optimism Survey 91.9 (consensus 92.1); Prior 91.0
• June Trade Balance -$65.5 bln (consensus -$65.1 bln); Prior was revised to -$68.3 bln from -$69.0 bln
  • The key takeaway from the report is the lack of growth in exports and imports, which is indicative of weaker demand overall at home and abroad.
• June Wholesale Inventories -0.5% (consensus -0.3%); Prior 0.0%

Wednesday:

The stock market closed with losses again. The major indices had been following a similar form to Tuesday’s trade and looked poised to close on an upswing after rebounding from their lows. The market turned sharply lower ahead of the close, however, and settled near the worst levels of the day.

On Tuesday, the S&P 500 traded down to 4,464 before reversing and finishing the session at 4,499. On Wednesday, the S&P 500 traded down to 4,461 before reversing and stopping short of the 4,500 level, which precipitated the late selling interest. The deterioration was broad and orderly with many stocks participating, but mega cap losses had an outsized impact on index performance.

The Invesco S&P 500 Equal Weight ETF (RSP) was up 0.3% around 3:00 p.m. ET, but closed with a 0.3% loss; the Vanguard Mega Cap Growth ETF (MGK) was down 0.5% around 3:00 p.m. ET, but closed with a 1.1% loss; and the market-cap weighted S&P 500 was down 0.1% around 3:00 p.m. ET, but closed with a 0.7% loss.

Reviewing Wednesday’s economic data:

• The weekly MBA Mortgage Applications Index declined 3.1% with purchase applications falling 3.0% and refinance applications dropping 4.0%.
• The weekly EIA crude oil inventories showed a build of 5.85 million barrels following last week’s draw of 17.1 million barrels.

Thursday:

The major indices started the session on a strong note, but closed the session flattish in another lightly traded affair. Solid buying interest right out of the gate was fueled by some buy-the-dip action and pleasing economic data that featured the July Consumer Price Index and weekly jobless claims.

The S&P 500, Nasdaq, and Dow Jones Industrial Average were up 1.3%, 1.6%, and 1.3%, respectively, at their morning highs. That move took the S&P 500 above the 4,500 level, which stood as resistance on Thursday.

The initial positive momentum dissipated, though, as mega caps faded from their highs and the 10-yr note yield, which fell to 3.95% in response to Thursday morning’s economic data, climbed to 4.08% after a weak 30-yr bond auction. The S&P 500 ultimately moved back below 4,500 and closed near its lows for the day.

Reviewing Thursday’s economic data:

• Total CPI was up 0.2% month-over-month in July, as expected, and core-CPI, which excludes food and energy, was also up 0.2% month-over-month, as expected. On a year-over-year basis, total CPI was up 3.2%, versus 3.0% in June, and core CPI was up 4.7%, versus 4.8% in June.
  • There were several key takeaways from the report: (1) there were no hawkish surprises as total and core CPI were spot-on with consensus estimates (2) the shelter index accounted for more than 90% of the increase in the all items index and (3) the all items index less shelter was up just 1.0% year-over-year on an unadjusted basis.
• Initial jobless claims for the week ending August 5 increased by 21,000 to 248,000 (consensus 230,000) while continuing jobless claims for the week ending July 29 decreased by 8,000 to 1.684 million.
  • The key takeaway from the report is that, while initial claims are still running well below recession-like readings, they moved in a direction in the latest week to corroborate the thinking that there is some softening in the labor market, which is what the Fed expects to see (and hopes to see).
• The weekly EIA Natural Gas Inventories showed a build of 29 bcf versus a build of 14 bcf last week.
• The July Treasury Budget showed a deficit of $220.8 billion compared to a deficit of $211.1 bln in the same period a year ago. The deficit in July resulted from outlays ($496.9 billion) exceeding receipts ($276.2 billion). The Treasury Budget data is not seasonally adjusted so the July 2023 deficit cannot be compared to the June 2023 deficit.
  • The key takeaway from the report is that the budget deficit continues to swell. It stands at $1.61 trillion fiscal year-to-date versus $1.375 trillion for all of fiscal 2022. Notably, net interest expenditures in July exceeded national defense spending.

Friday:

The stock market closed out the first full week of August on a mixed note in a lightly traded session. Market rates jumped in response to a hotter than expected PPI report for July, which created an excuse for investors to continue consolidation efforts that started this month following the stellar start to the year.

The 2-yr note yield, at 4.80% just before the release, rose six basis points to 4.89%. The 10-yr note yield, at 4.08% just before the release, rose nine basis points to 4.17%.

Weak mega cap stocks acted as a drag on the major indices, leading the S&P 500 and Nasdaq to close with losses while the Dow Jones Industrial Average registered a gain. The Vanguard Mega Cap Growth ETF (MGK) fell 0.6% while the Invesco S&P 500 Equal Weight ETF (RSP) closed flat.

The S&P 500 declined 0.1%; the Nasdaq Composite fell 0.7%; and the Dow Jones Industrial Average rose 0.3%. Market breadth also reflected mixed action under the index surface. Advancers led decliners by a slim margin at the NYSE while decliners led advancers by a 4-to-3 margin at the Nasdaq.

Reviewing Friday’s economic data:

• July PPI 0.3% (consensus 0.2%); Prior was revised to 0.0% from 0.1%; July Core PPI 0.3% (consensus 0.2%); Prior was revised to -0.1% from 0.1%
  • The key takeaway from the report is that wholesale inflation has come down sharply from its peak in 2022, although with the recent increase in oil and gasoline prices, there will be some concern that further improvement is going to be delayed.
• August Univ. of Michigan Consumer Sentiment – Prelim 71.2 (consensus 70.9); Prior 71.6
  • The key takeaway from the report is that it reflected little overall change in sentiment, due in part to largely steady inflation expectations, as year-ahead and five-year expectations decreased by ten basis points apiece.

