MONDAY 28 AUGUST TO 01 SEPTEMBER 2023

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

Soft Price Action Amidst Lower Average Volumes

It was a fairly strong week for stocks that results in decent gains for the major indices. Some softer price action at the end of the week was offset by sizable gains in the first half of the week. Including last Friday, the major indices registered four consecutive winning sessions at Wednesday’s close. This week’s upside moves had the S&P 500 reclaim a position above its 50-day moving average. 

Broad based gains reflected market participants’ willingness to buy on weakness, aided by a big drop in market rates. Overall, there just wasn’t a lot of conviction on the part of sellers. Many of this week’s sessions featured below-average, which is not out of the ordinary for the last week of August ahead of Labor Day weekend. 

Mega cap stocks took charge, benefitting from the drop in market rates. The Vanguard Mega Cap Growth ETF (MGK) rose 3.6% this week and the Invesco S&P 500 Equal Weight ETF (RSP) rose 2.3%. 

The 2-yr note yield fell 16 basis points this week to 4.87% and the 10-yr note yield fell seven to 4.18%. Those moves were in response to a batch of economic data that wasn’t too bad, but wasn’t too good either. Slightly weaker than expected economic reports were a good thing in the market’s eyes as it relates to Fed policy. That is to say, market participants have been waiting for data to corroborate the notion that the Fed won’t raise rates again. 

The economic calendar this week featured the August Consumer Confidence Index, July JOLTS – Job Openings Report, the second estimate for Q2 GDP, July Personal Income and Spending, the August ISM Manufacturing Index, and the August Employment Situation Report.

A big move in oil prices was lurking under the radar this week. WTI crude oil futures jumped 2.3% on Friday, which brought this week’s percentage gain to 7.8%, to $85.55/bbl. That move in oil prices underpinned strength in the S&P 500 energy sector, up 3.8% this week, but also raised eyebrows as it relates to inflation staying persistently high.

Aside from energy, the information technology (+4.4%), consumer discretionary (+3.0%), and communication services (+3.5%) sectors saw the largest gains. The countercyclical utilities (-1.7%) and consumer staples (-0.3%) sectors were the lone holdouts to close with a loss this week.

On the earnings front, Dow component Salesforce (CRM) was a standout winner following its quarterly results and guidance. Retailers Dollar General (DG) and Five Below (FIVE) sank after reporting quarterly results that featured below-consensus guidance while Best Buy (BBY) and lululemon athletica (LULU) jumped after their earnings report. 

As a reminder, equity and bond markets will be closed on Monday for Labor Day.

Below are truncated summaries of daily action:

Monday:

The stock market started the last week of August on an upbeat note. The major indices settled the session near their best levels of the day on extremely light volume at the NYSE. The positive bias was partially fueled by carryover upside momentum from Friday’s rebound effort that took root after some knee-jerk selling in response to Fed Chair Powell’s speech at the Jackson Hole Symposium.

The major indices exhibited some choppy behavior as a result of fickle price action in the mega cap stocks, but they never slipped into negative territory due to broad buying under the index surface. NVIDIA (NVDA) had been down as much as 2.5% at its low of the day, but closed with a 1.8% gain.

The Vanguard Mega Cap Growth ETF (MGK) rose 0.7%, the Invesco S&P 500 Equal Weight ETF (RSP) rose 0.8%, and the market-cap weighted S&P 500 rose 0.6%.

3M (MMM) was a standout winner, pacing the Dow Jones Industrial Average and the S&P 500 industrials sector (+0.8), following reports that the company is nearing a $5.5 billion settlement in the military earplugs case.

On the M&A front, the FTC filed a motion to withdraw matter from adjudication regarding Amgen’s (AMGN) bid to acquire Horizon Therapeutics (HZNP), Danaher (DHR) is acquiring Abcam (ABCM) for $24.00 per share in cash, Kimco Realty (KIM) is acquiring RPT Realty (RPT) in an all-stock transaction, and KSL Capital Partners is acquiring Hersha Hospitality Trust (HT) at an approximately 60% premium of $10.00 per share in cash.

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

Tuesday:

It was another strong day for stocks on light volume. A big drop in market rates provided the positive catalyst for stocks. The S&P 500 climbed its 50-day moving average (4,460) shortly after the open and ultimately settled just a whisker shy of the 4,500 level. All the major indices settled near their highs of the day.

Treasury yields dropped sharply following the release of the July JOLTS – Job Openings Report and August Consumer Confidence Index at 10:00 a.m. ET. Both of those reports were weaker than expected, which is a good thing in the market’s eyes as it relates to Fed policy.

Mega caps and other growth stocks led the upside charge, reacting positively to the drop in market rates. The Vanguard Mega Cap Growth ETF (MGK) jumped 2.0% and the Russell 3000 Growth Index rose 1.9%.

A gain in Best Buy (BBY) following its earnings results and outlook provided an additional boost to the consumer discretionary sector.

Reviewing Tuesday’s economic data:

• June FHFA Housing Price Index 0.3%; prior 0.7%
• June S&P Case-Shiller Home Price Index, Yr/Yr -1.2% vs consensus of 0.9%; Prior -1.7%
• August Consumer Confidence 106.1 vs consensus of 116.0; Prior was revised to 114.0 from 117.0
  • The key takeaway from the report is that receding optimism about employment conditions negatively affected consumers’ view of the present situation and outlook.
• July JOLTS – Job Openings 8.827 mln vs consensus of ; Prior was revised to 9.165 mln from 9.842 mln

Wednesday:

The stock market logged its fourth consecutive winning session in another lightly traded affair. Upside moves, however, were more subdued compared to recent sessions. The S&P 500, which closed above the 4,500 level, and the Nasdaq Composite finished near their highs of the day thanks to support from the mega cap space.

