MONDAY 14 TO FRIDAY 18 AUGUST 2023

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

S&P 500 and Nasdaq print third consecutive week 2% losses.

The major indices all closed with losses this week, driven by rising market rates and carryover downside momentum after the persistent selling in August. Some of the sessions this week featured below average volume, which is consistent with late-summer activity. 

This week’s selling led the S&P 500 to breach support at its 50-day moving average for the first time since March and take out support at the 4,400 level. Still, the price action this week seemed consistent with the consolidation mindset that has driven stock performance so far this month.

The price action in Treasuries was one of the biggest catalysts for selling interest in the stock market. The 10-yr note yield, which settled at its highest level since November 2007 on Thursday (4.31%), rose eight basis points this week to 4.25%.

The 10-yr note yield is now up 29 basis points for the month with participants keying on supply matters and incoming data that continue to validate the soft landing/no landing scenario that presumably will keep inflation above the Fed’s 2.0% goal and the Fed itself in a higher-for-longer mindset that includes a consideration of raising rates yet again.

Participants received the FOMC Minutes from the July 25-26 meeting this week, which induced some volatility in the immediate aftermath of the release. The knee-jerk selling was in response to some hawkish sounding headlines from the minutes. For example, “most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy.” That view wasn’t exactly surprising, however, considering remarks made by Fed Chair Powell after the meeting. 

Global growth worries, especially related to China, also kept stocks under pressure this week. China reported a batch of weaker than expected retail sales, industrial production, and fixed asset investment data for July, along with another decline in home prices. In addition, property developer Evergrande filed for Chapter 15 bankruptcy protection in the U.S.

The People’s Bank of China, in response to weakening economic activity, lowered its one-year medium-term lending facility rate to 2.50% from 2.65% and lowered the seven-day reverse repurchase rate by ten basis points to 1.80%. The PBOC also reportedly instructed state banks to intensify their interventions in the foreign exchange market to support the yuan.

Bank stocks were a weak pocket in the market after a warning from Fitch Ratings that it might be forced to downgrade the ratings of dozens of additional banks. The warning came just a week after Moody’s cut the ratings of ten small to mid-sized U.S. banks.

On the earnings front, Dow components Home Depot (HD) and Cisco (CSCO) were met with positive reactions to their reports while fellow Dow component Walmart (WMT) logged a decline after its earnings report. 

Target (TGT) and TJX Cos. (TJX) were also among the standout winners, along with Applied Materials (AMAT).

Monday:

The major indices had a somewhat mixed showing on below-average at volume at the NYSE. There wasn’t a lot of conviction on either side of the tape, which is consistent with late-summer activity and consolidation efforts. Decliners had a less than 3-to-2 lead over advancers at both the NYSE and the Nasdaq.

Mega cap leadership had a disproportionate influence on index gains, leading to the outperformance of the S&P 500 and Nasdaq. The Vanguard Mega Cap Growth ETF (MGK) rose 1.2% and the market-cap weighted S&P 500 logged a 0.6% gain. The Invesco S&P 500 Equal Weight ETF (RSP), meanwhile, closed flat.

There was no economic data of note of Monday.

Tuesday:

Stocks had a weak showing today in another lightly traded session. The major indices had been holding steady with somewhat modest losses after the S&P 500 found support near its 50-day moving average (4,447) in the early going. Selling picked up in the last half hour of trading, however, when the S&P 500 breached its 50-day moving average. The major indices ultimately settled near their worst levels of the day and the S&P 500 closed below its 50-day moving average for the first time since March.

Market participants are still contending with the notion that the market is due for a pullback after its hot run, which created valuation concerns. Growth worries, which were piqued by a batch of weaker than expected retail sales, industrial production, and fixed asset investment data for July out of China, and a warning from Fitch Ratings that it might be forced to downgrade the ratings of dozens of additional banks, gave investors an excuse to take more money off the table.

Lagging bank stocks were a notable pocket of weakness. The Fitch Ratings warning came just a week after Moody’s cut the ratings of ten small to mid-sized U.S. banks. The SPDR S&P Regional Banking ETF (KRE) fell 3.3% and the SPDR S&P Bank ETF (KBE) fell 3.1%. Also weighing on the group was Minneapolis Fed President Kashkari’s view that banks may need to face tougher capital regulatory standards.

The slowdown concerns led to the underperformance of cyclically-oriented sectors and the relative outperformance of growth stocks compared to value stocks. The Russell 3000 Growth Index fell 1.0% while the Russell 3000 Value Index fell 1.4%.

