Articles

Microsoft:

• Earnings-per-share comes in at $2.95 versus $2.93
• Revenues $64.7 billion versus $64.39 billion
• Azure cloud 29% versus 30.2% estimate
• Intelligent cloud $28.52 billion versus $28.72 billion expected
• Productivity and business processes $20.32 billion versus $20.21 billion estimate

The stock is moving lower as it’s just not good enough: Shares are down -7% in after-hours trading

Amazon shares down -4.16% on the cloud miss.

Meta is down -1.68% and Nvidia is down -3.39% in after-hours

This article was written by Greg Michalowski at www.forexlive.com.

Reuters is out with a new poll of the Presidential election that has Harris leading 43% to 42% over Trump. It’s similar to others that now show a tight race. Betting markets also show a close race.

Harris is in a honeymoon period as Republicans re-frame their attacks and Democrats shake off the Biden rust.

I continue to emphasize the importance of the House race as well. Biden’s poor showing had threatened to kill Democrat’s chances at getting the House but the bleeding has stopped.

I think the takeaway for right now (with the election still three months away) is to treat it mostly as noise and focus on the economy and Fed.

This article was written by Adam Button at www.forexlive.com.

Gold prices erased earlier losses, jumping more than $20 to $2405 after Israel’s defense minister said Hezbollah crossed red lines with a missile attack that killed 12 children. The response was a missile attack that the IDF said targeted the commander responsible for the attack.

However two security sources cited by Reuters said the commander survived the attack, though two others were killed.

In any case, the gold market is once-again pricing the possibility of a spiralling war with Lebanon and Iran potentially getting involved.

The trade so far on all the similar headlines over the past 9 months has been to fade the rally.

This article was written by Adam Button at www.forexlive.com.

The US dollar has strengthened against the euro due to slowing growth momentum outside the US, with key economic indicators from China and the euro-zone showing signs of weakening. This has contributed to the USD’s recent rebound.

Key Points:

1. USD Strengthening:

   • Euro Weakness: The euro has weakened against the USD, approaching the 200-day moving average support level around 1.0820.
   • Global Growth Concerns: Slowing growth momentum outside the US has provided support for the USD.

2. China’s Economic Slowdown:

   • Rate Cuts: Policymakers in China have cut rates, indicating concerns over meeting the government’s GDP target of around 5% for this year.
   • GDP Growth: China’s GDP growth slowed to 4.7% in Q2, down from 5.3% in Q1.

3. Euro-Zone Business Confidence:

   • PMI Surveys: The latest PMI surveys from the euro-zone show a decline in business confidence for the second consecutive month in July.
   • Composite PMI: The composite PMI reading of 50.1 in July compares to an average of 51.1 in Q2 and 49.1 in Q1, casting doubts on the euro-zone’s economic recovery in 2H of this year.
   • GDP Forecasts: The consensus forecast for euro-zone GDP growth in Q3 is currently estimated at 0.3% Q/Q, similar to the pace recorded in 1H of this year.

4. French GDP Growth:

   • Upward Revision: GDP growth in France for Q2 and Q1 was revised upwards by +0.1 point to 0.3% Q/Q respectively, providing some positive news amid recent negative political risks.

5. Commodity Price Index:

   • Sharp Fall: Bloomberg’s commodity price index fell to a year-to-date low, reflecting global growth concerns.
   • Commodity Currencies: G10 commodity currencies have underperformed this month, correlating with the fall in commodity prices.

Conclusion:

Slowing growth momentum in major economies outside the US, including China and the euro-zone, has contributed to the USD’s recent rebound. Weakening business confidence in the euro-zone and rate cuts in China indicate broader global economic concerns, which have also impacted commodity prices and related currencies. The USD has gained support from these developments, leading to its recent strength against the euro and other currencies.

This article was written by Adam Button at www.forexlive.com.