An initial drop in market rates following this morning’s weaker than expected economic data provided added support early on. Treasury yields climbed off their intraday lows, though, as the session progressed.

Relative strength from the mega cap space was the biggest driver of index gains. The Vanguard Mega Cap Growth ETF (MGK) rose 0.7% while the Invesco S&P 500 Equal Weight ETF (RSP) rose 0.3%. The market-cap weighted S&P 500 closed up 0.4%.

Ambarella (AMBA) plunged after reporting better than expected earnings, but issuing Q3 revenue guidance that was well below consensus. HP Inc. (HPQ) was another notable loser after reporting EPS that was in line with expectations, but moderated its expectations for Q4 (Oct), largely driven by a continued aggressive pricing environment in PCs, sluggish demand in China, and enterprise demand softening.

Meanwhile, Hewlett Packard Enterprise (HPE) garnered a positive reaction after beating earnings estimates.

Reviewing Wednesday’s economic data:

• Weekly MBA Mortgage Applications 2.3%; Prior was -4.2%
• August ADP Employment Change 177K vs consensus of 195K; Prior was revised to 371K from 324K
• July Adv. Intl. Trade in Goods -$91.2 bln; Prior was revised to -$88.8 bln from -$87.8 bln
• July Adv. Retail Inventories 0.3%; Prior was revised to 0.5% from 0.7%
• July Adv. Wholesale Inventories -0.1%; Prior was revised to -0.7% from -0.3%
• Q2 GDP – Second Estimate 2.1% vs consensus of 2,4%; Prior was 2.4%
• Q2 GDP Deflator – Second Estimate 2.0% vs consensus of 2.2%; Prior was 2.2%
  • The key takeaway from the report is that it fits the soft landing scenario; also, there were downward revisions to the inflation readings, which is something that will continue to drive the market’s belief that the Fed can refrain from another rate hike.
• July Pending Home Sales 0.9% vs consensus of -1.3%; Prior was revised to 0.4% from 0.3%

Thursday:

The market’s winning streak was broken on Thursday. The market initially moved higher before upside momentum slowly dissipated. The S&P 500 and Dow Jones Industrial Average both closed with a loss near their worst levels of the day while the Nasdaq eked out a slim gain. The muted price action was due to a lack of conviction on either side of the tape.

In general, big moves were reserved for individual stocks with catalysts. Retailers Dollar General (DG) and Five Below (FIVE) sank after reporting quarterly results that featured below-consensus guidance. CrowdStrike (CRWD) and Dow component Salesforce (CRM), meanwhile, registered sizable gains after their earnings reports.

Relative strength in mega cap stocks offered a measure of support to the broader market. The Vanguard Mega Cap Growth ETF (MGK) logged a 0.1% gain while the Invesco S&P 500 Equal Weight ETF (RSP) fell 0.4% and the market-cap weighted S&P 500 fell 0.2%.

Market participants were digesting some otherwise pleasing data that corroborated the understanding that the U.S. economy is not tracking currently at a hard landing pace.

Reviewing Thursday’s economic data:

• Weekly Initial Claims 175K vs consensus of 235K; Last Week was revised to 232K from 230K
• Weekly Continuing Claims 160K; Last Week was revised to 1.697 mln from 1.702 mln
  • The key takeaway from the report is that initial claims – a leading indicator – continue to run at levels that are indicative of a tight labor market that goes hand-in-hand with an economy that is definitely not in a hard-landing pattern.
• July Personal Income 0.3% vs consensus of 0.3%; June was 0.3%
• July Personal Spending 0.8% vs consensus of 0.7%; June was revised to 0.6% from 0.5%
• July PCE Prices 0.2% vs consensus of 0.2%; June was 0.2%
• July PCE Prices – Core 0.2% vs consensus of 0.2%; June was 0.2%
  • The key takeaway from the report would have to be the uptick in the year-over-year inflation readings. They weren’t of the eye-popping variety; however, they should catch the Fed’s eye as a basis not to cut rates anytime soon.
• August Chicago PMI 48.7 vs consensus of 45.0; July was 42.8

Friday:

Stocks closed out this first day of September on a mixed note. The three main indices closed with only modest gains or losses while the Russell 2000 (+1.1%) outperformed. The S&P 500 maintained a position above 4,500, reaching 4,501 at its low.

A jump in market rates, a view from Cleveland Fed President Mester (2024 FOMC voter) that inflation remains too high, and a sharp increase in oil prices ($85.55/bbl, +1.92, +2.3%) acted as headwinds for the stock market.

The 2-yr note yield rose two basis points today, and fell 17 basis points this week, to 4.88%. The 10-yr note yield rose eight basis points today, and fell seven this week, to 4.17%.

Mega caps and growth stocks were relatively soft, reacting to the bump in rates and cooling off from a stronger showing earlier in the week. The Vanguard Mega Cap Growth closed flat while the Invesco S&P 500 Equal Weight ETF (RSP) logged a 0.4% gain and the market-cap weighted S&P 500 rose 0.2%. The Russell 3000 Value Index rose 0.6% versus a 0.1% gain in the Russell 3000 Growth Index. 