Reviewing Tuesday’s economic data:

• Total retail sales increased 0.7% month-over-month in July (consensus 0.4%) following an upwardly revised 0.3% increase (from 0.2%) in June. Excluding autos, retail sales were up 1.0% month-over-month (consensus 0.4%) after increasing an unrevised 0.2% in June.
  • The key takeaway from the report is that discretionary spending on goods remained healthy in July, providing another cue that the tight labor market continues to fend off a hard landing scenario for the U.S. economy.
• The August Empire State Manufacturing Survey dropped to -19.0 (consensus 2.4) from 1.1 in July. A reading below 0.0 for this report is indicative of a contraction in manufacturing activity.
• Import prices increased 0.4% month-over-month in July and export prices rose 0.7%. Nonfuel import prices were flat and export prices, excluding agricultural products, jumped 0.6%. These monthly gains notwithstanding, import and export prices were still down 4.4% and 7.9%, respectively, on a year-over-year basis.
• Business inventories were flat in June (consensus 0.1%) following a prior 0.2% increase.
• The NAHB Housing Market Index fell to 50 in August (consensus 56) from 56 in July.

Wednesday:

The stock market closed on a downbeat note, building on Tuesday’s losses in another light-volume session at the NYSE. Weakness had been more modest in the early going, though, due to a lack of conviction from either buyers or sellers.

The S&P 500 hit its 50-day moving average (4,449) shortly after the open, but was unable to breach that key technical level, which then invited renewed selling interest. The major indices had been trading in relatively narrow ranges until the 2:00 p.m. ET release of the FOMC Minutes from the July meeting induced some whipsaw action.

There was some knee-jerk selling in response to some hawkish sounding headlines from the minutes. For example, “most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy.”

That view wasn’t exactly surprising, however, considering remarks made by Fed Chair Powell after the July 25-26 meeting. All together, the minutes didn’t contain anything too surprising. Mindful of that, stocks rebounded from the knee-jerk selling, yet that effort stalled out as the 10-yr note yield climbed above 4.25% and eclipsed a closing high yield from last October. The 2-yr note yield settled three basis points higher at 4.97%.

The S&P 500 ultimately closed just above the 4,400 level and at its lows for the session, continuing the consolidation trade that took root at the start of the month.

Festering growth concerns also contributed to the weakness after China reported another decline in home prices.

The U.S., however, saw stronger-than-expected housing starts and industrial production in July. Also, the Atlanta Fed GDPNow model was updated and is estimating 5.8% real GDP growth in the third quarter, up from 5.0% previously. That news created some rate hike angst in the Treasury market.

Reviewing Wednesday’s economic data:

• The weekly MBA Mortgage Applications Index fell 0.8% with refinance applications falling 2.0% while purchase applications were flat from last week.
• Total housing starts increased 3.9% month-over-month in July to a seasonally adjusted annual rate of 1.452 million units (consensus 1.446 million) and building permits increased 0.1% month-over-month to a seasonally adjusted annual rate of 1.442 million (consensus 1.460 million).
  • The key takeaway from the report is that the increase in starts and permits, albeit modest, was driven by single-family units, which are badly needed in a supply-constrained existing home market.
• Total industrial production increased 1.0% month-over-month in July (consensus 0.3%) following a downwardly revised 0.8% decline (from -0.5%) in June. The capacity utilisation rate jumped to 79.3% (consensus 79.0%) from a downwardly revised 78.6% (from 78.9%) in June. Total industrial production was down 0.2% yr/yr. The capacity utilisation rate of 79.3% was 0.4 percentage point below its long-run average.
  • The key takeaway from the report is that most major market groups recorded growth in July, demonstrating that there was a pickup in activity that fits with an economy that continues to operate in a growth mode despite the Fed’s rate hikes.
• The weekly EIA crude oil inventories showed a draw of 5.96 million barrels following last week’s build of 5.85 million barrels.

Thursday:

The major indices closed on a downbeat note after trading flattish in the early going. Initially, the S&P 500 was holding steady with 4,400 acting as a level of support. By the afternoon, though, a retreat effort had taken root, leading the major indices to close near their lows of the day and below 4,400.

The afternoon selling was orderly and looked consistent with the consolidation mindset that has driven the price action so far this month. Another jump in market rates gave participants an excuse to take more money off the table. The 10-yr note yield rose five basis points today to 4.31%, settling at its highest level since November 2007.

This morning’s weekly jobless claims data was indicative of a tight labor market, which also contributed to the move in the 10-yr note. Claims dropped to 239,000 from 250,000 last week.