• Dow Jones Industrial Average +0.6% from last week, +6.4% YTD
• S&P 500 -0.3% from last week, +16.3% YTD
• Nasdaq Composite -1.9% from last week, +30.4% YTD
• Russell 2000 -1.7% from last week, +9.3% YTD

Hot PPI Fuels Friday Slide

U.S. Treasuries finished the first full week of August on a lower note with the belly leading the market lower after the release of a hotter than expected PPI report for July. The trading day started with slim losses that were extended after the release of the July PPI report, which showed hotter than expected headline (actual 0.3%; consensus 0.2%) and core PPI (actual 0.3%; consensus 0.2%). The report was coupled with downward revisions to headline (to 0.0% from 0.1%) and core PPI (to -0.1% from 0.1%) for June, but core PPI accelerated to 0.8% yr/yr from 0.2% in June, representing the first sequential increase in 13 months.

The post-data selling was met with a brief mid-morning rebound, but 10s and 5s eventually continued to fresh lows while the long bond outperformed, finishing just below its opening mark. This week’s action had no impact on the 2s10s spread, which remained at -73 bps, but the 5s30s spread inverted again, ending the week at -3 bps.

Bond Yields after the close on Friday 11 August:

• 3-mth: Unchanged at 5.54% (Unchanged for the week)
• 2-yr: +7 bps to 4.89% (+11 bps for the week)
• 5-yr: +10 bps to 4.31% (+16 bps for the week)
• 10-yr: +7 bps to 4.16% (+11 bps for the week)
• 30-yr: +3 bps to 4.27% (+6 bps for the week)

The yield curve rose in Week 32, flattening the 3m/10y inverted spread but widening the 10y/FFR inversion by 15 bps. 

10-YEAR/2-YEAR

The inverted 2-year/10-year yield spread remained unchanged at -73 bps from -73 bps the previous week on Friday 28 July 2023.

• The current inversion of the 2/10 which began on Tuesday 5 July 2022 is now two-hundred and seventy-nine sessions old, making it the longest period of inversion in more than 45 years.
• The current inverted 2y/10y spread at -107 bps, printed on Wednesday 08 March 2023, surpassed the previous widest spread printed on Tuesday 07 March 2023 at -103 bps. 
• One needs to go back all the way to October 1981 to see a steeper inversion than the current one.

The inversion of the 2/10 spread has heralded economic recessions/slow-downs, six months to a year ahead of almost every historical recession. 

10-YEAR/3-MONTH

The inverted 3-month/10-year yield spread narrowed to -138 bps from -149 bps the previous week.

• The inverted 3m/10y spread that began on 25 October, is now two hundred sessions old, making it the longest inversion more than 45 years.
• -189 bps printed on Thursday 01 June and Thursday 04 May is the widest inverted spread on the 3m/10y, surpassing the -188 bps printed on Wednesday 01 June and Wednesday 03 May 2023.
• -189 bps surpasses all the previous inverted 3m/10y spreads over the past 50+ years.

Historically, when the 3-month maturity yields more than the 10-year maturity with a minimum holding period of 10 straight days, a recession followed 6 to 18 months later with most of those recessions being Hard Landings.

10-YEAR/FED FUNDS RATE

The inverted 10-year/Federal Funds Rate spread narrowed to -124 bps on Thursday 10 August from -128 bps the previous Friday 04 August 2023.

• The current 10y/FFR inversion which began on Tuesday 15 November 2022 is one hundred and eighty-four sessions old.
• The -171 bps spread on Thursday 04 May 2023 surpasses the -153 bps spread printed on Wednesday 05 and Thursday 06 April 2023 as the widest of the current inversion in over 22 years.
• The current inversion has surpassed the previous two inversions;
  • May 2019 to March 2020
  • July 2006 to January 2008
• One needs to go back to 02 January 2001 for a deeper inversion when the 10-year/FFR was at -175 bps.
• By my estimation, the inverted 10y/FFR spread would have narrowed to -117 bps on Friday 11 August 2023.

Since 1970, whenever the 10-year maturity yield fell below (inverted) against the Federal Funds Rate, a recession followed about a year later accompanied by a downturn in the financial markets. Over recent years, the holding period to qualify this inversion has varied widely, ranging between a couple of weeks to three quarters.

DXY Rebounds, Prints 4th Weekly Gain

The US Dollar Index rebounded to close the week above 102.8, its highest level in five weeks after a bigger-than-expected rise in producer prices countered growing expectations that the Federal Reserve won’t raise rates again. Earlier data showed that the annual inflation rate in the US rose to 3.2% last month from 3% in June, below forecasts of 3.3%; while core inflation edged down to 4.7% from 4.8%, also less than expectations of 4.8%. San Fransisco Fed Bank Mary Daly said the latest CPI numbers do not mean that the central bank can declare a win over inflation, adding that the labor market is not yet balanced. The DXY booked another gain for the fourth straight week, supported by overall strong US economic data and renewed worries about the health of the country’s banking sector and stalling economic recovery across the mainland. Meantime, geopolitical concerns reemerged after Washington banned certain US technology investments in China.