Reviewing Friday’s economic data:

• August Nonfarm Payrolls 187K vs consensus of 175K; July was revised to 157K from 187K
• August Nonfarm Private Payrolls 179K vs consensus of 160K; July was revised to 155K from 172K
• August Avg. Hourly Earnings 0.2% vs consensus of 0.3%; July was 0.4%
• August Unemployment Rate 3.8% vs consensus of 3.6%; July was 3.5%
• August Average Workweek 34.4 vs consensus of 34.3; July was 34.3
  • Altogether the key takeaway from the report is that it was a Goldilocks report as it pertains to the market’s thinking that the Fed won’t be raising rates again.
• August S&P Global US Manufacturing PMI – Final 47.9 (July was 47.0).
• July Construction Spending 0.7% vs consensus of 0.6%; June was revised to 0.6% from 0.5% ”
  • The key takeaway from the report is that residential spending continues to be powered by new single family construction to meet demand that cannot be satisfied through the existing home market.
• August ISM Manufacturing Index 47.6% vs consensus of 46.7%; July was 46.4%”
  • The key takeaway from the report is that manufacturing demand remains soft, yet conditions in the manufacturing sector, slow they may be, appear to be stabilizing.

• Dow Jones Industrial Average: +1.4% for the week / +5.1% YTD
• S&P 500: +2.5% for the week / +17.6% YTD
• Nasdaq Composite: +3.3% for the week / +35.1% YTD
• Russell 2000: +3.6% for the week / +9.1% YTD
• S&P Midcap 400: +3.5% for the week / +9.9% YTD

Treasuries Slide Despite Cooling Labor Market

U.S. Treasuries finished a solid week on a broadly lower note, lifting yields off their lowest levels in three weeks. The trading day started on a flat note as the market awaited the release of the Employment Situation report for August. The flat start followed a night that saw the release of more Manufacturing PMI readings that stayed true to the weakening trend seen in all major economies. The Treasury complex rallied to highs in immediate reaction to the August jobs report (actual 187,000; Briefing.com consensus 175,000), which beat headline expectations, but also showed a slight deceleration in the yr/yr average hourly earnings growth rate to 4.3% from 4.4% and an increase in the Unemployment Rate to 3.8% from 3.5% (Briefing.com consensus 3.6%), which could give the Fed a reason to pause its rate hike campaign. The post-data rally pressured yields to levels not seen since the first full week of August with the 5-yr yield slipping below its 50-day moving average (4.211%), but the market reversed in short order with longer tenors leading the slide from highs. The turn sent the long bond back to unchanged for the week while shorter tenors narrowed their recent gains. This week’s action alleviated some more pressure on the 2s10s spread, expanding it by ten basis points to -71 bps.

Bond Yields after the close on Friday 01 September:

• 3-mth: -3 bps at 5.53% (-8 bps for the week)
• 2-yr: +2 bps to 4.87% (-16 bps for the week)
• 5-yr: +6 bps to 4.29% (-15 bps for the week)
• 10-yr: +9 bps to 4.18% (-7 bps for the week)
• 30-yr: +9 bps 4.29% (-1 bps for the week)

The yield curve pivoted downward on the long-term maturity yields in Week 35 with the short-term maturity yields falling more, flattening key inverted spreads in the process.

10-YEAR/2-YEAR

The inverted 2-year/10-year yield spread narrowed to -69 bps from -78 bps the previous week on Friday 25 August 2023.

• The current inversion of the 2/10 which began on Tuesday 5 July 2022 is now two-hundred and ninety-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 -135 bps from -136 bps the previous week.

• The inverted 3m/10y spread that began on 25 October, is now two hundred and fifteen 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 widened to -124 bps on Thursday 31 August from -108 bps the previous Friday 25 August 2023.

• The current 10y/FFR inversion which began on Tuesday 15 November 2022 is one hundred and ninety-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 narrowed to -115 bps on Friday 01 September 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 on Friday

The US Dollar Index rebounded above 104 on Friday, after falling to as low as 103.27 earlier in the session, as investors try to assess what coul be next for interest rates following a batch of economic data. The latest US jobs report showed the unemployment rate unexpectedly rose to 3.8%, the highest since February 2022 and above market expectations of 3.5%. Meanwhile, the economy added 187,000 jobs, exceeding forecasts of 170,000 but following a 110K downward revision to the prior two months of payrolls. At the same time, the ISM PMI showed the manufacturing downturn eased more than anticipated in August. Earlier, data showed that US core PCE prices rose by a modest 0.2% in July, the same as in June and in line with market expectations. For the week, the dollar index is 0.2% lower, after six consecutive weeks of gains.

• EUR/USD: Lower by -0.6% to 1.0773 from 1.0794 the previous week, +8.3% YoY
• GBP/USD: Higher by +0.1% to 1.2589 from 1.2578 the previous week, +9.4% YoY
• USD/JPY: Lower by -0.2% to 146.17 from 146.39 the previous week, +4.3% YoY
• USD/CNY: Lower by -0.4% to 7.2664 from 7.2924 the previous week, +5.0% YoY
• USD/SGD: Lower by -0.1% to 1.3543 from 1.3556 the previous week, -3.4% YoY

Japanese Yen Still Weak

The Japanese Yen remained close to its weakest levels in over nine months and continued to thread levels that prompted Japanese authorities to intervene in the currency markets last year. In the latest developments, Bank of Japan board member Naoki Tamura said the central bank will maintain ultra-easy monetary policy for now as it needs more evidence that the 2% inflation target can be met in a sustainable manner. Finance Minister Shunichi Suzuki also stated that currencies should be set by markets although sudden moves are undesirable.