Dow component Cisco (CSCO) was a winning standout after its earnings report while fellow Dow component Walmart (WMT) logged a decline after its earnings report.

Reviewing Thursday’s economic data:

• Weekly Initial Claims 239K (consensus 240K); Prior was revised to 250K from 248K; Weekly Continuing Claims 1.716 mln; Prior 1.684 mln
• The key takeaway from the report is that initial jobless claims – a leading indicator – are pacing at levels that are indicative of a tight labor market, which is indicative of an economy that isn’t pacing for a hard landing.
• August Philadelphia Fed Index 12.0 (consensus -9.0); Prior -13.5
• July Leading Indicators -0.4% (consensus -0.4%); Prior -0.7%

Friday:

The stock market had a mixed showing on Friday. Early selling sent the S&P 500 to its lowest level in nearly eight weeks while the Nasdaq slid to a ten-week low. The major indices started to nudge higher, though, around mid-morning on no news. There was a sharp, brief move higher in the last 10 minutes of trading that drove the Nasdaq into positive territory for the only time this session.

Ultimately, the S&P 500 closed flat, the Nasdaq fell 0.2%, and the Dow Jones Industrial Average rose 0.1%. The Russell 2000 had a slight performance edge, gaining 0.5% today.

Initial weakness was driven by losses in mega-cap stocks, worries about China after property developer Evergrande filed for Chapter 15 bankruptcy protection in the U.S., and carryover downside momentum after the persistent selling in August.

There was no U.S. economic data of note on Friday.

• Dow Jones Industrial Average -2.2% from last week, +4.1% YTD
• S&P 500 -2.1% from last week, +13.8% YTD
• Nasdaq Composite -2.6% from last week, +27.0% YTD
• Russell 2000 -3.4% from last week, +5.6% YTD

Recent Losses Moderated

U.S. Treasuries finished a down week firmly in the green with the 2-yr note reclaiming the bulk of this week’s loss while the long bond continued its recent underperformance. The bulk of today’s advance took place at the open after a night that featured more uncertainty about the strength of China’s economy and its real estate sector in particular. Intraday action saw a brief push above opening highs, but it wasn’t long before the market returned into the opening range, drifting in sideways fashion into the close. The advance pressured yields on 5s and longer tenors from fresh closing highs for the year while the 2-yr yield finished near the midpoint of this week’s range. Overnight action featured the release of a hotter than expected CPI from Japan (actual 3.3% yr/yr; expected 2.5%) while the eurozone’s CPI (-0.1% m/m; +5.3% yr/yr) and core CPI (-0.1% m/m; +5.5% yr/yr) were left unrevised in their final readings for July. The U.S. session did not see any data and Monday’s session will also be free of scheduled economic releases. This week’s action expanded the 2s10s spread by seven basis points to -66 bps.

Bond Yields after the close on Friday 18 August:

• 3-mth: -1 bp at 5.54% (+1 bp for the week)
• 2-yr: -2 bps to 4.92% (+3 bps for the week)
• 5-yr: -4 bps to 4.38% (+7 bps for the week)
• 10-yr: -4 bps to 4.26% (+10 bps for the week)
• 30-yr: -3 bps to 4.38% (+11 bps for the week)

The yield curve rose in a pivot on the short-term maturity yields, flattening they key invested spreads for the week.

10-YEAR/2-YEAR

The inverted 2-year/10-year yield spread narrowed to -66 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 eighty-four 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 -129 bps from -138 bps the previous week.

• The inverted 3m/10y spread that began on 25 October, is now two hundred and five 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 -103 bps on Thursday 17 August from -117 bps the previous Friday 11 August 2023.

• The current 10y/FFR inversion which began on Tuesday 15 November 2022 is one hundred and eighty-nine 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 widened to -107 bps on Friday 18 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.

Dollar Prints 5th Weekly Advance

The US Dollar Index eased to around 103.4 on Friday but still advanced for the fifth straight week, as minutes of the Federal Reserve’s July meeting showed that policymakers stressed that upside risks to inflation remain, leaving the door open to further policy tightening. However, some participants flagged the economic risks of pushing rates too far, emphasizing that future rate decisions would depend on incoming data. Latest data also showed that the number of Americans filing new claims for unemployment benefits fell last week, pointing to continued tightness in the labor market. The dollar is set to gain against most major currencies this week, but remains down against the sterling as key measures of price growth monitored by the Bank of England failed to ease in July.

