MONDAY 04 TO 08 SEPTEMBER 2023

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

Down Week Ends On Slightly Upbeat Note

The stock market registered broad-based losses on this holiday-shortened week. The price action in stocks was largely dictated by moves in Apple (AAPL), market rates, and oil. Some sessions this week featured below-average volume as participants remained in vacation mode after Labor Day weekend.

Apple (AAPL) declined 6.0% this week following reports that Chinese officials are being prohibited from using Apple devices. Semiconductor stocks also sold off in sympathy. The PHLX Semiconductor Index fell 3.2%.

The news goes beyond Apple and the semiconductor stocks, however. The worry for the market is that, if China purposely chooses to make business difficult for a company like Apple, which has a good and important working relationship in China, then it can do so for a lot of other U.S. companies doing business in China.

The sharp increase in oil prices prompted worries about inflation expectations and consumer spending pressures. That understanding contributed to this week’s stock sell off. WTI crude oil futures jumped $1.92, or 2.2%, to $87.47/bbl. That move follows news that Saudi Arabia and Russia are planning to extend their voluntary oil production cuts of 1 million barrels per day and 300,000 barrels per day, respectively, through the end of 2023.

Treasury yields climbed this week as market participants reacted to a slate of economic data. The 2-yr note yield rose eleven basis points to 4.98% and the 10-yr note yield rose eight basis points to 4.26%. 

The ISM Services PMI showed that services sector activity accelerated in August but prices also increased at a faster pace. The latter will be a concerning development presumably for the Fed, which will be contemplating the notion of rates needing to stay higher for longer.

Initial jobless claims for the week ending September 2 were just 216,000 – the lowest since February – and that Q2 productivity was revised lower (to 3.5% from 3.7%) while unit labor costs were revised higher (to 2.2% from 1.6%).

 Only two of the S&P 500 sectors logged a gain – energy (+1.4%) and utilities (+0.3%) – while the industrials (-2.9%), information technology (-2.3%), and materials (-2.5%) sectors all declined more than 2.0%.

Below are truncated summaries of daily action:

Tuesday:

This holiday-shortened week got started on a softer note following last week’s big gains. The Russell 2000 paced index losses, declining 2.1%, while the Nasdaq settled with a 0.1% loss. The S&P 500 maintained a position above 4,500 for most of the session until a sharp move lower in the late afternoon led the index to close just a whisker shy of that level.

Relative strength in mega cap stocks, which reflected an overall risk-off vibe in the market, helped limit losses for the major indices. Tesla (TSLA) was a standout in that regard, jumping almost 5.0%.

The selling was fueled by a jump in market rates, along with global growth concerns that were stoked by a batch of disappointing PMI readings from overseas and rising oil prices. The 2-yr note yield rose eight basis points to 4.96% and the 10-yr note yield rose ten basis points to 4.27%.

The sharp increase in oil prices contributed to the lackluster showing, prompting worries about inflation expectations and consumer spending pressures. WTI crude oil futures rose 1.2% to $86.55/bbl following news that Saudi Arabia and Russia are planning to extend their voluntary oil production cuts of 1 million barrels per day and 300,000 barrels per day, respectively, through the end of 2023.

Tuesday’s economic data was limited to factory orders for July, which declined 2.1% month-over-month (consensus -2.4%) following an unrevised 2.3% increase in June. Excluding transportation, factory orders increased 0.8% month-over-month on the heels of a 0.3% increase in June. Shipments of manufactured goods rose 0.5% month-over-month after increasing 0.2% in June.

• The key takeaway from the report is that factory orders were better than they appeared in July given the strength seen in orders excluding the volatile transportation component.

Wednesday:

Wednesday’s trade started on a mixed note. There wasn’t much conviction on either side of the tape early on, leading the major indices to trade near yesterday’s closing levels. Stocks settled into a broad retreat, though, after market rates bounced in response to the ISM Services PMI at 10:00 a.m. ET.

The ISM Services PMI jumped to 54.5% from 52.7% and the Prices Index rose to 58.9% from 56.8%. That is a combination that will support the Fed’s thinking that rates need to stay higher for longer. The 2-yr note yield, which is most sensitive to changes in the fed funds rate, sat at 4.95% before the data, but settled up eight basis points from yesterday at 5.04%. The 10-yr note yield, at 4.25% before the data, settled at 4.29%.

Another jump in oil prices ($87.57/bbl, +1.02, +1.2%) contributed to the negative bias. That move, along with elevated gas prices, has stirred concerns about a slowdown in discretionary spending. On a related note, several airlines sounded a cautious note today about rising jet fuel costs.

The major indices were able to climb off their worst levels in the afternoon trade, but still registered decent losses. The S&P 500 for its part closed below its 50-day moving average (4,475). A big loss in Apple (AAPL) following a few negative headlines weighed heavily on the broader market. China banned government officials from using Apple devices, according to The Wall Street Journal, and the EU Commission designated Apple as one of six “gatekeepers,” which will place it under a regulatory microscope.