Euro Gains After US Jobs Report

The Euro appreciated towards the $1.09 mark before washing out in the final hours of the week to 1.08, as an increase in the US unemployment rate had boosted expectations that the Federal Reserve would pause its rate hikes at a policy meeting later in the month. Simultaneously, mixed inflation data from the Euro Area added complexity to the situation for the European Central Bank. The inflation in the bloc remained stable at 5.3% in August, but the core rate eased to 5.3% from July’s 5.5%. Several ECB officials refrained from offering a clear view on future moves. However, Boris Vujcic, regarded as a hawk, emphasized that a resilient labor market continues to drive rapid wage growth.

Commodity prices had a generally bullish week where Energy and Metals gained but Grains lost out.

The broad-based Bloomberg Commodity Index closed higher at 106.72, up +1.2% from 105.48 in Week 34, 2023. Year-to-date, the index is down -5.4%.

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. 

WTI Crude Breaks $85 on Tightening Supplies

WTI crude futures topped $85 per barrel on Friday, the highest since November 2022, and  gaining 7.5% this week, while Brent futures settled above $88 per barrel on Friday, the highest since January, gaining 5.6% this week, underpinned by tightening supplies and expectations that OPEC+ leaders would extend output cuts through the rest of the year. Markets expect Saudi Arabia to extend a voluntary oil production cut of 1 million barrels per day into October, and for Russia to implement export cuts through next month as well. In the US, the latest data showed that crude inventories plummeted by 10.6 million barrels last week, far exceeding forecasts for a 3.3 million barrel draw. Meanwhile, a Reuters survey indicated that production from Iran rose to 3.1 million bpd in August, the highest since 2018.

The settlement price spread between WTI and Brent decreased by -$1.12 to $3.00 from $4.12 the previous week on Friday 25 August 2023.

Baker Hughes total total U.S. rig count -1 at 631 (Prior: -10).

• WTI settled higher at $85.55/barrel from $79.83 the previous week (+6.9% YTD)
• Brent settled higher at $88.55/barrel from $83.95 the previous week (+3.5% YTD)
• Nat Gas settled higher at $2.77/MMBtu from $2.54 the previous week (-32.4% YTD)

Gold Prices Steady Above $1,960

Gold strengthened to settle at $1,967.10 an ounce on Friday, printing gains for the second straight week, supported by growing expectations that the Federal Reserve was done hiking rates amid signs of cooling economy. Also, the lower dollar and Treasury Yields boosted the appeal of safe-haven asset. Data released on Friday showed that US unemployment rose above forecasts, while wage growth slowed more-than-expected in August. Earlier, the weak Q2 GDP growth and a moderate increase in US core PCE prices supported the bets on a halt in tightening campaign. On the other hand, CPI figures for Eurozone added to uncertainty regarding the European Central Bank’s September rate decision.

Copper at 3-Week High

Copper futures have continued their upward trajectory, surpassing the $3.8 threshold and reaching their highest level since August 7. Investors welcomed Beijing’s efforts to bolster the property market, with the latest measures including reducing the existing mortgage rate for first-time homebuyers and adjusting the down payment ratio in select cities. Furthermore, the optimism stems from China’s encouraging PMI data, which has raised expectations for a rebound in demand. A recent private-sector survey has unexpectedly revealed that China’s factory activity returned to expansion mode in August, marked by improvements in supply, domestic demand, and employment. Beyond China’s borders, the global demand for copper is expected to receive a boost from the electric vehicle market and the rapidly growing Indian economy.

Wheat Holds Near 3-Year Low

Wheat futures were near $5.8 per bushel, holding close to the near-three-year-low of $5.7 touched on August 29th amid the increasing outlook of strong supply. Russia is set to increase grain shipments in the current marketing year as favorable weather near the late harvest overcame previous concerns of dryness in Siberia and boosted production. The latest WASDE report expects the country to produce 85 million tonnes of wheat this marketing year while exports were revised higher to a record-high of 48 million tonnes, by far the largest in the world. The report also showed that global consumption forecasts were revised lower by 3.4 million tonnes to 796.1 million amid lower feed and residual use in the EU and reduced seed, food, and industrial use by China. Still, a steeper decline was prevented by persistent uncertainty over Ukrainian supplies, as Russian forces struck grain silos and port infrastructure after suspending the deal guaranteeing shipments out of the Black Sea.

• Corn settled lower at $4.81./bushel, from $4.88 the previous week (-28.9% YTD)
• Wheat settled lower at $5.96/bushel, from $6.22 the previous week (-24.7% YTD)
• Soyabeans settled lower at $13.69/bushel, from $13.88 the previous week (-10.2% YTD)

Palm Oil Futures Prints 3rd Weekly Gain

Malaysian palm oil futures climbed almost 1% to near MYR 4,050 per tonne, gaining for the third session to approach their highest level previously hit on July 26th of MYR 4,060 while heading for the third consecutive rise for the week, amid growing concerns of El Nino patterns in coming months. Meantime, demand from India was robust ahead of the festive season. In China, private survey data showed that the manufacturing sector unexpectedly expanded at the strongest pace in six months during August, amid efforts from Beijing to boost consumer spending and regain investor confidence. Separately, cargo surveyor Intertek Testing Services said that Malaysia’s palm oil exports for August fell by 3% to 1,201,488 tons from 1,238,438 tons shipped during July. Turning to top producer Indonesia, the government has set its crude palm oil reference price for the September 1-15 period at $805.20 per tonne, which put the export tax and levy at $33 and $85, respectively, for the period.