Synopsis: BofA anticipates the Federal Reserve will keep its policy rate unchanged in July, signaling progress in reducing inflation while maintaining a data-dependent approach for future rate cuts. The USD’s reaction will hinge on Chair Powell’s tone and any hints about a September rate cut.

Key Points:

1. Policy Rate and Inflation:

   • Unchanged Policy Rate: BofA expects the Fed to keep its policy rate unchanged in July.
   • Progress on Inflation: The Fed is likely to signal that progress in reducing inflation has resumed.

2. Future Rate Cuts:

   • Near-Term Cuts: The Fed is optimistic about the likelihood of near-term rate cuts but is not expected to signal a definite cut in September.
   • Data Dependence: Future rate cuts will depend on upcoming economic data.
   • Powell’s Communication: Chair Powell is expected to indicate a shift from a singular focus on inflation to a more balanced reaction function, allowing for cuts based on economic cooling, inflation slowing, or both.

3. Market Pricing:

   • Current Market Expectations: Markets are pricing in a full cut in September and roughly 2.5 cuts by the end of the year.
   • Fed’s Stance: The Fed does not need to signal a September cut but may mildly push back, emphasizing data dependence.

4. Scenario Analysis:

   • USD Sell-Off: For the USD to sell off, the market would need to hear a concerned tone on the labor market that confirms market pricing and implies greater risks for more assertive easing.
   • USD Rally: A USD rally would likely require pushback from Powell on market pricing for September, re-emphasizing the importance of upcoming economic data.

Conclusion: BofA expects the Fed to maintain its policy rate unchanged in July, with a focus on progress in reducing inflation and a data-dependent approach for future rate cuts. The USD’s reaction will depend on Powell’s tone and any signals about a September rate cut, with the market currently pricing in a full cut in September and additional cuts by year-end. The July FOMC meeting is likely to be a placeholder, with limited scope for a sustained move in the USD, while upcoming economic data and Powell’s Jackson Hole speech will provide further guidance.

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This article was written by Adam Button at www.forexlive.com.

Atsushi Mimura takes over at the end of the month and the market is unsure of what changes are coming. His hints in today’s comments don’t suggest a big splash.

• Will act under internationally agreed commitments on foreign exchange
• It has been internationally agreed that measures including intervention are allowed when necessary
• A change in Vice Finance Minister for international affairs doesn’t mean a change in basic policy
• Only and natural solution to yen’s weakness is to improve economic competitiveness and boost growth potential

USD/JPY is trading up 46 pips to 154.48 but is bouncing around as we go through the month-end fix.

This article was written by Adam Button at www.forexlive.com.

• Prior was +1.9
• Service sector outlook -0.1 vs -4.1 prior
• The employment index -0.2 vs +1.8 prior
• The input price index fell from 24.7 to 21.8 and the wages and benefits index moved down from 16.4 to 13.4
• Retail sales outlook -18.1 vs -18.1 prior

Comments in the report:

Utilities

• It feels like the economy is getting better.

Pipeline transportation

• We expect Permian Basin oil demand to grow 200 million to 300
  million barrels per day across 2024. More volume drives our
  expectations for revenue growth.

Support activities for transportation

• Bad local cotton crop expected due to bad weather.
• Our industry has seen an increase in activity and a hairline increase in selling prices.

Warehousing and storage

• We think some good news on the inflation front provides hope for
  a soft landing and maybe even a potential rate cut that could spur
  additional business.

Publishing industries (except internet)

• New advanced, customer-built, do-it-yourself lessons via
  software capabilities have been offered for mixed reality training with
  AI assisted metrics. More training opportunities are emerging within the
  Department of Defense, showing interest in the development of apps. New
  and more advanced software and licensing are the main reasons for a
  better outlook, not current economic conditions.
• There is still a high amount of uncertainty about rate cuts and,
  subsequently, cost of capital. Simultaneously, we are wary that
  consumer spending will not hold up over the next six month unless
  something changes or there is more liquidity in the system. The election
  and the impact that will have on economic policy and rates are also
  adding to the uncertainty and ambiguity. We are hesitant to
  forward-invest until the Federal Reserve behavior and economic data
  suggest the economy has achieved some sort of soft landing.