Reviewing Wednesday’s economic data:

• Weekly MBA Mortgage Applications Index -2.9%; Prior 2.3%
• July Trade Balance -$65.0 bln (consensus -$68.0 bln); Prior was revised to -$63.7 bln from -$65.5 bln
  • The key takeaway from the report is that there was a pickup in both exports and imports that was not suggestive of any material economic weakness on a global scale, yet there are clear signs of slowing with exports down 3.5% year-over-year and imports down 4.7% year-over-year.
• August S&P Global US Services PMI – Final 50.5; Prior 51.0
• August ISM Non-Manufacturing Index 54.5% (consensus 52.4%); Prior 52.7%
  • The key takeaway from the report is twofold: services sector activity accelerated in August but prices also increased at a faster pace. The latter will be a concerning development presumably for the Fed and the Treasury market, which will be contemplating the notion of rates needing to stay higher for longer.

Thursday:

Thursday’s trade featured a lack of conviction among buyers. The Dow Jones Industrial Average closed with a slim gain while the S&P 500, Nasdaq Composite, and Russell 2000 declined 0.3%, 0.9%, and 1.0%, respectively.

Apple (AAPL) registered another sizable decline, which hung over the broader market. The ongoing weakness followed a Bloomberg report that China is aiming to broaden its iPhone ban to state and federal agencies. That sent semiconductor stocks lower as well, leading to a 2.0% loss in the PHLX Semiconductor Index.

Market participants were focused on action in the Treasury market, which was turbulent. The 2-yr note yield, at 4.99% just before the economic data, hit 5.05% in the immediate aftermath but settled at 4.96%. The 10-yr note yield was at 4.27% before the data, hit 4.31% immediately after, but settled at 4.26%.

Reviewing Thursday’s economic data:

• Weekly Initial Claims 216K (consensus 233K); Prior was revised to 229K from 228K; Weekly Continuing Claims 1.679 mln; Prior was revised to 1.719 mln from 1.725 mln
  • The key takeaway from the report is that initial claims – a leading indicator – were at their lowest level since February. That is really good news – economically speaking – but it is also news – monetary policy speaking – that will likely keep the Fed in a restrictive policy position for longer.
• Q2 Productivity – Rev. 3.5% (consensus 3.7%); Prior 3.7%; Q2 Unit Labor Costs – Rev. 2.2% (consensus 1.6%); Prior 1.6%
  • The key takeaway from the report is that unit labor costs weren’t as low as previously reported, so they look disappointing at the headline level; however, they still fit the bill of disinflation given that unit labor costs were up 2.5% a year ago.

Friday:

The three major indices closed with modest gains, albeit off their highs of the day. Early upside moves had the S&P 500 and Nasdaq approaching their respective 50-day moving averages, which acted as areas of congestion over the past four weeks.

Apple (AAPL) drove a lot of the index level price action today. Apple had been up as much as 1.5% around the time that market hit session highs, but shares ultimately closed just modestly higher than yesterday.

Other mega caps were relative outperformers, offering some support to the broader market. The Vanguard Mega Cap Growth ETF (MGK) rose 0.3% and the Invesco S&P 500 Equal Weight ETF (RSP) rose 0.1%.

Eight of the 11 S&P 500 sectors closed in the green led by energy (+1.0%), which climbed alongside oil prices ($87.47/bbl, +0.50, +0.6%). The real estate sector (-0.6%) logged the biggest decline.

Rising rates had kept pressure on the stock market this week, so today’s muted action was a welcome development.

Friday’s economic data calendar was limited to wholesale inventories for July, which fell 0.2% (consensus -0.1%) following a revised 0.7% decline in June (from -0.5%), and July consumer credit, which increased by $10.4 billion (consensus $15.8 billion) after a revised increase of $14.0 billion (from $17.9 billion) in June.

• Dow Jones Industrial Average: -0.7% for the week / +4.3% YTD
• S&P 500: -1.3% for the week / +16.1% YTD
• Nasdaq Composite: -1.9% for the week / +31.5% YTD
• Russell 2000: -3.6% for the week / +5.1% YTD

Quiet Finish to Abbreviated Week

U.S. Treasuries finished the holiday-shortened week on Friday with modest losses in the 5-yr note and shorter tenors while 10s and 30s outperformed, recording modest gains. The Treasury complex started the day near the unchanged level after a night that saw the release of Japan’s below-consensus Q2 GDP report (actual 1.2% qtr/qtr; expected 1.5%) and speculation about the outcome of next week’s policy meeting at the European Central Bank. Treasuries climbed off their starting levels during the first 90 minutes of action, but found resistance once yields were pressured back to their lows from Tuesday. The rest of the morning saw a slow reversal that sent the 5-yr note and shorter tenors into the red while the long bond outperformed, finishing in the green. This week’s action left the 2s10s spread wider at -72 bps.

Bond Yields after the close on Friday 08 September:

• 3-mth: +2 bps at 5.55% (+8 bps for the week)
• 2-yr: +4 bps to 4.98% (+11 bps for the week)
• 5-yr: +1 bp to 4.39% (+10 bps for the week)
• 10-yr: -1 bp to 4.26% (+8 bps for the week)
• 30-yr: -3 bps 4.23% (+4 bps for the week)

The yield curve rose on Week 36 with its short-term maturity yields rising more than its long-term maturity yields, steepening the 2/10 inverted spread in the process.