Baltic Exchange Dry Index Edges Down For 3rd Day

The Baltic Exchange’s dry bulk sea freight index, which measures the cost of shipping goods worldwide, was down for a third day on Friday, falling about 1.9% to an over five-week low of 1,065 points, amid continued pressure from the larger vessel segments. The capesize index, which tracks vessels typically transporting 150,000-tonne cargoes such as iron ore and coal, slipped 25.7% to its lowest since early March 2023 at 1,032 points; the panamax index, which tracks ships that usually carry coal or grain cargoes of about 60,000 to 70,000 tonnes, fell 1.7% to 1,478 points. Meanwhile, the supramax index rose 18 points, or 1.9%, to 980 points. The benchmark index was down 1.4% on a weekly basis.

• • • • •

Asian Markets Mostly Higher

Markets in the Asia-Pacific mostly rose on Friday as investors digested a private survey showing Chinese manufacturing activity unexpectedly expanded in August. Growing expectations that the Federal Reserve is done hiking rates amid signs of cooling in the US economy also supported equities, although investors cautiously awaited a key monthly jobs report in the US. Shares in Japan, South Korea and mainland China advanced, while Australian stocks tumbled. Meanwhile, Hong Kong markets paused trading as Super Typhoon Saola approaches. 

The Japanese stock markets rose 0.28% to close at 32,711 while the broader Topix Index gained 0.76% to 2,350 on Friday, climbing for the fifth consecutive session, with the Topix reaching its highest levels in 33 years. The benchmark indexes gained more than 3% this week, pushed higher by growing expectations that the Federal Reserve is done hiking rates amid signs that the US economy may be cooling. Domestically, investors digested data showing capital spending among Japanese firms increased 4.5% in the second quarter as corporate activity continued to recover from the pandemic-induced slowdown.

Hong Kong’s Hang Seng index was closed on Friday after the government hoisted the No 8 storm warning signal as Super Typhoon Saola was approaching the city. This is the second time the Hang Seng suspended trading this year under its guidelines on extreme weather. The local market was forced to halt on July 17th, when Typhoon Talim hit the financial hub. On the last trading day of August, the index slipped 100.8 points or 0.55% to finish at 18,382, retreating from its highest level in over two weeks notched earlier in the week while plunging 8.1% for the month, as concerns mounted that China’s economic recovery may stay bumpy going forward.

The Shanghai Composite rose 0.43% to close at 3,133 while the Shenzhen Component gained 0.44% to 10,464 on Friday, recouping losses from the previous session, as investors cheered a private survey showing Chinese manufacturing activity unexpectedly expanded in August. The Caixin China General Manufacturing PMI rose to 51.0 in August from 49.2 in July, topping market estimates of 49.3 and marking the highest reading since February. The benchmark indexes are also finished the week higher as Beijing introduced new measures over the weekend to boost capital markets and shore up investor confidence, including cutting the stamp duty on stock trading by half.

The S&P/ASX 200 Index fell 0.37% to close at 7,278 on Friday, snapping a four-day advance, with heavyweight mining stocks leading the decline. A weak lead on Wall Street overnight also weighed on sentiment, as the latest US inflation data offered few surprises while investors cautiously awaited the monthly US jobs report. Leading the decline among miners, Fortescue Metals dropped 4.9% after the company lost its CFO, the 11th executive to leave in three years. The benchmark index gained 2.3% for the week.

Singapore shares end short trading week with gains, STI up 0.4%

The Singapore stock market was closed on Friday for Presidential Polls. On Thursday, local shares went into the long weekend with a spring in their step, although it was nothing to get excited about. The Straits Times Index (STI) advanced 13.08 points, or 0.4 per cent, to 3,233.30, taking its cue from overnight gains on Wall Street. The index added 1.3 per cent over a week shortened by the public holiday for Singapore’s presidential election on Friday. Gainers outstripped losers 275 to 259 on trade of 2.1 billion securities worth $2.4 billion.

Bursa closes at intraday high amid
upbeat regional market performance

• Japan’s Nikkei: +0.3% (+3.4% for the week) +25.4% YTD
• Hong Kong’s Hang Seng: CLOSED (+2.4% for the week) -7.1% YTD
• China’s Shanghai Composite: +0.4% (+2.3% for the week) +1.4% YTD
• India’s Sensex: +0.9% (+0.8% for the week) +7.5% YTD
• South Korea’s Kospi: +0.3% (+1.8% for the week) +14.6% YTD
• Australia’s ASX All Ordinaries: -0.4% (+2.2% for the week) +3.7% YTD 
• Malaysia’s FKLCI: +0.8% (+1.3% for the week) -2.1% YTD
• Singapore’s STI: CLOSED (+1.7% for the week) -0.6% YTD

DAX Falls Led by Autos

European equity markets closed lower across the board but the London market held on to finish the week to the upside.