• EUR/USD: Lower by -0.6% to 1.0945 from 1.1008 the previous week, +6.7% YoY
• GBP/USD: Lower by -0.4% to 1.2693 from 1.2751 the previous week, +4.6% YoY
• USD/JPY: Higher by +2.3% to 144.94 from 141.76 the previous week, +8.6% YoY
• USD/CNY: Higher by +1.0% to 7.2574 from 7.1879 the previous week, +7.7% YoY
• USD/SGD: Higher by +0.9% to 1.3520 from 1.3392 the previous week, -1.4% YoY

Japanese Yen Hovers Below 145

The Japanese Yen lingered below the psychological key of 145 on Friday, nearing its lowest since June 30th, amid thin liquidity as Japan was on holiday on Friday and after data this week showed that producer prices in the country rose the least in over two years and slowed for the 7th straight month in July. During its July meeting, the Bank of Japan kept its short-term interest rate target at -0.1% but loosened its yield curve control. Governor Kazuo Ueda insisted that the policy tweak was not a step toward policy normalization.

Euro Weakens after US Price Data

The Euro edged lower to below $1.1 after the latest inflation data for the US raised bets the Fed will need to keep interest rates higher for longer. Producer prices came above market forecasts due to a rebound in services cost while headline and core consumer inflation slowed more than expected, but remained well above the Fed’s target. The odds for a 25bps rate hike in November by the Fed currently stand at about 32%. In Europe meanwhile, investors are divided on whether the ECB will deliver another interest rate increase. Data showed that core inflation in the Euro Area did not slow down in July as anticipated while economic data specially for Germany have been pointing to a weak outlook. At the same time, in tis July meeting, the ECB dropped guidance that borrowing costs would keep rising, with President Lagarde saying the September outcome will be either a pause or a hike.

Commodity prices had a mixed week as Energy gained while Metals and Agri fell.

The broad-based Bloomberg Commodity Index closed lower at 105.59, down -0.3% from 105.93 in Week 31, 2023. Year-to-date, the index is down -6.4%.

Wednesday 31 May 2023’s close at 97.96 is the lowest close since Thursday 25 May 2023’s close at 99.29, setting a new 52 week low close. It is also the lowest close since 31 December 2021 at 99.17.

Wednesday 31 May 2023 saw the index print a 52-week intraday low at 97.69 at 10.00am ET, surpassing the previous 52-week intraday low on Thursday 25 May at 98.79.

The index touched an intraday high of 138.16 on Wednesday 08 June 2022 and printed its highest close this year on Thursday 09 June 2022 at 136.61, +1.20% higher than its previous high close on 18 April 2022 at 134.99. 

Crude Oil Holds Recent Advance

Crude oil futures held near their respective recent highs as investors assess the global economy, interest rates, and IEA and OPEC outlooks. The IEA signaled potential declines in worldwide oil stockpiles throughout 2023, potentially pushing prices even higher. Nonetheless, the agency foresees a deceleration in demand growth during 2024 to about 1 million barrels per day (bpd), down by 150,000 bpd from their earlier prediction. OPEC indicated an expectation for global oil demand to grow by 2.25 million bpd in 2024, slightly less than the projected 2.44 million bpd increase for the current year. Furthermore, Saudi Arabia and Russia output cuts, as well as Russia-Ukraine tensions have been supporting prices. In addition, US July consumer prices sparked speculation of a potential slowdown in interest rate hikes by the Federal Reserve. However, China’s mixed economic data raise uncertainty about its future oil demand. 

WTI crude futures settled at $83.19 per barrel on Friday, holding close to a nine-month high of nearly $85 while Brent futures settled at $86.81 per barrel, holding close to a six-month high of $88.  

The settlement price spread between WTI and Brent increased by +$0.20 to $3.62 from $3.42 the previous week on Friday 04 August 2023.

Baker Hughes total total U.S. rig count -5 at 654 (Prior: -5).

• WTI settled higher at $83.19/barrel from $80.58 the previous week (+3.1% YTD)
• Brent settled higher at $86.81/barrel from $84.41 the previous week (+0.9% YTD)
• Nat Gas settled higher at $2.77/MMBtu from $2.64 the previous week (-31.7% YTD)

Copper Slides to 1-Month Low

Copper futures sank to hold above the $3.7 per pound level, the lowest in over one month, as new data magnified concerns over China’s economic recovery and further pared the outlook for base metal demand in the world’s top consumer. New yuan loans rose by CNY 346 billion in July, less than half of market expectations to point to the lowest demand for credit since 2009, magnifying worries after the sharp decline in trade turnover and another round of contractionary manufacturing PMI in the period. Despite the series of concerning data, markets continued to be skeptical about economic support from Beijing as public bodies refrained from signaling that significant stimulus could be passed. Still, the decline was limited by evidence of lower supply, risking wide shortages as economies transition to copper-intensive green technologies. Codelco’s output sank by 14% in the first half of the year. Additionally, the latest data showed that global inventories are 26% down year-to-date.

Gold Closes Down For A Third Week

Gold held below the $1,950 an ounce mark on Friday, close to a one-month bottom recorded in the prior session, weighed down by stronger dollar and higher Treasury yields as markets remained skeptical over the Fed’s course of action following the latest economic releases. Although July’s US CPI numbers were cooler than expected, producer inflation picked up and beat forecasts in the period, supporting the case to keep interest rates higher. Several Fed officials already signaled that there was more work to do to reign in price pressures, increasing the opportunity cost of holding non-interest-bearing precious metals. The gold booked its third weekly decline (-1.1%).