• EUR/USD: Lower by -0.7% to 1.0869 from 1.0945 the previous week, +8.3% YoY
• GBP/USD: Higher by +0.3% to 1.2728 from 1.2693 the previous week, +4.6% YoY
• USD/JPY: Higher by +0.3% to 145.39 from 144.94 the previous week, +6.2% YoY
• USD/CNY: Higher by +0.6% to 7.3007 from 7.2574 the previous week, +6.8% YoY
• USD/SGD: Higher by +0.3% to 1.3558 from 1.3520 the previous week, -2.6% YoY

Japanese Yen Rises After Inflation Data

The Japanese Yen appreciated past 146 per dollar to briefly touch 145, rising from nine-month lows after data showed the country’s core inflation rate slowed to 3.1% in July from 3.3% in June, but posted above the Bank of Japan’s 2% target for the 16th straight month. Headline inflation was unchanged at 3.3%, defying expectations for a sharp slowdown to 2.5%. Still, the yen traded around levels that prompted Japanese authorities to intervene in the currency markets in September last year. The Ministry of Finance bought $19.5 billion worth of yen to support the currency when it weakened to 145.9 on Sept. 22. The yen has come under constant pressure this year amid widening yield differentials, as other major central banks embarked on an aggressive tightening campaign while the BOJ maintained ultra-easy monetary policy. The currency also weakened even after the BOJ made another surprise adjustment to its yield curve control policy, effectively allowing 10-year JGB yields to rise above the 0.5% upper limit.

Euro Remains Under Pressure

The Euro slipped past $1.09, printing its lowest level in six weeks after the Fed’s July meeting minutes suggested that the US central bank could raise rates again amid significant upside risk to inflation while in Europe investors are divided on whether the ECB will deliver another interest rate increase due to the worsening economic outlook. The latest data showed that core inflation in the Euro Area did not slow down in July as anticipated while economic data especially for Germany have been pointing to a weak outlook. At the same time, in the 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.

Bitcoin falls 13.1% in 4 weeks

Bitcoin US Dollar traded at 26,100 on the morning of Saturday August 19th (SG), decreasing 1611 or 5.83 percent since the previous trading session. Bitcoin dropped 7.2% to $26,634 at 21:45 GMT on Thursday, losing $2,067 from its previous close. Bitcoin, the world’s biggest and best-known cryptocurrency, is down 16.3% from the year’s high of $31,818 on July 13. Ether, the coin linked to the Ethereum blockchain network, dropped 11.29% to $1,547.4 on Thursday, losing $203.8 from its previous close.

Reuters

Why did Bitcoin drop? Analysts point to 5 potential reasons

Bitcoin’s price fell approximately 8% in a span of 10 minutes, leaving crypto investors scrambling to make sense of the drop. Elon Musk’s SpaceX reportedly selling its Bitcoin holdings, the bankruptcy of a Chinese property giant, and fears of interest rate hikes have been among the theories raised as to Bitcoin’s freak price dip.

On Aug. 18 around 9:35 pm UTC, the price of Bitcoin suddenly plummeted over 8% in a span of 10 minutes, taking with it the wider cryptocurrency market, leaving many in the crypto community scratching their heads. While there appears to be no consensus as to why the markets suddenly dropped, several crypto market analysts have shared their initial theories with Cointelegraph. 

Cointelegraph

Commodity prices had a rough week as Energy and Metals finished lower while Grains gained for the week.

The broad-based Bloomberg Commodity Index closed lower at 104.24, down -1.3% from 105.59 in Week 32, 2023. Year-to-date, the index is down -7.6%.

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. 

Oil Prices Drop After 7 Weeks of Gains

Crude oil futures were more than 2% lower this week, snapping a seven-week streak of gains, with WTI crude futures trading near $81 per barrel, as China’s weakening economy and fears of further US interest rate hikes outweighed signs of tightening global supplies. Weaker-than-expected economic data and a deepening property sector crisis in China added to concerns about the country’s faltering economy, with a surprise rate cut from the central bank failing to appease the market. Minutes of the Federal Reserve’s July meeting also showed that US policymakers stressed upside risks to inflation that could warrant a prolonged period of restrictive monetary policy or even another rate hike. Meanwhile, investors remain cautious amid signs of tightness in the market after OPEC+ majors Saudi Arabia and Russia curtailed supply.

WTI crude futures settled at $81.25 per barrel on Friday while Brent futures settled at $84.80 per barrel. 

The settlement price spread between WTI and Brent decreased by -$0.07 to $3.55 from $3.62 the previous week on Friday 11 August 2023.

Baker Hughes total total U.S. rig count -12 at 642 (Prior: -5).