Frankfurt’s DAX 40 lost 0.6% on Friday, driven by Volkswagen (-4.2%), Porsche AG (-3.4%), BMW (-3%), and Mercedes-Benz Group AG (-2.3%) after a survey from Germany’s Ifo Institute showed that almost half of the automotive manufacturers complained that the lack of orders was impeding production.

Meanwhile, the benchmark Stoxx 600 was little changed as a 2.6% loss across auto stocks offset a 1.9% gain in oil and gas stocks. An unexpected increase in the US unemployment rate, coupled with slightly weaker-than-expected wage growth, reinforced expectations that the Federal Reserve might have concluded its interest rate hikes.

London Shares Outperform on Friday

Equities in London advanced 0.3% to close at 7,460 on Friday, outperforming other European benchmarks to gain 1.6% on the week as markets assessed the latest data for hints on central banks’ policy outlook this year. Gains in London were broad-based, as the decline in UK home prices signaled that tighter interest rates are already being transmitted to a greater extent, tempering hawkishness for the BoE. Home prices fell by 5.3% annually in August, the most since 2009. Miners advanced, tracking strong metal prices as hopes of soft monetary policy boosted bullion prices, and a strong Chinese PMI, along with further support from Beijing, lifted base metal benchmarks.

• U.K.’s FTSE 100: +0.3% (+1.7% for the week) +0.2% YTD
• Germany’s DAX: -0.7% (+1.3% for the week) +13.8% YTD   
• France’s CAC 40: -0.3% (+0.9% for the week) +12.7% YTD
• Italy’s FTSE MIB: -0.6% (+1.6% for the week) +20.9% YTD
• Spain’s IBEX 35: -0.6% (+1.2% for the week) +14.8% YTD
• STOXX Europe 600: -0.0% (+1.5% for the week) +7.8% YTD

• • • • •

It will be a relatively light week in the United States, with the spotlight on ISM Services PMI, factory orders, and foreign trade data. Elsewhere, Australia and Canada will announce interest rate decisions. Also, inflation rates will be monitored in Turkey, South Korea, the Philippines, Mexico, and Russia. GDP growth figures will be released for Australia, South Africa, and Switzerland. Additionally, Services PMI readings for China, Spain, Italy, and Brazil will be assessed.

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

• Week 36 (04 to 08 September) is often flat and uneventful.
• Monday 04 September – Market Closed in observance of Labour Day.
• The day after Labour Day (Tuesday 05) has been up on DJIA 16 of the last 28, but down 9 of the last 12 (last year down).

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

• Week 36 (04 to 08 September) is mostly bearish.

Week 36 Key U.S. Economic Notes:

• Monday 04 September – Market closed in observance of Labour Day
• Tuesday 05 September – Factory Orders
• Wednesday 06 September – MBA Mortgage Applications Index, Trade balance, ISM Non-Manufacturing Index, Fed’s Beige Book
• Thursday 07 September – Initial Claims, Continuing Claims, Productivity-Rev, Unit Labour Costs-Rev, Natural Gas Inventories, EIA Crude Oil Inventories
• Friday 08 September – Wholesale Inventories, Consumer Credit

U.S. Economic Releases for Week 36

US markets will be closed on Monday in celebration of Labor Day. Later in the week, investors will be anticipating the release of ISM Non-manufacturing PMI survey, which is likely to signal a modest deceleration in the country’s service sector. Alongside this, the US is releasing various other important economic indicators, including data on factory orders, foreign trade, IBD/TIPP Economic Optimism, weekly jobless claims, as well as the final readings of the S&P Global Services PMI and second-quarter labor productivity. 

Monday 04 September

• US Market Closed in observance of Labour Day.

Tuesday 05 September

• July Factory Orders (prior 2.3%) at 10:00 ET

Wednesday 06 September

• Weekly MBA Mortgage Index (prior 2.3%) at 7:00 ET
• July Trade Balance (prior -$65.5 bln) at 8:30 ET
• Final August S&P Global US Services PMI (prior 51.0) at 9:45 ET
• August ISM Non-Manufacturing Index (prior 52.7%) at 10:00 ET
• September Fed Beige Book at 14:00 ET

Thursday 07 September

• Weekly Initial Claims (prior 228,000) at 8:30 ET
• Continuing Claims (prior 1.725 mln) at 8:30 ET
• Revised Q2 Productivity (prior 3.7%) at 8:30 ET
• Revised Q2 Unit Labor Costs (prior 1.6%) at 8:30 ET
• Weekly natural gas inventories (prior +32 bcf) at 10:30 ET
• Weekly crude oil inventories (prior -10.58 mln) at 11:00 ET

Friday 08 September

• July Wholesale Inventories (prior -0.5%) at 10:00 ET
• July Consumer Credit (prior $17.9 bln) at 15:00 ET

International Economic Releases for Week 36

In Europe, investors await final figures for the Euro Area’s Q2 GDP and Germany’s August inflation rate, as well as updated S&P PMIs. Meanwhile, industrial production is anticipated to decline for a third consecutive month in Germany and for the second consecutive month in France. Additionally, it is likely that retail sales in the Euro Area also dropped for the second straight month in July. Other data to follow include Germany’s balance of trade; Spain’s unemployment change; Switzerland’s Q2 GDP and unemployment rate; and Turkey’s inflation rate and foreign trade. In the United Kingdom, the economic calendar will be soft, with important releases including the final S&P PMIs and Halifax House price index.