Wheat Breaks Below 2-Month Low

Wheat futures retreated past the two-month low of $6.3 touched on August 3rd as the outlook of higher production from the world’s top producers offset uncertain supplies from elsewhere. The world’s top exporter, Russia, signaled another bumper crop for the current marketing year, overcoming previous concerns of dryness in Siberia. In the meantime, the United States exported 565.7 thousand tonnes of wheat on the week ending August 3rd, the highest so far in the current marketing year, pointing to an ample harvest as key farms in the Midwest recovered from earlier droughts. On the other hand, supply from Ukraine remained uncertain as investors displayed skepticism over the country’s trade corridor for vessels exporting grain out of the Black Sea, citing heightened risks of military hostility from Russian forces. Additionally, increasing food inflation in India drove the country to consider halting tariffs on wheat, limiting access from key clients.

Corn Extends Losses, Hitting 31-Month Low

Corn futures sank to $4.72 per bushel on August 11th, a level not seen since December 2020, following the two-year low of $4.76 touched on July 12th as improving weather continue to weigh on the market. In the US, regular showers and moderate heat in August have eased concerns about crop stress after U.S. crops faced endured drought and high temperatures earlier in the summer. Meanwhile, U.S. government predicts that dry conditions early in the growing season would mean smaller harvests of both this fall. Still, the corn crop would be the second biggest on record due to large acreage and as growing conditions improved during the key development month of July. The U.S. is expected to be the No. 2 exporter of soy and corn, after Brazil, this year.

• Corn settled lower at $4.87/bushel, from $4.97 the previous week (-28.2% YTD)
• Wheat settled lower at $6.27/bushel, from $6.33 the previous week (-20.7% YTD)
• Soyabeans settled lower at $13.07/bushel, from $13.33 the previous week (-14.3% YTD)

USDA WASDE – July 12, 2023

WHEAT: Changes this month to the 2023/24 U.S. wheat outlook increase supplies and domestic use, leave exports unchanged, and increase ending stocks. Supplies are raised on larger production, which is up 74 million bushels to 1,739 million, on higher harvested area and yields. Updates to the 2023/24 global wheat outlook reduce supplies, increase consumption, lower exports, and decrease stocks compared with last month.

COARSE GRAINS: This month’s 2023/24 U.S. corn outlook is for fractionally higher supplies and ending stocks. Corn beginning stocks are lowered 50 million bushels, as greater feed and residual use for 2022/23 more than offsets reductions in corn used for ethanol and exports. Corn production for 2023/24 is forecast up 55 million bushels as greater planted and harvested area from the June 30 Acreage report is partially offset by a 4.0-bushel reduction in yield to 177.5 bushels per acre. Global coarse grain production for 2023/24 is forecast 0.1 million tons higher to 1,513.4 million. This month’s 2023/24 foreign coarse grain outlook is for lower production and use, and slightly smaller stocks relative to last month.

Palm Oil Futures Remain Weak

Malaysian palm oil futures settled around MYR 3,700 per tonne for the third session in a row, staying near their lowest level in six weeks after touching near MYR 4,000 in early July while heading for a near 4% plunge for the week, amid weakness in rival vegetable oils. Meantime, Malaysia’s end-July palm oil inventories rose to a five-month peak on higher production, data from the country’s palm oil board showed Thursday, but missed forecasts as exports grew faster. Separately, readings from cargo surveyor Intertek Testing Services and independent inspection company AmSpec Agri showed that shipments of Malaysian palm oil products could rise between 5.9% and 17.5% from August 1-10. Limiting the falls were reports that India, the world’s biggest buyer of edible oils, imported 1.09 million metric tonnes of palm oil in July, nearly 60% more than in June and the highest in seven months.

Baltic Exchange Dry Index Falls for 2nd Day, Posts Weekly Loss

The Baltic Exchange’s dry bulk sea freight index, which measures the cost of shipping goods worldwide, was down for a second day on Friday, falling about 0.7% to an over one-week low of 1,129 points, amid continued weakness in the larger segment. The capesize index, which tracks vessels typically transporting 150,000-tonne cargoes such as iron ore and coal, was down for the fourth straight session, slipping about 5% to 1,592 points. Meanwhile, the panamax index, which tracks ships that usually carry coal or grain cargoes of about 60,000 to 70,000 tonnes, extended gains for the 13th straight session, rising 3.5% to a near three-month high of 1,337 points; and the supramax index added 22 points, or 3.1% at 728 points. The benchmark index posted a small weekly decline of 0.6% for the week. 

• • • • •

Asian Markets 

Markets in the Asia-Pacific were down on Friday but mixed for the week as Hong Kong, China, South Korea and India posted losses for the week while Australia, Japan, Malaysia and Singapore posted weekly gains.  

The Japanese stock markets were closed on Friday for Mountain Day. On Thursday, the benchmark Nikkei 225 Index rose 0.84% to close at 32,474 while the broader Topix Index gained 0.92% to 2,304 on Thursday, reversing losses from earlier in the session as investors prepared for a key US inflation report that could influence the Federal Reserve’s interest rate decision in September. Domestically, investors digested data showing producer prices in Japan rose the least in over two years and slowed for the seventh consecutive month in July. For the shortened week, the index gained 0.9%.

Hong Kong’s Hang Seng index slipped 173.07 points or 0.9% to finish at 19,075.19 on Friday, plunging by 2.4% for the week, as traders were nervous about a property crisis in China after the developer Country Garden Hlds. predicted a multibillion-dollar loss for H1 of the year. Meantime, US equity futures traded in the red after San Francisco Reserve Bank President Mary Daly said the Fed still has “more work to do” to curb sticky inflation, reducing the impact of broadly positive US consumer prices data Thursday. Additionally, signs of renewed Sino-US tensions emerged after President Biden this week narrowly prohibit certain US investments in sensitive technology in China. On the data front, China vehicle sales fell for the first time since January last month, amid a low base last year.