10-YEAR/2-YEAR

The inverted 2-year/10-year yield spread widened to -72 bps from -69 bps the previous week on Friday 01 September 2023.

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

• The inverted 3m/10y spread that began on 25 October, is now two hundred and nineteen 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 -106 bps on Thursday 07 September from -115 bps the previous Friday 01 September, 2023.

• The current 10y/FFR inversion which began on Tuesday 15 November 2022 is two hundred and three 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 08 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 Heads Toward 8th Weekly Advance

The US Dollar Index eased to 105 on Friday, but still booked its eighth consecutive weekly advance as strong economic data added leeway for the Federal Reserve to remain hawkish for a prolonged period. New unemployment claims in the United States fell to their lowest in over six months in the final week of August, surprising market expectations of a moderate increase, to challenge recent data that suggested some softening in the labor market. Additionally, the ISM Services PMI in the US unexpectedly rose to a six-month high in August, reflecting resilience to high borrowing costs. On the other hand, weak data in Europe and Asia raised expectations that other major central banks may halt their tightening to accommodate for slower growth.

• EUR/USD: Lower by -0.7% to 1.0698 from 1.0773 the previous week, +6.6% YoY
• GBP/USD: Lower by -1.0% to 1.2464 from 1.2589 the previous week, +7.6% YoY
• USD/JPY: Higher by +1.1% to 147.81 from 146.17 the previous week, +3.7% YoY
• USD/CNY: Higher by +1.3% to 7.3640 from 7.2664 the previous week, +6.2% YoY
• USD/SGD: Higher by +0.8% to 1.3650 from 1.3543 the previous week, -2.4% YoY

Yen Holds Decline After BOJ Remarks

The Japanese Yen held its recent decline past 147 per dollar, approaching a 32-year low of 150 hit in October last year as the Bank of Japan is expected to keep its ultra-loose monetary policy. BoJ board member Junko Nakagawa said the central bank must keep its ultra-loose monetary policy for now as the prospect of achieving the 2% inflation target remains uncertain. Meanwhile, Japan’s top currency diplomat Masando Kanda recently warned that Japanese authorities won’t rule out any options in the currency markets in response to sharp yen depreciation. This puts the currency on intervention watch, although a widening policy divergence and safe-haven demand for the greenback continued to pressure the yen. On the data front, Japan’s economy expanded by 4.8% on an annualised basis in the second quarter, revised lower from a 6% growth seen in preliminary estimates and coming in below market expectations for a 5.5% expansion.

Euro Near 3-Month Low, ECB Awaited

The Euro was trading around $1.07, the lowest level in three months, as traders tried to assess the ECB’s plans. Currently, investors are assigning a nearly 64% chance the ECB will keep interest rates unchanged when it convenes for its monetary policy decision on September 14th, as recent data continues to point to a big risk of recession, especially in Germany. The Euro Area GDP grew a meager 0.1% in the first half of the year, according to revised figures; factory orders and industrial production in Germany fell way more than expected while PMIs for the bloc’s biggest economies pointed to contractions in the services sector. On the other hand, the inflation rate remained steady at 5.3%, more than two times above the central bank target, heightening the risks of stagflation. In recent days, ECB policymakers have sent mixed signals regarding their intentions for interest rates, leaving uncertainty about the central bank’s plans.

Commodity prices had another wild week as Energy went higher, Metals came down and Grains were mixed.

The broad-based Bloomberg Commodity Index closed lower at 106.08, down +0.6% from 106.72 in Week 35, 2023. Year-to-date, the index is down -5.96%.

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 Add 2% on the Week

WTI crude futures rebounded to settle higher at $87.51 a barrel on Friday, booking a near 2% gain for the week while Brent futures settled at $90.65 a barrel to book a near 2.5% gain for the week. Oil prices have been rising to levels not seen since November due to expectations of tight supplies. Saudi Arabia announced it would extend its voluntary output cut of 1 million barrels per day through the end of December. Russia also extended its voluntary reduction in oil exports by 300,000 bpd until the end of the year. Moreover, EIA data showed that US crude inventories declined by 6.3 million barrels last week, way higher than market expectations for a 2.1 million barrel draw. However, concerns persist on the demand side, due to China’s flagging economy, and renewed fears that further interest rate hikes from the Fed could exert downward pressure on energy consumption.

The settlement price spread between WTI and Brent increased by +$0.14 to $3.14 from $3.00 the previous week on Friday 01 September 2023.

Baker Hughes total total U.S. rig count +1 at 632 (Prior: -1).

