Articles

August 2024 official Chinese PMIs from the National Bureau of Statistics (NBS):

Composite is 50.1

• prior50.2

—

The Chinese economy has been showing, and continues to show, a patchy and uneven recovery. Key trouble spots include:

• an uncertain property sector outlook, the sector is mired in debt
• subdued consumer confidence and demand
• manufacturing overcapacity in some sectors
• still below target underlying inflation (impacting this are the above points on weak domestic demand and supply overcapacity)
• on the horizon are potentially higher tariffs on Chinese exports

Authorities have been lobbing targetted support at the economy, in a piecemeal fashion. There is still plenty of work to do.

—

China has two primary Purchasing Managers’ Index (PMI) surveys – the official PMI released by the National Bureau of Statistics (NBS) and the Caixin China PMI published by the media company Caixin and research firm Markit / S&P Global.

• The official PMI survey covers large and state-owned companies, while the Caixin PMI survey covers small and medium-sized enterprises. As a result, the Caixin PMI is considered to be a more reliable indicator of the performance of China’s private sector.
• Another difference between the two surveys is their methodology. The Caixin PMI survey uses a broader sample of companies than the official survey.
• Despite these differences, the two surveys often provide similar readings on China’s manufacturing sector.
• The Caixin manufacturing PMI will follow on Monday, services on Wednesday

This article was written by Eamonn Sheridan at www.forexlive.com.

• US July core PCE +2.6% y/y vs +2.7% expected
• OPEC+ is likely to proceed with a planned gradual production increase from Oct — report
• US August UMich final consumer sentiment 67.9 vs 68.0 expected
• Canada Q2 GDP +2.1% q/q annualized vs +1.6% expected
• Dallas Fed trimmed mean PCE price index for July 1.7% versus 1.8% in June
• US weekly Baker Hughes oil rig count unchanged at 483
• US dollar specs turn short for the first time since February
• ECB’s Villeroy: It would be fair and wise to cut rates in Sept
• Goldman Sachs workers face the annual cull

Markets:

• Gold down $19 to $2501
• WTI crude oil down $2.47 to $73.44
• US 10-year yields up 4.3 bps to 3.81%
• S&P 500 up 0.6%
• USD leads, JPY lags.

It was tough to tie the fundamentals to the market moves today, as is often the case at month end. Tokyo CPI was hot earlier and US PCE was a tad cool and normally that’s the recipe for a USD/JPY decline but it was just the opposite as the pair climbed 116 pips in a steady rally that started in Europe and never eased.

That was part of broad bids in the US dollar that were supported somewhat by rising Treasury yields. However the 30 pip decline in the Australian dollar certainly went against the rip in equities.

The Canadian dollar was particularly volatile and rallied initially on a strong GDP number. However the details of that report showed no growth in June and July plus the vast majority of the growth in the quarter was driven by government spending. That led to a rethink, particularly following the drop in oil prices. All told, there were four 30-pip straight line moves in USD/CAD trading to round out a lively month. That will give North Americans plenty to digest over the long weekend.

The euro finishes the month above 1.10, which is a nice victory but a cent-and-a-half from Monday’s high of 1.1201. It declined in four of the five days this week in a setback after three weeks of strong gains.

Similarly, cable fell for the third consecutive day and showed few signs of life in month end trade.

On net, the US dollar rebound balances the market heading into what’s going to be a lively September. Have a great weekend.

Justin and Eamonn will be back next week.

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

There was no lack of drama in the final day of equity trading in what was a wild ride in August. The S&P 500 opened strongly and then gave it all back to trade in negative territory at midday. However some steady bids emerged in the afternoon before a massive wave of buying late.

Much of it was likely technical into a month-end long weekend but it wraps a bow on a lively one.

• S&P 500 1.0%
• Nasdaq Comp +1.1%
• DJIA +0.6%
• Russell 2000 +0.3%
• Toronto TSX Comp +0.2%

On the week:

• S&P 500 +0.25%
• Nasdaq Comp -0.9%
• Russell 2000 -0.4%
• Toronto TSX Comp -0.1%

On the month:

• S&P 500 +2.3%
• Nasdaq Comp +0.6%
• DJIA +1.8%
• Russell 2000 -2.0%
• Toronto TSX Comp +0.6%

Those monthly numbers aren’t impressive at first blush but they come after massive selling at the outset.

The Nasdaq Composite monthly chart now shows a double doji. That’s a setup for a big move to come. Given the impressive recovery from the August declines, I’ll take the upside but it’s tough to have confidence after the Nvidia decline and with a negative September seasonal backdrop.

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

The main driver of US dollar strength over the past number of years was ‘US exceptionalism’. That’s meant stronger growth and higher US interest rates.

The stronger growth narrative is still in place — even if it requires a deficit at 7% of GDP — but Fed Chairman Jerome Powell has deconstructed the second part of narrative. His comments suggest the Fed won’t tolerate a rise above 4.4% and that the FOMC plans to cut rates even with strong growth.