In China, a batch of trade data for August will offer further insights into the country’s recent resource demand after PMI figures for the period reflected a slightly better outlook than expected, tempering perspectives that Beijing is willing to let its economy run cold before more support.

In Japan, investors await updated current account figures with July’s transactions.

Elsewhere in East Asia, South Korea and the Philippines will divulge their inflation rates for August, while monetary authorities Malaysia and Israel will decide on their policy rates.

In Australia, a week with major releases will be headlined by second-quarter GDP data, set to show another period of consistent growth. In the meantime, the RBA is expected to hold its cash rate at 4.1% as the latest data consolidated evidence of disinflation and unemployment ticked higher. Other major releases include the trade balance for July and the Ai Group Industry index for August.

Monday 04 September

• Australia – MI Inflation Gauge m/m, ANZ Job Advertisements m/m, Company Operating Profits q/q
• Japan – Monetary Base y/y
• UK – BRC Retail Sales Monitor y/y
• EU –
  • German Trade Balance
  • Spanish Unemployment Change
  • Eurozone Sentix Investor Confidence

Tuesday 05 September

• Australia – Current Account, Cash Rate, RBA Rate Statement
• Japan – Household Spending y/y
• China – Caixin Services PMI
• UK – Final Services PMI
• EU –
  • Eurozone Final Services PMI, PPI m/m
  • German Final Services PMI
  • French Final Services PMI
  • Spanish Services PMI
  • Italian Services PMI

Wednesday 06 September

• Australia – GDP q/q
• UK – Construction PMI
• EU –
  • German Factory Orders m/m
  • Eurozone Retail Sales m/m

Thursday 07 September

• Australia – Trade Balance, RBA Gov Lowe Speaks
• China – Trade Balance, USD-Denominated Trade Balance
• Japan – Leading Indicators
• UK – Halifax HPI m/m, Monetary Policy Report Hearings
• EU –
  • French Trade Balance, Final Private Payrolls q/q
  • German Industrial Production m/m
  • Italian Retail Sales m/m
  • Eurozone Final Employment Change q/q, Revised GDP q/q

Friday 08 September

• Japan – Average Cash Earnings y/y, Bank Lending y/y, Current Account, Final GDP Price Index y/y, Final GDP q/q, Economy Watchers Sentiment
• EU –
  • German Final CPI m/m
  • French Industrial Production m/m
  • EU Economic Forecasts

Saturday 09 September

• China – CPI y/y, PPI y/y
• ALL – G20 Meetings

Sunday 10 September

• ALL – G20 Meetings

Monday 04 September 2023
Market Closed in observance of Labour Day

Tuesday 05 September 2023

The day after Labour Day (Tuesday 05) has been up on DJIA 16 of the last 28, but down 9 of the last 12 (last year down).

The Stock Trader’s Almanac’s stats for the Benchmark Indices for Tuesday of Week 36 over a 21-year average are;

• Dow Jones (DJIA): Extremely Bullish 76.2%
• S&P 500 (SPX): Mildly Bullish 52.4%
• NASDAQ (COMP): Mildly Bullish 52.4%

The Pattern Trader™ Tools Screener stats for the Benchmark Index ETFs for Tuesday of Week 36;

• SPDR DJIA ETF Trust (DIA – 19yr Avg): Mildly Bearish 52.63% 
• SPDR S&P 500 ETF Trust (SPY – 19yr Avg): Mildly Bearish 52.63% 
• Invesco QQQ Trust Series I (QQQ – 13yr Avg): Bullish 61.54%

Monday 04 September

• Australia – MI Inflation Gauge m/m, ANZ Job Advertisements m/m, Company Operating Profits q/q
• Japan – Monetary Base y/y
• UK – BRC Retail Sales Monitor y/y
• EU –
  • German Trade Balance
  • Spanish Unemployment Change
  • Eurozone Sentix Investor Confidence

Tuesday 05 September

• Australia – Current Account, Cash Rate, RBA Rate Statement
• Japan – Household Spending y/y
• China – Caixin Services PMI
• UK – Final Services PMI
• EU –
  • Eurozone Final Services PMI, PPI m/m
  • German Final Services PMI
  • French Final Services PMI
  • Spanish Services PMI
  • Italian Services PMI
• US – 
  • July Factory Orders (prior 2.3%) at 10:00 ET

• • • • •

Friday 01 September 2023, AMC

Week 35 saw all the benchmark indices break above their respective 50DSMAs with DJIA and RUT retracing from their lower PhiB Fans. The PhiB on SPX was redrawn to accommodate a new COP (61.8%) on 18 August.

From last weekend’s WMO;

“Histograms are suggesting that the bearish momentum is fading. For the bullish histograms to appear, SPX will have to first break above its 50DSMA, where the SPX and COMP were rejected on Thursday 24 August.“

Bullish histograms were introduced in Week 35 as the benchmarks crossed above their respective 50DSMAs, suggesting that this bounce could have some legs … if volumes return. That’s a big ask considering that September usually has the worst average volumes in most years past. The bother about those histograms is the divergence between the current high and the high at the end of July – the price is currently at a lower high but the histograms are at a higher high. MACD divergence like this have always been a good indication of how reliable (or not) a trend will be. 

“The DJIA may just find support at 34,045 (Phib COP) in this newly drawn upside PhiB along its 61.8% retracement level. Bearish histograms are still suggesting some residual bearish momentum that is receding but not yet ready to turn green.  Overall volumes have also been receding to suggest that the bearish interest may be fading already.“

The histograms on DJIA turned bullish in Week 35 and unlike the SPX, the histograms on DJIA are still convergent with its price action. Volumes could be better to support this upside run but being September, I’m not holding my breath.