• WTI settled lower at $81.25/barrel from $83.19 the previous week (+1.1% YTD)
• Brent settled lower at $84.80/barrel from $86.81 the previous week (+1.4% YTD)
• Nat Gas settled lower at $2.55/MMBtu from $2.77 the previous week (-37.0% YTD)

US Natgas Prices Down More than 7% on the Week

US natural gas futures fell more than 2% to $2.54/MMBtu on Friday, extending this week’s loss to over 7%, driven by prospects of lower demand into next week and strong production. US gas demand, including exports, is expected to be little changed from 103.7 billion cubic feet per day (bcfd) this week to 103.8 bcfd next week, below Wednesday’s forecast. On the supply side, output so far in August is nearly unchanged from last month and not far from a monthly record of 102.2 bcfd in May. Meanwhile, the latest EIA report showed that US utilities added 35 billion cubic feet (bcf) of gas into storage last week, compared with a five-year (2018-2022) average increase of 41 bcf as hot weather kept cooling demand high. Gas flows to US LNG export plants have been falling so far in August mainly due to reductions at Venture Global LNG’s Calcasieu facility in Louisiana.

Gold Heads for 4th Weekly Decline

Gold held above $1,900 an ounce on Friday to book another decline for the fourth straight week, weighed down by a strong dollar and Treasury yields as minutes of the Federal Reserve’s July meeting suggested further interest rate hikes could be ahead due to upside risks to inflation. Latest data also showed that the number of Americans filing new claims for unemployment benefits fell last week, pointing to continued tightness in the labor market. Elsewhere, data showed that Japan’s core inflation rate slowed as expected in July but remained above the Bank of Japan’s target for the 16th straight month. Investors also monitored China’s real estate sector after top developer Evergrande filed for protection from creditors in a US bankruptcy court.

There were no updates of note for Grains this week. 

• Corn settled higher at $4.93/bushel, from $4.87 the previous week (-27.4% YTD)
• Wheat settled higher at $6.39/bushel, from $6.27 the previous week (-19.1% YTD)
• Soyabeans settled higher at $13.53/bushel, from $13.07 the previous week (-11.2% YTD)

Palm Oil Down Slightly But Heads for Strong Gains Weekly

Malaysian palm oil futures settled below MYR 3,900 after rising in the prior three sessions, with traders digesting reports that the European Union launched an investigation into whether biodiesel from Indonesia was circumventing EU duties by going through China and Britain. Meantime, Reuters said that top buyer India revised export duties for palm and soft oils. Still, the contract is pointing to a 4.4% jump for the week, the first increase in four, supported by a weakening ringgit, strong demand from India and Europe as well as forward expectations of higher prices of soybean oil amid robust domestic demand in the US. Meantime, top producer Indonesia has set its crude palm oil reference price lower at $820.35 per ton for August 16-31 while keeping tax and levy unchanged. 

Baltic Exchange Dry Index Snaps 4-Day Rise, Posts Weekly Gain

The Baltic Exchange’s dry bulk sea freight index, which measures the cost of shipping goods worldwide, fell about 0.8% to 1,237 points on Friday, after four consecutive sessions of increases that sent the main index to the highest in nearly three months at 1,247 points. The capesize index, which tracks vessels typically transporting 150,000-tonne cargoes such as iron ore and coal, was down for the second day, dropping 4% to 1,598 points. Meanwhile, the panamax index, which tracks ships that usually carry coal or grain cargoes of about 60,000 to 70,000 tonnes, advanced for the 18th straight session to an over three-month high of 1,542 points; and the supramax index added 20 points, or 2.3% to 879 points. The benchmark index rose 9.6% for the week, its best weekly performance since July 28th.

• • • • •

Asian Markets Mostly Decline

Markets in the Asia-Pacific mostly fell on Friday, taking cues from a negative lead on Wall Street and facing pressure from rising Treasury yields as minutes of the Federal Reserve’s July meeting suggested further interest rate hikes could be ahead due to upside risks to inflation. Investor sentiment also took a hit after Chinese real estate giant Evergrande filed for bankruptcy protection in a US bankruptcy court. Shares in Australia, Japan, South Korea and Hong Kong declined, while mainland China stocks were mixed.

The Japanese stock markets fell 0.55% to close at 31,451 while the broader Topix Index dropped 0.7% to 2,237 on Friday, with both benchmarks finishing the week sharply lower, as investors reacted to data showing Japan’s headline inflation rate came in above forecasts in July. Meanwhile, the core inflation print slowed as expected, but remained above the Bank of Japan’s 2% target. Japanese shares also tracked losses on Wall Street this week amid renewed concerns that the US Federal Reserve could keep interest rates higher for longer due to upside risks to inflation. Heavyweight consumer-related and financial stocks led the decline.