• WTI settled higher at $87.51/barrel from $85.55 the previous week (+8.4% YTD)
• Brent settled higher at $90.65/barrel from $88.55 the previous week (+5.2% YTD)
• Nat Gas settled higher at $2.61/MMBtu from $2.77 the previous week (-35.9% YTD)

Gold Prints Weekly Decline

Gold steadied above $1,940 an ounce on Friday, ending the week lower as the latest batch of data pointed to a robust US economy, giving the Federal Reserve some space to keep monetary settings restrictive or even raise interest rates further. New unemployment claims in the US fell to their lowest in over six months in the final week of August, surprising market expectations of a moderate increase and contradicting recent data that suggested some softening in the labor market. The ISM Services PMI in the US also unexpectedly jumped to 54.5 in August, pointing to the strongest growth in the services sector in six months and posting well above forecasts of 52.5. Markets are now seeing a hawkish pause from the Federal Reserve this month, where it could signal a potential rate increase in the next meeting.

Copper Down to 3-Week Low

Copper futures dipped to the $3.7 threshold, hitting their lowest point since mid-August, due to a strengthening dollar, disappointing Chinese economic data, and anticipation in the market for additional economic support from Beijing. Earlier this month, released data indicated weaker-than-expected growth in China’s service sector for August, signaling a cooling demand trend. The foreign trade report also revealed significant drops in both imports and exports during the same period. In response to these challenges, Beijing had previously introduced a set of measures aimed at shoring up the property market, including reducing the existing mortgage rates for first-time homebuyers and adjusting the down payment ratios in select cities. However, China is still in the stage of expecting more policy support, as the country faces the risk of missing its economic growth target this year.

There were no updates or news on the grain markets ahead of next week’s UDSA WASDE report on Tuesday, 12 September.

• Corn settled higher at $4.84/bushel, from $4.81 the previous week (-28.8% YTD)
• Wheat settled unchanged at $5.96/bushel, from $5.96 the previous week (-24.8% YTD)
• Soyabeans settled lower at $13.63/bushel, from $13.69 the previous week (-10.5% YTD)

Orange Juice Goes Parabolic, Hits All-time High

Orange juice futures reached an all-time high of $3.50 per pound in early September, due to concern of lower production and inventories after Hurricane Idalia hit landfall in the US on 30th August. Florida’s orange juice production, which accounts for over 90% of the total orange juice output in the country, has been struggling with a steady decline due to the debilitating effects of greening disease and hurricane events. Reduced crop production has resulted in a 46.5% decline in orange juice production for the 2022/23 compared to the previous year. Analysts expect that this downward trend in juice production could continue with Hurricane Idalia worsening the situation. At the same time, Brazil struggles with tight supply as the world’s leading citrus grower has also encountered rainfall. So far this year, orange juice prices have surged nearly 70%.

World Food Prices Resume the Decline

The FAO Food Price Index declined 2.1% to 121.4 points in August 2023, reversing the 1% gain seen in July, and pushing the index 24% below its peak reached in March 2022. Declines were seen in prices for dairy products (-4%), the eighth consecutive fall, led by whole milk powder amid abundant supplies especially from Oceania amid seasonally rising production, and a slowdown in imports by China. Cost for vegetable oils dropped 3.1% due to lower world prices across palm, sunflower, soy and rapeseed oils. Prices of meat decreased 3%, with the steepest drop registered for ovine meat, due to a surge in export availabilities, mainly from Australia, and weaker demand from China. Also, cost of cereals edged 0.7% lower, with international wheat prices falling 3.8% amid higher seasonal availability from ongoing harvests in the northern hemisphere. On the other hand, sugar prices were up 1.3% due to concerns over the impact of the El Niño weather phenomenon on global production prospects.

Palm Oil Futures Close The Week Lower

Malaysian palm oil futures were below MYR 3,800 per tonne, declining for the fifth session in a row after approaching their highest level of MYR 4,060 on July 26th while pointing to the first weekly fall in four, squeezed by weakness in rival vegetable oils. Argentina’s soybean crop for 2023/24 is estimated at 50 million tons, the highest in five years and up from the 21 million tons produced in the prior season. Meantime, Malaysia’s palm oil inventories at the end of last month likely hit a 6-month peak at 1.89 million tons as output rose and exports slowed, according to a Reuters survey. Malaysia is scheduled to release its palm oil inventories data on September, 11. Limiting the falls were projections that India’s palm oil imports may jump 26% to a record in the 2022/23 year ending on Oct. 31, as refiners increased their buying. In China, exports and imports fell less than expected in August. Meantime, purchases of edible oil and soybean by the country jumped 30.5% and 92.1%, each.

Baltic Exchange Dry Index Up for 3rd Day, Posts Weekly Gain

The Baltic Exchange’s dry bulk sea freight index, which measures the cost of shipping goods worldwide, advanced for a third day on Friday, rising about 4% to an over two-week high of 1,186 points, mainly boosted by gains in the bigger size segment. The capesize index, which tracks vessels typically transporting 150,000-tonne cargoes such as iron ore and coal, jumped 8.4% to 1,289 points; and the panamax index, which tracks ships that usually carry coal or grain cargoes of about 60,000 to 70,000 tonnes, increased 16 points to 1.489 points. Among smaller vessels, the supramax index added 23 points to 1,079 points. the benchmark index recorded an 11.4% gain for the week, its strongest rise since late July.