The Shanghai Composite slumped 65.31 points or 2.01% to end at 3,189.25 on Friday after closing higher in the prior session, approaching its lowest level in over two weeks while plunging 3% for the week, pressured by intensifying fears over the impact of a downturn in the Chinese property market after Country Garden Hlds. failed to repay its two US dollar notes by an initial deadline. Meantime, concerns mounted about deteriorating economic recovery in China after the first consumer deflation in more than 2 years, further falls in factory-gate prices and disappointing trade data. Meantime, US stock futures were sluggish, as traders assessed whether the Fed will need to hike interest rates again in September. Limiting the losses were reports that Beijing will allow local governments to raise money to repay their mounting debts.

The S&P/ASX 200 Index dropped 12.80 points or 0.17% to close at 7,344.60 on Friday, snapping three-day gains, as investors were cautious after Fed Bank of San Francisco President Mary Daly said that inflation in the US was still too high and the central bank should do more work. Meantime, Australia’s outgoing central bank chief Philip Lowe suggested that monetary policy may need to be tightened further as CPI remains elevated at 6% mainly due to a further rise in cost of services. Non-energy minerals, consumer non-durables, and utilities weighed the index. Still, the index added 0.3% for the week, supported by hopes that key trading partner China eventually will deliver a big stimulus to spur recovery. Traders now await next week’s releases that include labor data for July, the latest RBA meeting minutes, and Q2 wage prices.

Singapore stocks fall on Friday amid lower
GDP growth, forecast; STI down 0.9%

Singapore stocks ended lower on Friday (Aug 11), after the Republic revised down its gross domestic product (GDP) growth for the second quarter, and narrowed its full-year growth forecast for 2023. The benchmark Straits Times Index (STI) fell 0.9 per cent or 28.65 points to 3,294.28, after 1.1 billion securities worth S$1 billion changed hands. Losers outnumbered gainers 319 to 263. For the week, the STI was down 0.3 per cent.

Singapore’s official full-year growth forecast for 2023 has been narrowed to a range of 0.5 per cent to 1.5 per cent, down from 0.5 per cent to 2.5 per cent, as the external demand outlook for the rest of the year remains weak. This comes as GDP growth for the second quarter was revised downwards to 0.5 per cent on year, from the advance estimate of 0.7 per cent.

KLCI pares earlier losses to end
slightly lower ahead of state elections

• Japan’s Nikkei: CLOSED (+0.9% for the week) +24.5% YTD
• Hong Kong’s Hang Seng: -0.9% (-2.4% for the week) -3.6% YTD
• China’s Shanghai Composite: -2.0% (-3.0% for the week) +3.2% YTD
• India’s Sensex: -0.6% (-0.6% for the week) +7.4% YTD
• South Korea’s Kospi: -0.4% (-0.4% for the week) +15.9% YTD
• Australia’s ASX All Ordinaries: -0.2% (+0.2% for the week) +4.6% YTD
• Malaysia’s FKLCI: -0.1% (+0.8% for the week) -2.6% YTD
• Singapore’s STI: -0.9% (+0.1% for the week) +1.3% YTD

European Stocks End Week Lower

European equity markets fell on Friday, with both the DAX and the STOXX 600 falling about 1.1%, after producer prices for the US rose more than initially expected, raising concerns the Fed will need to keep interest rates higher for longer. Also, the enthusiasm around the US inflation numbers released yesterday faded as the gauge remains well above the central bank target and as San Francisco Federal Reserve Bank President Mary Daly signaled the Fed may not be done yet with fighting rising prices. Concerns about the Chinese economy, particularly the property sector also weighed on investors’ mood. Among single stocks, UBS shares rose 4.7% after the company said that it no longer requires the government guarantee it had obtained to assist its struggling competitor, Credit Suisse. Bechtle added 6.4% after reporting better-than-expected second-quarter results. 

On the week, the DAX lost 0.7% while the pan-European STOXX 600 was little changed.

UK Shares Close Week on Sour Note

Equities in London tumbled 1.25% to close at 7,524 on Friday, erasing gains from the week to its lowest level since mid-July as markets digested better-than-expected growth numbers and assessed their impact on the BoE’s policy outlook. The UK GDP expanded by 0.2% in the second quarter, the sharpest increase in over one year, beating the market consensus of stall. While the data backed expectations that the British economy is set to dodge a recession, it also gave further leeway for the Bank of England to extend monetary tightening in efforts to rein in soaring inflation, pressuring equities in London. Miners led the downturn, lowered yet again over pessimism regarding base metals prices and another bearish session for bullion. 

• U.K.’s FTSE 100: -1.2% (-0.5% for the week) +1.0% YTD
• Germany’s DAX: -1.0% (-0.8% for the week) +13.7% YTD   
• France’s CAC 40: -1.3% (+0.3% for the week) +13.4% YTD
• Italy’s FTSE MIB: -1.1% (-1.1% for the week) +19.3% YTD
• Spain’s IBEX 35: -0.7% (+0.7% for the week) +14.7% YTD
• STOXX Europe 600: -1.9% (-0.0% for the week) +8.1% YTD

• • • • •

WEEK 33 – 14 TO 18 AUGUST 2023

In Week 33, investors will eagerly follow the FOMC minutes release for additional insights into the Fed’s plans for the remainder of the year. In the US, retail sales and industrial production will also be in the spotlight. Elsewhere, the upcoming week is poised to bring a flurry of significant economic releases, including China industrial production and retail sales; GDP and inflation for the Eurozone; Japan GDP growth and inflation; Germany economic sentiment; wholesale and consumer prices for India; inflation, unemployment and retail sales for the UK; Canada CPI; Australia unemployment data; and interest rate decisions from Norway, the Philippines and New Zealand.