That’s prompted a re-think in the market and some broad softening of the US dollar (at least until today).

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

Goldman Sachs plans to layoff 3-4% of its workforce or between 1300 and 1800 people, according to the WSJ.

This shouldn’t come as a surprise as the company trims 2-7% of its workforce annually on performance factors. The layoffs have started and will continue through the autumn.

The cutthroat culture finally appears to be making shareholders money after trading virtually flat from 2018 to early this year.

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

WTI crude posted an ugly finish to the week, falling $2.33 to $73.57 on Friday.

Oil rallied strongly to start the week and was still holding in positive territory early today but slumped when Reuters, citing sources, reported that OPEC still plans to start gradually bringing on production in October.

That led to a heavy round of selling that will mean the lowest weekly close since August 2 and the second-worst since February.

One thing that oil traders might want to put on their radar is the hurricane map. It’s been a quiet hurricane season so far but we’re heading into the peak of storm season and there are a couple of prospects in the mid-Atlantic. The NHC gives a 40% chance of the nearest once developing into a tropical cycle in the coming seven days.

That said, hurricanes are the driver for US oil prices that they used to be now that so much production is onshore. That’s a big reason why September seasonals for crude are so poor.

As for OPEC+, expect frequent rumors on the production front in the month ahead.

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

We’ve been in a raging four-year bull market in most things since the pandemic but one month missed the memo: September.

Here I highlight the S&P 500 over the past four Septembers, all negative months. Of the 52 months since April 2020, just 17 of them have been negative, or 32.7%. However, of the negative months, 23% of them have been Septembers.

It’s not a new phenomenon either, as September is the worst month over the long history of the Dow Jones Industrial Average.

It’s not always the case in the S&P 500 as there was a sparkling 8.8% rally in 2010 and rallies of 2.42% and 2.97% in 2012 and 2013.

The good news is that a dip in October or September is usually worth buying as November is the second best month (after April).

For more, see my September seasonals package.

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

Oil is having a rough one today, down 3% after a report said OPEC was planning to proceed with the October production rise.

• Oil rigs unchanged at 48.
• Gas rigs -2

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

Global equity semi-permabear David Rosenberg is out with a new commentary and he’s wading into the foreign exchange market with a strong case to sell USD/JPY.

He said it “could be the most glaring price anomaly on the planet” and it carries the headline “Want to make a 30% return with little risk? Here’s a rare opportunity to do so.”

Those are the kinds of statements that have humbled many men in markets but the former Merrill Lynch analyst isn’t afraid to stir the pot. You can read it here but some highlights:

• JPY hit 3-decade low in July at 161, now at 146- but story far from over
• BoJ policy shift: Rate hikes just getting started, bucking global trend
• Japan’s economic outlook upgraded for first time in 15 months
• Weak yen boosting inflation: Import prices up 10.8% YoY
• Mean reversion target: 113 yen per dollar (20% upside)
• Big Mac Index shows yen 44% undervalued
• Says to split the difference on a 30% return trade: Long JPY via money markets, no equity/duration risk
• Key drivers: BoJ tightening vs Fed easing, unwinding of yen carry trades
• “What has caused the slide in the yen has been the financial repression
  engineered by the BoJ, but that phase has now come to an end — first via
  forex intervention and second by rate hikes that are far from over.”

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

• 12 month trimmed mean 2.7% vs 2.8% prior

Looking through the data here are some notable changes:

• Eggs: Massive increase of 90.9% (annualized 1-month change)
• Window coverings: Large decrease of -27.3%
• Used autos: Significant decrease of -25.2%
• Jewelry: Notable decrease of -20.4%
• Natural gas: Decrease of -7.7%
• Physician services: Slight decrease of -2.2%
• Electricity: Slight increase of 1.3%
• Fresh milk: Substantial increase of 25.1%

The moves in some of the heavier weightings:

• Owner-occupied stationary homes
  Change: +4.4% (annualized 1-month % change)
• Nonprofit hospitals’ services to households
  Change: -0.8%
• Other purchased meals
  Change: +2.6%
• Physician services
  Change: -2.2%
• Tenant-occupied stationary homes and landlord durables
  Change: +6.0%
• Final consumption expenditures of nonprofit institutions serving households
  Change: +11.0%

The changes in this report can be very volatile but they’re some indication of what’s happening to prices. To me, the big one is used autos, which are really starting to struggle right now. There is also evidence of building inventories at new dealers.

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

It was a strong week that finished with some gains, though all indices were well off the session highs.

• Stoxx 600 +0.2%
• German DAX +0.1%
• Francis CAC flat
• UK’s FTSE 100 flat
• Spain’s IBEX +0.4%
• Italy’s FTSE MIB +0.6%

On the week:

• Stoxx 600 +1.4% (record weekly close, fourth week of gains)
• German DAX +1.6% (record close)
• Francis CAC +0.8%
• UK’s FTSE 100 +0.6%
• Spain’s IBEX +1.2%
• Italy’s FTSE MIB +2.2%

There has been more equity selling in the US following the European close.

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