• • • • •

Asian Stocks Fall on Weak Sentiment

Markets in the Asia-Pacific fell on Friday as renewed fears of further interest rate hikes from the Federal Reserve and weak economic data in Japan weighed on investor sentiment. The latest batch of economic reports pointed to a robust economy in the US, giving the Fed some space to keep monetary settings restrictive or even tighten further. Meanwhile, Japan’s economy expanded by 4.8% on an annualized basis in the second quarter, revised lower from a 6% growth seen in preliminary estimates and coming in below market expectations for a 5.5% expansion. Shares in Australia, Japan, South Korea and mainland China all declined. Hong Kong suspended morning trade after a “black rainstorm” warning was issued. 

The Japanese stock markets dropped 1.16% to close at 32,607 while the broader Topix Index lost 1.02% to 2,359 on Friday, sliding for the second straight session as investors reacted to a report showing Japan’s second quarter GDP growth was revised lower. The country’s economy expanded by 4.8% on an annualized basis in the second quarter, downgraded from a 6% growth seen in preliminary estimates and lower than market expectations for a 5.5% expansion. Japanese shares also erased most of the gains made earlier in the week amid growing fears that the Federal Reserve could raise interest rates further following a solid batch of US economic data. Nearly all sectors declined on Friday.

The Hong Kong Stock Exchange canceled all trading on Friday after the city’s meteorological authority extended an extreme weather alert warning. This is the second interruption in a week that brought much of the city to a standstill. The Hang Seng on Thursday tumbled 1.34%, pressured by intensifying fears that economic momentum in China remained uncertain. August trade data released Thursday showed that Chinese exports and imports continued their downward momentum despite the rate of falls being less than market expectations.

The Shanghai Composite fell 0.18% to close at 3,117 while the Shenzhen Component dropped 0.38% to 10,282 on Friday, with both benchmarks finishing the week lower as weaker-than-expected Chinese services sector and trade figures amplified concerns about the country’s flagging economy. Chinese stocks were also weighed down throughout the period by growing fears that the Federal Reserve could raise interest rates further amid a solid batch of US economic data. Technology and new energy stocks led the decline on Friday.

The S&P/ASX 200 Index fell 0.2% to close at 7,156 on Friday and finished the week sharply lower, weighed down throughout the period by growing fears that the Federal Reserve could raise interest rates further amid a solid batch of US economic data. Sentiment also took a hit this week after data showed that Australia and China both posted a lower trade surplus in the latest period as global demand weakened. Meanwhile, the Reserve Bank of Australia kept its benchmark rate unchanged earlier in the week, citing progress made with inflation and the economic risks of further rate increases. Mining and technology stocks led the decline on Friday. 

Singapore stocks end lower on Friday,
tracking regional losses; STI down 0.6%

Weakness on Wall Street overnight on the back of concerns about interest rates and the Chinese economy set the tone for the region on Friday with red ink from one end to the other.The downbeat mood sent the Straits Times Index (STI) slipping 0.6 per cent or 18.84 points to 3,207.75 with losers outnumbering gainers 184 to 177, on middling trade of 778.2 million securities worth $671.5 million.

Bursa extends loss on weaker regional market sentiment

•  
• Japan’s Nikkei: -1.2% (-0.3% for the week) +25.0% YTD
• Hong Kong’s Hang Seng: CLOSED (-1.0% for the week) -8.0% YTD
• China’s Shanghai Composite: -0.2% (-0.5% for the week) +0.9% YTD
• India’s Sensex: +0.5% (+1.9% for the week) +9.5% YTD
• South Korea’s Kospi: -0.0% (-0.6% for the week) +13.9% YTD
• Australia’s ASX All Ordinaries: -0.2% (-1.8% for the week) +1.9% YTD 
• Malaysia’s FKLCI: -0.4% (-0.6% for the week) -2.7% YTD
• Singapore’s STI: -0.6% (-0.8% for the week) -1.3% YTD

European Stocks Halt Slide

European equity markets markets closed a choppy session with slight gains on Friday, with Germany’s Dax advancing 0.2% to 15,457 and the pan-European Stoxx 600 halting seven sessions of losses with a 0.2% increase, taking the index to 454. While stock benchmarks were able to halt selling pressure, market participants trod with caution amid rising stagflation concerns, magnified by a series of inflation rebounds for EA members and a fresh surge in TTF prices, in addition to sharp downward revisions for the bloc’s PMIs and GDP. Hawkish pressure from the Fed also dented demand for equities, with robust labor data lifting the dollar and bond yields. Gains in the continent were supported by rallies for heavy-weight French luxury brands  and energy producers. The benchmark Stoxx 600 dropped 0.8% on the week.

UK Stocks End in the Green, Book Slight Weekly Gain

Equities in London gained some ground to close about 0.5% higher at 7,478 on Friday, extending yesterday’s rebound, with investors maintaining a cautious stance due to ongoing concerns about the health of the global economy and the monetary policy path of major central banks. Meanwhile, local traders took comfort from a BoE survey on Thursday showing businesses were planning for their lowest price rises since February 2022, offering some reassurance to policymakers that inflation is on course to return to target. Also, dovish comments from the central bank’s governor, Andrew Bailey, raised expectations that the central bank is approaching the end of its tightening cycle. The FTSE 100 added only 0.2% for the week.