Benchmark Indices ($DJIA, SPX AND COMP 21-year average)

• Week 33 (14 to 18 August) is mostly bullish but ends very bearish on expiration Friday.
• Monday of August Expiration Week has been up on DJIA 17 of the last 27  (last year up).
• The middle of August is usually stronger than its start and end
• August Expiration Week is usually bullish but ends bearish on Expiration Friday.
• Tuesday 15 to Thursday 17 is the official end of Earnings Season for Q2’s results.
• August Expiration Friday (18 August) has been down on DJIA 7 of the last 12 (last year down).

Benchmark Index ETFs (DIA, SPY 19-Year Average & QQQ 13-Year Average):

• Week 33 (14 to 18 August) starts bullish and gradually turns bearish.

Week 33 Key U.S. Economic Notes:

• Monday 14 August – Nothing of note
• Tuesday 15 August – Retail Sales, Retail Sales ex-Auto, Export Prices ex-Ag, Import Prices ex-Oil, Empire State Manufacturing, Business Inventories, NAHB Housing Market Index, Net Long-Term TIC Flows
• Wednesday 16 August – MBA Mortgage Applications Index, Housing Starts, Building Permits, Industrial Production, Capacity Utilisation, EIA Crude Oil Inventories, FOMC Meeting Minutes
• Thursday 17 August – Initial Claims, Continuing Claims, Philadelphia Fed Index, Leading Indicators, Natural Gas Inventories, 
• Friday 18 August – Nothing of note

Friday August 18 is options expiration
The last day to trade August equity options.

In the United States, investors will closely focus on the FOMC minutes for additional insights into the Fed’s plans for the remainder of the year, although Chair Powell said last month that decisions will be made on a meeting-by-meeting basis. Markets are currently pricing in an 89% probability of the Fed holding interest rates in September while the odds for a quarter point hike in November currently stand at about 32%. Meanwhile, the earnings season is drawing to a close but Home Depot, Cisco, Walmart, Deere & Co, Target and Applied Materials are among companies set to announce their second-quarter results. On the data front, projections indicate a more rapid 0.4% increase in retail sales and a rebound in industrial production following a decline in June. Other important releases include consumer inflation expectations, building permits, housing starts, NY Empire State Manufacturing Index, Philadelphia Fed Manufacturing Index and the NAHB housing index. 

U.S. Economic Releases for Week 33

Monday 14 August

• Nothing of note

Tuesday 15 August

• July Retail Sales (consensus 0.4%; prior 0.2%) at 8:30 ET
• Retail Sales ex-auto (consensus 0.4%; prior 0.2%) at 8:30 ET
• July Import Prices (prior -0.2%) at 8:30 ET
• Import Prices ex-oil (prior -0.4%) at 8:30 ET
• Export Prices (prior -0.9%) at 8:30 ET
• Export Prices ex-agriculture (prior -0.9%) at 8:30 ET
• August Empire State Manufacturing survey (consensus 2.4; prior 1.1) at 8:30 ET
• June Business Inventories (consensus 0.1%; prior 0.2%) at 10:00 ET
• August NAHB Housing Market Index (consensus 56; prior 56) at 10:00 ET
• June Net Long-Term TIC Flows (prior $25.8 bln) at 16:00 ET

Wednesday 16 August

• Weekly MBA Mortgage Index (prior -3.1%) at 7:00 ET
• July Housing Starts (consensus 1.446 mln; prior 1.434 mln) at 8:30 ET
• Building Permits (consensus 1.460 mln; prior 1.440 mln) at 8:30 ET
• July Industrial Production (consensus 0.3%; prior -0.5%) at 9:15 ET
• Capacity Utilization (consensus 79.0%; prior 78.9%) at 9:15 ET
• Weekly crude oil inventories (prior +5.85 mln) at 10:30 ET
• FOMC Meeting Minutes at 14:00 ET

Thursday 17 August

• Weekly Initial Claims (consensus 240,000; prior 248,000) at 8:30 ET
• Continuing Claims (prior 1.684 mln) at 8:30 ET
• August Philadelphia Fed survey (consensus -9.0; prior -13.5) at 8:30 ET
• July Leading Indicators (consensus -0.4%; prior -0.7%) at 10:00 ET
• Weekly natural gas inventories (prior +29 bcf) at 10:30 ET

Friday 18 August

• Nothing of note

The Euro Area will publish a second estimate of Q2 GDP and the final reading of July’s inflation rate. At the same time, German investor morale is expected to worsen for a second month. Other key economic data include the Eurozone’s balance of trade and industrial production; Germany’s wholesale prices; Spain’s foreign trade; and Poland and Netherlands‘ GDP figures. On the monetary policy front, the Norges Bank will most likely raise its key policy rate as inflation remains markedly above the target.

In the United Kingdom, the economic calendar is packed with key releases including unemployment figures, inflation data and retail sales. Figures are likely to show the UK’s inflation rate slowed to 6.8% in July, the lowest since February 2022 and retail sales probably declined after three consecutive months of increases. Meanwhile, the unemployment rate is seen holding steady at 4% in the second quarter.

In Asia-Pacific, key economic releases for Chinese for July continue with industrial production, retail sales, and unemployment data set to give more insights on the country’s lackluster economic recovery following a batch of already-released disappointing results for the period. Investors will also keep a close eye on fixed investment and housing price data amid fresh threats to the financial stability of property developers.