Credit intermediation and related activities

• The political climate has intensified the feeling of
  uncertainty, especially after the assassination attempt on former
  President Trump. Economically, the rural markets are fairly steady but
  not robust. The most prevalent inflationary pressure across the board is
  the increase in insurance premiums including health insurance for
  employee coverage. Auto, homeowners’ coverage and liability insurance
  premiums have been substantial. We are beginning to hear of lower income
  families dropping or not renewing coverage of their homes. The interest
  rate on residential real estate, combined with escrow for insurance and
  taxes, is increasing debt service coverage for anyone financing a home.

Insurance carriers and related activities

• Business is stable. Insurance increases are moderating somewhat. All eyes are on the November election currently.

Real estate

• The presidential election causes uncertainty. House inventory remains low.
• Interest rates in the form of mortgage rates are the question mark. Lower rates are good for our business.

Rental and leasing services

• We finished 1Q 2024 down 2 percent compared to 1Q 2023. The
  second quarter was even slower, ending down 9.6 percent. We averaged
  over 10 percent growth in revenue per year for over 65 years, so that
  makes us think these quarterly reports are more than just an anomaly. We
  think the Federal Reserve has finally gotten this economy pulled back;
  whether they have killed it or not is yet to be seen.

Professional, scientific and technical services

• This is the worst month we have had since the Great Recession.
  It was even worse than the first month of the pandemic. There are almost
  no new starts on multi-family or self-storage, and building permits are
  well down. We have seen increased activity in new prospects, leads, as
  well as deals. We suspect this is due to a combination of sales and
  marketing efforts, as well as the slight easing in inflation, which has,
  in turn, likely improved business and consumer confidence.
• The pace of business activity has slowed down. Operating cost
  has increased, including the cost of software subscriptions and facility
  maintenance. Also, there’s been a loss in productivity due to hurricane
  preparation and summertime vacation. There is a general sense of a loss
  of momentum and uncertainty.
• Changes in the presidential race have created significant added
  uncertainty as to the future regulatory climate in the energy sector.
• The real estate market has been stagnated for the past year and a
  half and will remain so until interest rates stabilize. We are hoping
  this is the bottom, but until regional banks find a way to begin making
  loans, the real estate market will not recover. We are at a breaking
  point if the banks start taking property back and cannot find a way to
  make loans.
• We are a recruiting company. Our retained search side has been a
  little busier this month than last month, and we hope to have even more
  work in August and for the second half of the year. Our outsource
  recruiting side has been the same this month versus last month, but we
  hope it will grow.

Administrative and support services

• The bottom has fallen out of the professional-level hiring
  market. Clients are not hiring or are very slow to make decisions. The
  cost of money for our clients (and for us) is preventing us from hiring
  and optimizing production in our businesses. We are living on the edge
  of recession and truly need the Federal Reserve to take action and start
  to lower rates. Layoffs are imminent.
• There is still pressure on wages and the ability to hire employees at line-level blue collar work.
• We are concerned about interest rates, but economic activity seems strong.

Ambulatory health care services

• We were dramatically affected by Hurricane Beryl and the power
  outages this month. Then we were affected by the Crowdstrike update
  issue as well. We lost significant business due to these factors in
  July.

Texas Retail Outlook Survey

Amusement, gambling and recreation industries

• Weather has been the real negative factor for our business.

Accommodation

• Hurricane Beryl caused a drastic change in our business,
  increasing our occupancy and revenue dramatically over the previous
  month and same time last year. We also experienced some damage that
  caused us to have some capital expenses, but minimal for the most part.
• In our market, we manage three hotels, one downtown and two on
  the northside of our city. The two on the northside are performing as
  expected. Downtown demand has been sluggish. Factors that are
  contributing to this issue include a lack of group business and
  construction throughout our downtown area. For the first time in a
  while, we have had a restaurant on the riverwalk close due to the lack
  of demand. Based on our advance bookings, this will continue to play out
  until we get into fall.