• U.K.’s FTSE 100: +0.5% (+0.2% for the week) +0.4% YTD
• Germany’s DAX: +0.1% (-0.6% for the week) +13.1% YTD   
• France’s CAC 40: +0.6% (-0.8% for the week) +11.9% YTD
• Italy’s FTSE MIB: +0.3% (-1.5% for the week) +19.1% YTD
• Spain’s IBEX 35: +0.6% (-0.9% for the week) +13.8% YTD
• STOXX Europe 600: +0.2% (-0.8% for the week) +7.0% YTD

• • • • •

It will be a busy week in the United States, with the inflation rate and retail sales data taking center stage, followed by the University of Michigan consumer confidence index, industrial production figures, and export and import prices. Investors will also be eagerly awaiting the European Central Bank’s interest rate decision and the ZEW Economic Sentiment Index for Germany. In the United Kingdom, the focus will be on the unemployment rate, earnings data, July’s GDP growth figures, industrial production, and foreign trade data. In China, key indicators to watch include August’s industrial production, retail sales, unemployment rates, car sales, loan growth, and fixed asset investments. Finally, Brazil and India will unveil their inflation rates, and Australia will release the NAB Business Confidence Index.

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

• Week 37 (11 to 15 September) is mostly bullish.
• The second week of September is more bullish than bearish.
• Monday of September Triple Witching Week has been down on COMP 14 of the last 23  (last year up).
• September Triple Witching Friday has been up on DJIA 11 of the last 18 but down 7 of the last 10 (last year down).

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

• Week 37 (11 to 15 September) is mostly bullish.

Week 37 Key U.S. Economic Notes:

• Monday 11 September – Nothing of note
• Tuesday 12 September – WASDE September Report
• Wednesday 13 September – MBA Mortgage Applications Index, CPI, Core CPI, EIA Crude Oil Inventories, Treasury Budget
• Thursday 14 September – Initial Claims, Continuing Claims, PPI, Core PPI, Retail Sales, Retail Sales ex-Auto, Business Inventories, Natural Gas Inventories
• Friday 15 September – Empire State Manufacturing Index, Export Prices ex-Ag, Import Prices ex-Oil, Capacity Utilisation, Industrial Production, UoM Consumer Sentiment-Prelim

U.S. Economic Releases for Week 37

All eyes will be on the United States’ CPI report and retail sales. Headline consumer prices are expected to have risen by 3.6 percent last month, accelerating for the second consecutive month. On the other hand, the core index is likely to have increased by 4.3 percent, the least since September 2021. Also, retail sales is expected to have grown only 0.2 percent month-over-month, down from July’s 0.7 percent. There are several other reports worth watching, including industrial production, producer and foreign trade prices, the preliminary estimate of Michigan consumer sentiment, business inventories, the NY Empire State Manufacturing Index, and the government’s monthly budget statement.

Monday 11 September

• Nothing of note.

Tuesday 12 September

• WASDE August Report at 12:00 ET

Wednesday 13 September

• Weekly MBA Mortgage Index (prior -2.9%) at 7:00 ET
• August CPI (consensus 0.6%; prior 0.2%) at 8:30 ET
• Core CPI (consensus 0.2%; prior 0.2%) at 8:30 ET
• Weekly crude oil inventories (prior -6.31 mln) at 10:30 ET
• August Treasury Budget (prior -$221.0 bln) at 14:00 ET

Thursday 14 September

• Weekly Initial Claims (consensus 226,000; prior 216,000) at 8:30 ET 
• Continuing Claims (prior 1.679 mln) at 8:30 ET
• PPI (consensus 0.4%; prior 0.3%) at 8:30 ET
• Core PPI (consensus 0.2%; prior 0.3%) at 8:30 ET 
• August Retail Sales (consensus 0.2%; prior 0.7%) at 8:30 ET 
• Retail Sales ex-auto (consensus 0.4%; prior 1.0%) at 8:30 ET
• July Business Inventories (consensus 0.1%; prior 0.0%) at 10:00 ET
• Weekly natural gas inventories (prior +33 bcf) at 10:30 ET

Friday 15 September

• August Import Prices (prior 0.4%) at 8:30 ET
• Import Prices ex-oil (prior 0.0%) at 8:30 ET
• Export Prices (prior 0.7%) at 8:30 ET
• Export Prices ex-agriculture (prior 0.6%) at 8:30 ET
• September Empire State Manufacturing survey (consensus -10.0; prior -19.0) at 8:30 ET
• August Industrial Production (consensus 0.2%; prior 1.0%) at 9:15 ET
• Capacity Utilisation (consensus 79.3%; prior 79.3%) at 9:15 ET
• Preliminary University of Michigan Consumer Sentiment (consensus 69.4; prior 69.5) at 10:00 ET

International Economic Releases for Week 37

In Europe, the ECB will be deciding on the course of its monetary policy on Thursday. The central bank is expected to keep borrowing costs unchanged, marking a pause in the rate-hike campaign after nine consecutive increases that brought the rate on the deposit facility to a 22-year high of 3.75%. Traders will also await further clues regarding the central bank’s plans for the rest of the year, and new economic forecasts will be closely scrutinized. On the data front, it will be interesting to follow final inflation figures for Spain, France and Italy; ZEW economic sentiment and wholesale prices for Germany; and Euro Area industrial production, labour costs, wage growth and trade balance.