In Japan, the spotlight will be on the second quarter’s GDP growth, set to hold its strong momentum, in addition to July’s inflation rate and balance of trade. Meanwhile, the inflation rate in India is set to accelerate above the RBI’s upper threshold of 6% amid higher energy and food costs.

Elsewhere, Thailand and Malaysia will unveil GDP growth figures, while the central bank of the Philippines will meet to decide on monetary policy.

In Australia, investors await minutes from the RBA’s latest decision for insights on the central bank’s surprise rate hold. Australia will also share a batch of unemployment data for July. In the meantime, the RBNZ is expected to also hold borrowing costs unchanged.

International Economic Releases for Week 33

Monday 14 August

• China – Foreign Direct Investment ytd/y
• EU – German WPI m/m

Tuesday 15 August

• Japan – Prelim GDP Price Index y/y, Prelim GDP q/q, Revised Industrial Production m/m
• Australia – Monetary Policy Meeting Minutes, Wage Price Index q/q
• China – Industrial Production y/y, Retail Sales y/y, Fixed Asset Investment ytd/y, NBS Press Conference, Unemployment Rate
• UK – Claimant Count Change, Average Earnings Index 3m/y, Unemployment Rate, CB Leading Index m/m
• EU –
  • EU Economic Forecasts, ZEW Economic Sentiment 
  • German ZEW Economic Sentiment

Wednesday 16 August

• Australia – MI Leading Index m/m
• UK – CPI y/y, Core CPI y/y, PPI Input m/m, PPI Output m/m, RPI y/y,  HPI y/y
• EU – Eurozone Flash Employment Change q/q, Flash GDP q/q, Industrial Production m/m

Thursday 17 August

• Japan – Core Machinery Orders m/m, Trade Balance, Tertiary Industry Activity m/m
• Australia – Employment Change, Unemployment Rate
• EU – Eurozone Trade balance
• UK – GfK Consumer Confidence

Friday 18 August

• Japan – National Core CPI y/y
• EU – Eurozone Final CPI y/y, Final Core CPI y/y
• UK – Retail Sales m/m

Final Week Of Earnings Season

Three DJIA components, HD, CSCO and WMT will bring earnings season to an end this week. So far, more than 80% have reported actual EPS above the mean EPS estimate, which is above the 5-year average of 77% and above the 10-year average of 73%. In aggregate, earnings have exceeded estimates by 7.2%, which is below the 5-year average of 8.4% but above the 10-year average of 6.4%. 

The market, from its price action over the last three weeks, is not impressed with the results thus far. Companies that have reported positive earnings surprises for Q2 2023 have seen an average price decrease of 0.5% two days before the earnings release through two days after the earnings release. This percentage decrease is well below the 5-year average price increase of 1.0% during this same window for companies reporting positive earnings surprises. In fact, if this is the final percentage for the quarter, it will mark the largest average negative price reaction to positive EPS surprises reported by S&P 500 companies for a quarter since Q2 2011 (-2.1%).

Monday 14 August

• BMO: BTAI ERJ JKS MNDY ROIV
• AMC: DH HRTX NVTS

Tuesday 15 August

• BMO: CAH HD HUYA IHS ONON PSFE RSKD SE TME
• AMC: A CAVA COHR DLO HRB JKHY MRCY LRN

Wednesday 16 August

• BMO: EAT JD PFGC TGT TJX
• AMC: AVT CSCO PYCR SQM STNE SNPS WOLF

Thursday 17 August

• BMO: WMT TPR SPTN NICE MSGS LITE DOLE BILI
• AMC: AMAT BILL FTCH GLOB KEYS ROST

Friday 18 August

• BMO: BKE DE EL VIPS
• AMC: PANW

Monday 14 August 2023

Monday of August Expiration Week has been up on DJIA 17 of the last 27  (last year up).

The Stock Trader’s Almanac’s stats for the Benchmark Indices for Monday of Week 33 over a 21-year average are;

• Dow Jones (DJIA): Bullish 61.9% 
• S&P 500 (SPX): Mildly Bullish 52.4% 
• NASDAQ (COMP): Bullish 57.1% 

The Pattern Trader™ Tools Screener stats for the Benchmark Index ETFs for Monday of Week 33;

• SPDR DJIA ETF Trust (DIA – 19yr Avg): Quite Bullish 68.42%
• SPDR S&P 500 ETF Trust (SPY – 19yr Avg): Quite Bullish 68.42%
• Invesco QQQ Trust Series I (QQQ – 13yr Avg): Extremely Bullish 76.92% 

Monday 14 August

• China – Foreign Direct Investment ytd/y
• EU – German WPI m/m
• US – Nothing of note

Earnings on Monday 14 August

• BMO: BTAI ERJ JKS MNDY ROIV
• AMC: DH HRTX NVTS

Friday August 18 is options expiration
The last day to trade August equity options.

• • • • •

Friday 11 August 2023, AMC

From last weekend’s WMO;

“… All the major indices are now sporting Bearish Engulfing patterns on their Daily and Weekly candle configurations.“

Call it lucky or even smart analysis but there’s no denying that Moody’s downgrade of the banks in midweek helped the Bearish Engulfing patterns to fulfil their destinies.