Hong Kong’s Hang Seng index slipped into bear market territory (20% down from its previous high) on Friday as the benchmark index lost 375.78 points or 2.05% to end at 17,950.85, plunging around 5.9% for the week, booking a third straight week of falls amid a deepening crisis in China’s property sector after one of the country’s biggest developers, China Evergrande, Thursday filed for bankruptcy in New York. Meantime, state-owned property developers warned of widespread losses, raising concerns that the Chinese housing crisis is expanding from the private sector to firms with government backing. Investors stayed unimpressed with bit-by-bit support measures from Beijing. Additionally, Nomura Holdings cut the 2023 growth forecasts for China to 4.6%, on weak July data and ongoing downward spiral in the economy. Losses were across the board, amid sharp losses from tech, consumers, and property.

The Shanghai Composite fell 1% to close at 3,132 while the Shenzhen Component dropped 1.75% to 10,459 on Friday, as investor sentiment took a hit after Chinese real estate giant Evergrande filed for protection from creditors in a US bankruptcy court. The benchmark indexes also declined for the second straight week as the absence of meaningful measures from Beijing to support China’s faltering economy disappointed markets. Meanwhile, Chinese Premier Li Qiang said on Wednesday the government would work to achieve its economic targets for this year, calling for expanding domestic demand and boosting consumption. All sectors declined on Friday.

The S&P/ASX 200 Index inched up 0.03% to close at 7,145 on Friday, snapping a two-day decline but the benchmark index still posted biggest weekly loss since August last year. Australian shares came under pressure this week from renewed fears that the US interest rates could remain higher for longer and on signs of economic weakness in China. On Thursday, data showed that Australia’s unemployment rate rose to a three-month high of 3.7% in July, exceeding forecasts for a milder uptick to 3.6%. Healthcare, financial and consumer-related stocks mostly declined on Friday.

Singapore stocks lose ground for sixth straight session; STI sheds 0.7%

Singapore stocks ended the week in the red on Friday (Aug 18), booking declines for the sixth straight session. The benchmark Straits Times Index (STI) retreated 22.82 or 0.7 per cent to 3,173.93. Losers outnumbered gainers 372 to 246 in the broader market, as 1.2 billion securities worth S$1.1 billion were traded on the Singapore Exchange.

Bursa ends lower on profit-taking

• Japan’s Nikkei: -0.6% (-3.2% for the week) +20.5% YTD
• Hong Kong’s Hang Seng: -2.1% (-5.9% for the week) -9.3% YTD
• China’s Shanghai Composite: -1.0% (-1.8% for the week) +1.4% YTD
• India’s Sensex: -0.3% (-0.6% for the week) +6.8% YTD
• South Korea’s Kospi: -0.6% (-3.4% for the week) +12.0% YTD
• Australia’s ASX All Ordinaries: +0.0% (-2.5% for the week) +2.0% YTD
• Malaysia’s FKLCI: -0.1% (-0.8% for the week) -3.3% YTD
• Singapore’s STI: -0.7% (-3.7% for the week) -2.4% YTD

European Stocks End Week Lower

European equity markets fell on Friday, extending the sharp losses from the week amid deepening concerns of prolonged hawkish monetary policy from the Federal Reserve and heightened credit risks in China. The German DAX and the benchmark Stoxx 600 were down 0.6% led by mining stocks. Shares with high exposure to the Chinese economy also traded sharply in the red after Evergrande filed for bankruptcy in the US due to contagion from developers’ credit risks triggered by profit warnings and Country Garden’s failure to pay bond coupons. 

For the week, the German Dax fell over 2% and the pan-Europan Stoxx 600 lost about 1.5%.

UK Shares Sink for 6th Session

Equities in London held early losses and closed 0.6% lower at 7,265 on Friday, notching its sixth consecutive loss and a 3.3% drop on the week as markets continued to fret about the economy’s health amid the tightening momentum from the BoE and the Fed, while deepening credit risks in China pressured companies with exposure traded in London. Retail sales in the UK sank by 1.2% in July, sharply above expectations of a 0.5% decrease to suggest British consumers’ resilience to higher borrowing costs is waning.