In the UK, a batch of important indicators will offer insights into the country’s economic health, namely unemployment rate and wage growth, GDP growth for the month of August, trade balance and industrial production. Finally, Turkey will release industrial production, retail sales, unemployment rate and current account.

In China, a batch of economic data for August will give the latest insights on whether initial government support measures may have already had an impact on its slowing economy. New releases are set to show slight rebounds in consumer prices, new yuan loans, industrial production growth, and retail sales, while fixed investment and house prices will be closely eyed for turns following Country Garden’s missed bond payments.

In East Asia, investors in Japan await the Reuters Tankan index for September and July’s machinery orders. In India, inflation is expected to have slowed, contrary to a rebound in industrial output and a stable trade balance. South Korea will share its August unemployment rate.

In Australia, key releases include forward-looking indicators such as September’s Westpac consumer confidence, August’s NAB Business confidence indices and range of labor data. 

Saturday 09 September

• China – CPI y/y, PPI y/y
• ALL – G30 Meetings

Sunday 10 September

• ALL – G30 Meetings

Monday 11 September

• Japan – M2 Money Stock y/y, Prelim Machine Tool Orders y/y
• UK – MPC Member Pill Speaks, MPC Member Mann Speaks
• EU –
  • German WPI m/m
  • Italian Industrial Production m/m

Tuesday 12 September

• Australia – Westpac Consumer Sentiment, NAB Business Confidence
• China – New Loans, M2 Money Supply y/y
• UK – Claimant Count Change, Average Earnings Index 3m/y, Unemployment Rate, NIESR GDP Estimate
• EU –
  • German ZEW Economic Sentiment
  • Eurozone ZEW Economic Sentiment

Wednesday 13 September

• Japan – BSI Manufacturing Index, PPI y/y
• UK – GDP m/m, Construction Output m/m, Goods Trade Balance, Index of Services 3m/3m, Industrial Production m/m, Manufacturing Production m/m, CB Leading Index m/m, RICS House Price Balance
• EU –
  • Italian Quarterly Unemployment Rate
  • Eurozone Industrial Production m/m

Thursday 14 September

• Australia – MI Inflation Expectations, Employment Change, Unemployment Rate
• Japan – Core Machinery Orders m/m, Revised Industrial Production m/m
• EU –
  • Eurozone Main Refinancing Rate, Monetary Policy Statement, ECB Press Conference

Friday 15 September

• China – Industrial Production y/y, Tertiary Industry Activity m/m, Retail Sales y/y, Fixed Asset Investment ytd/y, NBS Press Conference, Unemployment Rate
• Japan – Tertiary Industry Activity m/m
• UK – Consumer Inflation Expectations
• EU –
  • French Final CPI m/m
  • Italian Trade Balance
  • Eurozone Trade Balance

Monday 11 September 2023

Monday of September Triple Witching Week has been down on COMP 14 of the last 23  (last year up).

The Stock Trader’s Almanac’s stats for the Benchmark Indices for Monday of Week 37 over a 21-year average are;

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

The Pattern Trader™ Tools Screener stats for the Benchmark Index ETFs for Monday of Week 37;

• SPDR DJIA ETF Trust (DIA – 19yr Avg): Very Bullish 72.22%
• SPDR S&P 500 ETF Trust (SPY – 19yr Avg): Very Bullish 72.22% 
• Invesco QQQ Trust Series I (QQQ – 13yr Avg): Quite Bullish 66.67% 

Saturday 09 September

• China – CPI y/y, PPI y/y
• ALL – G30 Meetings

Sunday 10 September

• ALL – G30 Meetings

Monday 11 September

• Japan – M2 Money Stock y/y, Prelim Machine Tool Orders y/y
• UK – MPC Member Pill Speaks, MPC Member Mann Speaks
• EU –
  • German WPI m/m
  • Italian Industrial Production m/m
• US – 
  • Nothing of note

• • • • •

Friday 08 September 2023, AMC

From last weekend’s WMO;

“The bother about those histograms (on SPX) 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.“

Week 36 reintroduced bearish histograms after a brief divergence the week before, thus establishing a lower high on the lower PhiB-Fan. Friday’s close revealed a Shooting Star, implying downside in the coming session. A break-below the COP (PhiB 61.8%) will also be a break-below the Fan’s support level and the critical 4,400 support level. If the broad-based index fails to get support at that confluence, we could be looking at a major sell down to 4,200 before the end of September.

“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.“

DJIA barely avoided falling below its PhiB-Fan and COP level (PhiB 61.8%) in the last three sessions. However, the DJIA and SPX are on potential Third Candle Reversals for Monday. While the DJIA battles to keep its head above the water, SPX will have a different challenge in the form of its 50DSMA as a resistance.