Merchant wholesalers, durable goods

• We are seeing a softening in sales to the construction market.

Merchant wholesalers, nondurable goods

• The best words to describe retail are stagnant or grinding day to day.

Motor vehicle and parts dealers

• We have a challenging business model. We are seeing margin
  compression. Inventories are abnormally high and the cost-to-carry is
  severely impacting profitability. Affordability is a major issue and
  ongoing concern.
• Demand for new and used vehicles continues to be strong. Inventory growth has slowed down and is starting to plateau.

Electronics and appliance stores

• Retail is struggling.

Building material and garden equipment and supplies dealers

• The lumber market is weak, and sales seem to be flat from month to month, with no real signs of improving.
• There is very little activity. The combination of steel prices
  decreasing and the promise of lower interest rates sometime in the
  future is causing everyone to delay.

This article was written by Adam Button at www.forexlive.com.

• Prior month 8.140M revised to 8.23M
• Job openings 8.184M. That is down -941,000 over the year. The job opening rate held at 4.9% in June
  • accommodations and food services +120K
  • state and local government excluding education +94K.
  • Durable goods manufacturing -88K
  • federal government -62K
• Vacancy rate of 4.9% versus 4.9% previously
• Quits rate 2.1% versus 2.1% previously (revised from 2.2%). The quits rate was down 434,000 over the year.
  • Construction -64k
  • state and local government education -55k
• separations rate 3.2% little change from last month
  • state and local government -51K.
  • Arts entertainment and recreation -39k
• Hires rate 3.6% at 5.3 million. Versus a year ago, the hires are down 554,000

This article was written by Greg Michalowski at www.forexlive.com.

• Prior was 100.4
• Expectations 78.2 vs 72.8 prior
• Present situation 133.6 vs 135.3 prior
• % of consumers said jobs were “hard to get,” from 14.1%.
• 12 month inflation expectations % vs 5.3% prior

This article was written by Adam Button at www.forexlive.com.

What’s this chart saying?

UK 2-year yields are down 3.3 basis points today in the sixth consecutive day of declines. The move comes ahead of Thursday’s Bank of England rate decision, with the rates market pricing in a 60% chance of a cut.

The Bank Rate is currently 5.25% so to get to 3.85% over two years, you need a significant amount of rate cuts. This is highlighting downside risks for the economy as the lagged effects of higher interest rates bite.

The pound has been tracking the move lower in gilts recently but is still close to the range-top of the past two years. A portion of that is due to US dollar weakness recently as the US faces its own growth headwinds. Some is also relief from the UK election and Labour promises not to raise corporate taxes or introduce a wealth tax.

In the short term though, it’s all about the Bank of England in what’s expected to be a razor-thin 5-4 vote either way. The BOE has repeatedly made the case that local wage dynamics and inflation dynamics are different from elsewhere so they could decide to wait another meeting before cutting.

Counter-intuitively, I think that kind of wait would be bearish for the pound as it would imply the BOE falling behind the curve and ultimately have to cut deeper later to avoid a worse downturn. Though I wouldn’t trade that theme with a great deal of confidence, it could be instructive as to what other central banks could soon face.

This article was written by Adam Button at www.forexlive.com.

• Prior was +7.2%
• Prices m/m +0.3% vs +0.4% expected

National house price data from the FHFA:

• Prices up 5.7% y/y vs 6.3% prior
• Prices m/m 0.0% vs +0.2% prior

The creeping weakness is more-evident in the national numbers, rather than in the 20-largest cities. Long-dated yields are coming down but I doubt there will be a surge housing demand if 30-year fixed rates fall to 6% from 6.8%.

This article was written by Adam Button at www.forexlive.com.