• U.K.’s FTSE 100: -0.7% (-3.5% for the week) -2.5% YTD
• Germany’s DAX: -0.7% (-1.6% for the week) +11.9% YTD   
• France’s CAC 40: -0.4% (-2.4% for the week) +10.7% YTD
• Italy’s FTSE MIB: -0.4% (-1.8% for the week) +17.1% YTD
• Spain’s IBEX 35: -0.1% (-1.8% for the week) +12.6% YTD
• STOXX Europe 600: -0.6% (-2.3% for the week) +5.5% YTD

• • • • •

WEEK 34 – 21 TO 25 AUGUST 2023

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

• Week 34 (21 to 25 August) starts bullish and ends weak.
• The week after August Expiration Week (Week 34) is prone to wild swings with the DJIA up 9 of the last 17.
• Monday 21st August is the year’s fourth-most bearish session.
• Tuesday 22nd August is amongst the year’s top 14 most bullish sessions.

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

• Week 34 (21 to 25 August) is prone to swings on DIA and SPY but mostly bullish on QQQ.

Week 34 Key U.S. Economic Notes:

• Monday 21 August – Nothing of note
• Tuesday 22 August – Existing Home Sales
• Wednesday 23 August – MBA Mortgage Applications Index, New Home Seales, EIA Crude Oil Inventories
• Thursday 24 August – Initial Claims, Continuing Claims, Durable Goods-ex Transportation, Durable Goods Orders, Natural Gas Inventories
• Friday 25 August – UoM Consumer Sentiment-Final

U.S. Economic Releases for Week 34

Monday 21 August

• Nothing of note

Tuesday 22 August

• July Existing Home Sales (consensus 4.15 mln; prior 4.16 mln) at 10:00 ET

Wednesday 23 August

• Weekly MBA Mortgage Index (prior -0.8%) at 7:00 ET
• Flash August S&P Global US Manufacturing PMI (prior 49.0) at 9:45 ET
• Flash S&P Global US Services PMI (prior 52.3) at 9:45 ET
• July New Home Sales (consensus 701,000; prior 697,000) at 10:00 ET
• Weekly crude oil inventories (prior -5.96 mln) at 10:30 ET
• $16 bln 20-yr Treasury bond auction results at 13:00 ET

Thursday 24 August

• Weekly Initial Claims (consensus 240,000; prior 239,000) at 8:30 ET
• Continuing Claims (prior 1.716 mln) at 8:30 ET
• July Durable Orders (consensus -4.0%; prior 4.7%) at 8:30 ET
• Durable Orders ex-transportation (consensus 0.2%; prior 0.6%) at 8:30 ET
• Weekly natural gas inventories (prior +35 bcf) at 10:30 ET

Friday 25 August

• Final August University of Michigan Consumer Sentiment (consensus 71.2; prior 71.2) at 10:00 ET
• Fed Chairman Powell’s Speech at the Jackson Hole Symposium at 10:05 ET

International Economic Releases for Week 34

Monday 21 August

• UK – Rightmove HPI m/m
• China – Foreign Direct Investment ytd/y, 1-y Loan Prime Rate, 5-y Loan Prime Rate
• EU – German PPI m/m, Buba Monthly Report

Tuesday 22 August

• ALL – BRICS Summit
• Japan – BOJ Core CPI y/y
• UK – Public Sector Net Borrowing, CBI Industrial Order Expectations
• EU – Current Account

Wednesday 23 August

• ALL – BRICS Summit
• Australia – CB Leading Index m/m, Flash Manufacturing PMI, Flash Services PMI  
• Japan – Flash Services PMI
• UK – Flash Manufacturing PMI, Flash Services PMI  
• EU –
  • Eurozone Flash Manufacturing PMI, Flash Services PMI, EU Economic Forecasts, Consumer Confidence
  • German Flash Manufacturing PMI, Flash Services PMI
  • French Flash Manufacturing PMI, Flash Services PMI

Thursday 24 August

• ALL – BRICS Summit
• UK – CBI Realized Sales

Friday 25 August

• ALL – Jackson Hole Symposium
• Japan – Tokyo Core CPI y/y, SPPI y/y
• EU – 
  • German Final GDP q/q, German ifo Business Climate
  • Belgian NBB Business Climate

Saturday 26 August

• ALL – Jackson Hole Symposium
• UK – GfK Consumer Confidence

Sunday 27 August

• ALL – Jackson Hole Symposium

Monday 21 August

• AMC: FN NDSN ZM

Tuesday 22 August

• BMO: BIDU BJ CSIQ COTY DKS GDS KC LOW M MDT PINC SCSC SPHR
• AMC: LZB TOL URBN

Wednesday 23 August

• BMO: ANF AAP ADI BBWI DY FL GRAB KSS LANC PTON WSM
• AMC: ADSK GES NTAP NVDA SNOW SPLK ZUO

Thursday 24 August

• BMO: BURL DLTR FRO HAIN NTES OSIS WOOF RY TD WB
• AMC: AFRM CRDO GPS INTU MRVL JWN ULTA WDAY

Friday 25 August

• Nothing of note 

Monday 21 August 2023

Monday 21st August is the year’s fourth-most bearish session.