“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.“

On Thursday, COMP broke below its 50DSMA and closed out Friday in a downside Dragonfly Doji, implying that a Third Candle Reversal on Monday is imminent. The Russell 2000 (RUT), meanwhile, has broken below its PhiB-Fan and will be testing its 200DSMA while facing a potential Fifth Candle Reversal to the upside on Monday.

Lastly, using weekly candles, all three benchmarks are wearing the Bearish Harami formation that implies that the coming week could consolidate with a hint of bearishness while the RUT wears a Short Dusk Line implying more downside for the mid-to-small caps.

Sector & Industry ETFs Summary

Week 36 saw only two winners in Energy and Utilities. Growth issues took the biggest hit while most of the defensive issues fared better.

• Technology, Homebuilders and Discretionary remain the best gainers YTD for a twenty-fourth straight week.
• Technology is still by far the stand-out winner YTD.
• Energy was the best weekly gainer out of only two weekly gainers with Utilities being the other.
• Homebuilders is the worst loser this week, followed by Retail, Aerospace & Defence and Industrials
• Utilities remains the worst loser YTD for a sixth week while Health Care and Staples stay a distant third and second worst YTD losers.

Shiller PE Ratio

The Shiller PE Ratio, as of Friday 08 September, is at 30.64, -1.3% lower than 31.04 the previous week, below double of its mean (17.05) and its median (15.94). 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.

08 September 2023 AMC

Last weekend;

“… 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 seem to have come early this year and the shortened Week 36’s broader market internals were predominantly bearish regardless of the indices’ closing number.

“… 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.“

The bears definitely had more than just a look in on the market in Week 36. By the looks of the market internals over the last five weeks, it would seem like it was the bulls who were doing the peeking in the week before. The bears still have a firm grip on the broader market internals.

As expected, average volumes in August fell and now in September are still falling. The weaker the volumes get, the more vulnerable the market becomes to irrational volatility, which in most cases, have a bearish tone in September.

Last weekend;

“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. “

NYSE’s average volumes fell below the 900 (million) mark and is now at the YTD lowest level. NASDAQ’s average volumes fell further away from its 5,000 (million) mark and looks set to challenge the YTD low just above 4,700 (million). As of Friday 08 September 2023’s close, NYSE’s average volumes were 853 (million) while NASDAQ’s were 4,872 (million)

For the record, average volumes at the close of Friday 09 September 2022 (last year) were:

• Lower than average volume 
  • NYSE 855 mln vs avg. of 878 mln
  • NASDAQ 4330 mln vs avg. of 4748 mln

The CBOE Volatility Index (VIX), often referred to as Wall Street’s “fear gauge,” closed Week 36 at 13.84, +5.7% higher than the previous week’s close at 13.09.

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

Put/Call Ratios

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

• Total Put/Call Ratio edged up to 1.05 from 1.04 the previous week.
• Index Put/Call Ratios closed lower at 1.29 from 1.37 the previous week.
• ETF Put/Call Ratios rose to 1.21 from 1.16 from a week ago.
• Equity Put/Call Ratios jumped to 0.75 from 0.65 the previous week.
• The CBOE VIX Put/Call Ratio fell to 0.32 from 0.65 last week.

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

Mega-Cap Tech Stocks – Friend or Foe?

Last week’s WMO;

“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 … It can be argued that most of the market is overbought anyway.”

“… tech leadership has proven many times to have the most unreliable leadership … They get up quicker and come down harder than any other bubbles such as Financial and Housing.“

“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.“

The story for Week 35 and 36 has been about the weakening of these mega-cap technology issues. The past week was all about AAPL and the potential threat of this tech bubble bursting if China presses its case beyond AAPL. Then there’s the fear forex reserves falling all over the world as the greenback keeps strengthening. What’s next could be a drop in consumerism as inflation is still an ongoing issue along with dwindling savings. The coming week’s inflationary numbers will bring violent reactions in the market – the question is which way it will swing – for which, I remain extremely cautious and heavily hedged.

Not The Time For Bargain-Hunting

From last weekend’s WMO

“… 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.“

I’ll keep this wrap-up short – I ain’t buying anything … yet.

Happy Hunting!

Copyright© 2023 FinancialScents Pte Ltd

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

After 17 years of educating, mentoring and supporting hundreds of participants (annually) in the arts and sciences of Finance and Economics, the Pattern Trader™ Tutorial has evolved to become the most exclusive and sought-after boutique-styled class that caters to retail individuals, institutional professionals, businesses and families that are serious about their finances and their prospects as we move into the future.

Enriching, Fulfilling, Life Changing

The personal mentorship and tutorial-styled approach delivers a conducive environment that allows for close communication and interaction between the mentor and the participant. The hands-on style makes the Tutorial very practical for anyone who requires a start from the ground up. It is the perfect beginning for anyone who wishes to take that first step in improving their financial and economic literacy.

If you’re looking to make a huge difference in your financial life and get the most value for your education investment, there’s no better choice than the time-tested and well reputed Pattern Trader™ Tutorial

Download our promo slides here: The Pattern Trader™ Tutorial