Last weekend;

“… If the benchmark indices don’t halt this correction in the coming week, their respective 50DSMAs will come calling very quickly, starting with COMP and followed by SPX.“

The NASDAQ Composite Index (COMP) fell below its 50DSMA on Wednesday and closed out the week below it having formed a Gravestone Doji on Friday – a sign that the easing may pause and possibly consolidate in the coming sessions. SPX is only 0.6% above its own 50DSMA and likely to fall below it if the next two or three sessions next week doesn’t bring some bullish reprieve.  

SPX in hourly candles reveals a potential for some downside risk to 4,375 (-2%) from Friday’s close at 4,464. On the flip side, DJIA ended the week with a Bullish Engulfing pattern to hint at some upside in the coming sessions. If that confuses you regarding where the market could be heading in Week 33, I’m sure you’re not alone, as such is the nature of Q3’s earnings season as it draws to its usual confusing close. Divergence rules the market now and it will take a couple of weeks before it finds its convergent footing again … by which time, it will be well into September – the most bearish month of the year.

Sector & Industry ETFs Summary

All the defensive sectors and industries gained in Week 32 while five of the eight growth sectors fell.

• Utilities remains the worst loser YTD along with Health Care and Telecommunications.
• Technology was the worst loser for a second week. Discretionary and Retail were next worst on the list of weekly losers.
• The best gainers in Week 32 were the defensive oriented Energy, Health Care and Telecommunications.
• Technology, Homebuilders and Discretionary remain the best gainers YTD for a twenty-first straight week.
• Technology is still by far the stand-out winner YTD.

Shiller PE Ratio

The Shiller PE Ratio, as of Friday 11 August, is at 30.79, -0.3% lower than 30.89 the previous week, below double of its mean (17.05) and its median (15.93). At this level, the ratio is just below the middle between the historical high (44.19) and the mean or the median.

The U.S. market printed its second highest Shiller PE Ratio in its history at 40.00 in October 2021. The largest bubble remains as December 1999 at 44.19.

11 August 2023 AMC

Last weekend;

“It would have been a rather flat-ish week had the market not sold down so viciously on Tuesday. Such was the overbought nature of the market after three weeks of gains … and there could be more to come.”

There is no doubt that the bears have been busy keeping prices in check. Their numbers haven’t been convincing enough to say that a major correction is on the cards but keep watching those technical levels … I reckon we’re not long away from a big drop.

“The bears are definitely back and in numbers. Another week like this and the one-month average will turn in favour of the DVOLs and Decliners.“

The bears did make in impressive showing but the one-month average is still on the side of the bulls, and barely so.

Last weekend;

“… average volumes keep rising with every bearish session. Continuity will be the name of the game in Week 32.“

As COMP falters, the NASDAQ average volumes rise. As the rest of the market fights to break out to the upside, NYSE’s average volumes fall. Keep this pattern up and we will get that drop sooner rather than later.

The CBOE Volatility Index (VIX), often referred to as Wall Street’s “fear gauge,” closed Week 32 at 14.48, -15.3% lower than the previous week’s close at 17.10.

• The VIX printed its 52-week intraday high on 28 September 2022 at 34.88.
• The highest close in the past 12 months is 11 October 2022 at 33.63.
• The lowest close in the past one year is currently 12.91, printed on 22 June 2023.
• The 52 week (intraday) low is 12.73 also from 22 June 2023.

Put/Call Ratios

Any reading above 1.00 is regarded as bearish. As a common practice amongst the professionals, it is worth noting that the big money indicators are reliably the Index and ETF Put/Call Ratios while the Equity Put/Call Ratios are mostly novice/amateur participation;

• Total Put/Call Ratio edged down to 1.00 from 101 the previous week.
• Index Put/Call Ratios dipped to 1.15 from 1.29 the previous week.
• ETF Put/Call Ratios closed lower at 1.13 from 1.17 from a week ago.
• Equity Put/Call Ratios climbed to 0.80 from 0.66 the previous week.
• The CBOE VIX Put/Call Ratio fell to 0.39 from 0.69 last week.

(Note: The VIX generally measures the options activity of the 500 S&P500 issues).

P2P Divergence Not Abating

Week 32’s price-to-price divergence between the benchmark indices was quite apparent during the bearish sessions as the tech-heavy COMP fell much more than the broad-based SPX and DJIA. More obvious was the fact that DJIA printed a gain for the week while the other benchmarks printed losses;

• DJIA +0.6% from last week
• SPX -0.3% from last week
• COMP -1.9% from last week
• RUT -1.7% from last week

No surprises too, that COMP’s losses were greater than all the other major indices. A lot of its influence were from the usual suspects such as TSLA, APPL, GOOG, AMZN, META, AMD and NVDA. Leadership from Health Care and Energy kept DJIA in the black but defensive sector leadership is not the kind of leadership the market needs to inspire a meaningful and sustainable bull run. 

Time For A Bounce

From last weekend’s WMO

“… I’m expecting things to cool off a bit in the coming week but it will heat up again by Thursday when the inflation numbers hit the market again. “

Short-covering in Week 33 is definitely on the cards. So expect the dip-buying crowd to flood in and bounce the market up again. And once again, those technical levels are going to come into play and this time, they will be more critical than the last time to determine if this market is going to break up or down. My reckoning is that the downside break is more of a possibility given the state of manufacturing and production, for which the coming week will be strewn with results from July’s performance. The aftermath of the surprising PPI number from Friday will also play on the minds of investors as the common assumption is that the producers will pass the higher cost of production down to the consumers which will likely push up the CPI in August.

The wild card for the week will be the FOMC report on Wednesday afternoon. The language of those minutes will be key in either supporting the economy’s outlook or confirming what we already assumed – that things look much worse than meets the eye – before August Expiration Friday.

Happy Hunting!

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