The Stock Trader’s Almanac’s stats for the Benchmark Indices for Monday of Week 34 over a 21-year average are;

• Dow Jones (DJIA): Very Bearish 71.4% 
• S&P 500 (SPX): Quite Bearish 66.7%
• NASDAQ (COMP): Quite Bearish 66.7%

The Pattern Trader™ Tools Screener stats for the Benchmark Index ETFs for Monday of Week 34;

• SPDR DJIA ETF Trust (DIA – 19yr Avg): Bearish 57.89% 
• SPDR S&P 500 ETF Trust (SPY – 19yr Avg): Bearish 55.56%
• Invesco QQQ Trust Series I (QQQ – 13yr Avg): Bullish 61.54%

Monday 21 August

• UK – Rightmove HPI m/m
• China – Foreign Direct Investment ytd/y, 1-y Loan Prime Rate, 5-y Loan Prime Rate
• EU – German PPI m/m, Buba Monthly Report
• US – Nothing of note

• • • • •

Friday 18 August 2023, AMC

From last weekend’s WMO;

“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.“

By Thursday, all the major indices were below their respective 50DSMA and breaking below all sorts of critical technical levels. On Friday, the Russell 2000 (RUT) actually dipped below its 200DSMA in the opening half-hour before beating a hasty retreat by noon.  

The momentum is still with the bears as of Friday’s close but the way down in the coming week will be limited. SPX could find good support at 4,330, COMP has its good support at 13,150 and DJIA’s support should be at 34,350. So, technically speaking, the market should stall out and consolidate in Week 34.

Sector & Industry ETFs Summary

All the sectors and industries fell in Week 33.

• Home Builders, Discretionary and Real Estate were the worst losers this week.
• Utilities remains the worst loser YTD for a third week.
• Energy is the only defensive sector with a YTD Gain.
• 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 18 August, is at 30.14, -2.1% lower than 30.79 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.

18 August 2023 AMC

Last weekend;

“… 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 …”

Week 33 was S&P 500’s and Nasdaq Composite’s third week down with more than 2% losses with the bears firmly in control over proceeding until Friday’s stalemate from short-covering. 

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

The one-month average has now swung in the bears’ favour especially having cut through some critical and psychological price and technical levels in Week 33.

Last weekend;

“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.“

Average and daily volumes ticked up on Friday as it was Expiration Day for stock options. Regardless, volumes held across both exchanges in a week when the market sold off.

The CBOE Volatility Index (VIX), often referred to as Wall Street’s “fear gauge,” closed Week 33 at 17.30, +19.5% higher than the previous week’s close at 14.48.

• 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 closed higher at 1.12 from 1.00 the previous week.
• Index Put/Call Ratios jumped to 1.38 from 1.15 the previous week.
• ETF Put/Call Ratios rose to 1.25 from 1.13 from a week ago.
• Equity Put/Call Ratios edged down to 0.76 from 0.80 the previous week.
• The CBOE VIX Put/Call Ratio climbed to 0.77 from 0.39 last week.

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

Mega-cap Tech Still A Thing

Last week’s WMO;

“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.“

That convergence began in Week 33 and it was a truly bearish-convergent sell-down with the mega-cap tech stocks leading for most of the ride down.

“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.“

Energy, Healthcare and Utilities were the least affected sectors last week as they were (for the most part) in the previous week. As long as industrials, financials, homebuilders and materials fail to take some meaningful and sustainable leadership in this market, any talk of an economic recovery has to be taken with a huge spoon of salt. Till then, volatility will continue to haunt this market up and down.

Portfolio Dumping Coming

From last weekend’s WMO

“… 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 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.“

As was mentioned in the Summary of Friday’s DMA,

“I’m keeping the bear in place, at least for the start of next week, after which, I am going to reassess the situation going into the final two weeks of August – a period I suspect is likely to see some major selling – and prepare for the worst.“

There won’t be much in terms of serious market-moving data in the coming week. Thus, I am expecting the bulls to jump on any news that’s “not so bad” as an excuse to buy dips. However, I’m betting that the buying will be on lower volumes and without major conviction especially considering that the smart money tends to bail out of stocks towards the end of August and even dump stocks in September especially when a bubble has formed.

Happy Hunting!

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