The Nasdaq Composite Index (COMP) looks set for further upside in this redrawn Phib. However, like the SPX, the histograms are hinting that it will not last. I reckon it’ll break down again if and when the tech-heavy index hits its OP (100%) level for a Double Top.

Sector & Industry ETFs Summary

Week 35 saw winners in almost all sectors and industries except for Utilities and Staples.

• Technology, Homebuilders and Discretionary remain the best gainers YTD for a twenty-third straight week.
• Technology is still by far the stand-out winner YTD.
• Homebuilders, Technology and Retail were the best weekly gainers.
• Utilities is the worst loser this week.
• Utilities remains the worst loser YTD for a fifth week while Health Care and Staples are a distant third and second worst YTD losers.

Shiller PE Ratio

The Shiller PE Ratio, as of Friday 01 September, is at 31.04, +2.1% higher than 30.39 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.

25 August 2023 AMC

Last weekend;

“The bears still have the numbers while the bulls still seem to lack any real conviction yet. Wednesday, Thursday and Friday was a tug-of-war amongst the broader market internals as the market swung both ways. The coming week might see more of the same as investors prepare to enter the most bearish month of the year – September.”

In spite of the bounce in Week 35, the bears still have the broader market internal’s numbers and haven’t really pulled back enough for the bulls to have outright optimism. With September’s reputation of having the weakest volumes of any month, it’s going to be a severe challenge for the bulls to rally if volumes continue to fall off.

“The bears, as mentioned earlier, may still have the numbers but the bulls have picked their own numbers up but it hasn’t been enough to overrun the bears yet.“

If volumes return (which is highly unlikely in September), the bulls may just have something to shout about. But as it stands, this bounce in the last week of August can’t be sustained, especially when the bears have had peek-ins four out of the five days in Week 35.

Last weekend;

“Average volumes on NASDAQ continue to wane as the flavour of mega-cap tech starts to get bland. NYSE’s volumes have been ticking up in the last few days to suggest that investors might be looking elsewhere to park their funds, especially amongst the big and mega caps not related to tech.“

NASDAQ’s average volumes fell below the 5,000 (million) mark while NYSE’s average volumes fell below the 900 (million) mark, which is just about the lowest average volumes for the year.  

The CBOE Volatility Index (VIX), often referred to as Wall Street’s “fear gauge,” closed Week 35 at 13.09, -16.5% lower than the previous week’s close at 15.68.

• 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 dipped to 1.04 from 1.11 the previous week.
• Index Put/Call Ratios closed higher at 1.37 from 1.16 the previous week.
• ETF Put/Call Ratios edged down to 1.16 from 1.20 from a week ago.
• Equity Put/Call Ratios fell to 0.65 from 0.97 the previous week.
• The CBOE VIX Put/Call Ratio jumped to 0.65 from 0.25 last week.

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

The Most Bearish Month Has Arrived

Last week’s WMO;

“The prospect of fund managers dumping portions of their struggling portfolios in September is more likely than not. That spectre will be haunting investors as they consider their positions that have been falling over the last four weeks. So be prepared for anything … especially the worst.“

Volumes have weakened so much this year that it won’t take much to send the market in any direction in a hurry. That tech bubble which we’ve been distracted from is still alive and well … and overlooked.

As of the close of 01 September, the price-to-price divergence is still present with the Russells catching up in a hurry;

• Nasdaq Composite: +3.3% for the week / +35.1% YTD
• S&P 500: +2.5% for the week / +17.6% YTD
• Russell 2000: +3.6% for the week / +9.1% YTD
• Dow Jones Industrial Average: +1.4% for the week / +5.1% YTD

Much of the accumulation over the last two to three months have been amongst the popular mega-cap tech stocks. The fad to get into anything AI related has driven most of these stocks way above their valuations;

• NVDA : PE 117.17
• AMZN : PE 109.79
• TSLA : PE 69.55
• ADBE : 53.78
• NFLX : PE 51.21
• MSFT : PE 33.93
• META : PE 33.49
• ASML : PE 32.50
• AAPL : PE 31.84
• GOOGL : PE 29.70
• GOOG : PE 27.80
• AVGO : PE 26.67

It can be argued that most of the market is overbought anyway. However, tech leadership has proven many times to have the most unreliable leadership amongst all the sectors (save the defensive sectors) and when its bubble eventually bursts, all hell breaks loose. They get up quicker and come down harder than any other bubbles such as Financial and Housing. I reckon it’s time to watch the skies.

Time To Manage Risk

From last weekend’s WMO

“… I’ll be expecting more of the same in the coming Week 35. The bulls will have their turn as will the bears. The winner of that bout as we go into September will be the one that dominates the broader market (not just the mega caps) and how volumes perform depending on which direction the market moves. “

Week 36 is usually quite flat and uneventful. In a week that’s void of any real market moving economic data, the bulls are likely to grab on to any news that’s “not so bad” while the bears will jump on the first technical reason to sell this market down again.

I’m siding with the bears, obviously, in the coming weeks in September. Hedges are up and running and I will be adding to them if this market runs higher.

As a reminder, the US market will be closed on Monday 04 September for Labour Day.

Happy Hunting!

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