Articles

Israeli military officials via various Hebrew news channels stating full-blown war between Israel and Hezbollah appears imminent.

That shouldn’t surprise anyone as the pager explosions were basically a declaration of war by Israel on Lebanon/Hezbollah. The thing is, I wonder if Hezbollah is so crippled that it’s not ready to fight and/or if Israel is going to bring the fight to them, regardless.

In any case, the gold market doesn’t seem to be too fussed. However oil is up $1.41 to $71.50.

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

Goldman Sachs anticipates the FOMC will implement a 25 basis point rate cut at its September meeting, viewing recent comments from Fed officials as indicative of a preference for this move over a larger cut. The focus will shift towards labor market risks, and the firm expects to see a median dot plot implying three rate cuts in 2024.

Key Points:

1. Rate Cut Expectation:

   • Goldman Sachs forecasts a 25bp rate cut at the September meeting.
   • A 50bp cut is seen as a reasonable precaution but is less likely given recent Fed communications.

2. Labor Market Focus:

   • The meeting will highlight risks related to the labor market.
   • Concerns exist regarding whether labor demand can absorb new entrants and prevent the unemployment rate from rising.

3. Future Rate Projections:

   • Expectation of three 25bp cuts in 2024, with a terminal rate projected between 3.25% and 3.5%.
   • The median dot plot will likely indicate a gradual path towards 4.625% in 2024 and 2.875% by 2027.

4. Economic Projections:

   • Anticipated changes include higher GDP growth for 2024, a higher unemployment rate path, and a lower inflation trajectory.

5. Risks to Forecast:

   • Risks to the baseline forecast are tilted to the downside but less severe than what current market pricing suggests.

Conclusion:

Goldman Sachs expects the FOMC to proceed with a 25bp cut while emphasizing labor market risks. The meeting is likely to provide updated economic projections and a dot plot that reflects a cautious but structured approach to future rate cuts, aligning with a focus on maintaining economic stability amid evolving labor market dynamics.

For bank trade ideas, check out eFX Plus. For a limited time, get a 7 day free trial, basic for $79 per month and premium at $109 per month. Get it here.

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

High Yield: 4.039%

• Last month: 4.16%

• Six-auction average: 4.512%

WI level at the time of the auction: 4.019%

Tail: +2.0 basis points

• Last month: -0.1bps

• Six-auction average: -1.3bps

Bid-to-Cover: 2.51X

• Last month: 2.54x

• Six-auction average: 2.68x

Dealer Participation: 18.6%

• Last month: 9.7%

• Six-auction average: 8.7%

Direct Bidders: 16.3%

• Last month: 19.3%

• Six-auction average: 17.1%

Indirect Bidders: 65.09%

• Last month: 71.0%

• Six-auction average: 74.2%

AUCTION GRADE: D-

All the components were less than the 6 month averages. I only give it a D- because I heard that failing grades are not given out anymore. So am feeling generous, but it was not supported by buyers.

The good news is the 20 year is not a maturity that is in demand. Hence, the amounts auctioned are much lower than the $38 or so billion for 10 and 30 year issues.

The reaction across the yield curve is somewhat modest as well.

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

The WSJ is reporting that JPM is in talks with Apple to take over credit card business from Golman.

• The program has over 12 million users and roughly $17 billion in outstanding balances.

• Apple has been seeking a new issuer after deciding to part ways with Goldman Sachs, the current issuer, last year.

• JPMorgan is seeking concessions from Apple, including paying less than the full face value of the outstanding balances and changing the billing structure of the card program.

• Apple has signaled that it is open to making changes to the billing structure, which could help to alleviate customer-service issues and regulatory scrutiny.

• A deal between JPMorgan and Apple would further tie together America’s biggest bank and one of the largest technology companies in the world, potentially expanding Apple’s financial services offerings.

• Apple’s credit-card program has been successful, with over 12 million users and a strong brand reputation, making it an attractive asset for JPMorgan to acquire.

• The deal could also help Apple to expand its reach in the financial services sector, potentially leading to new partnerships and offerings.

Overall, Apple’s potential deal with JPMorgan Chase could be a win for the company, as it would allow Apple to maintain its credit-card program and potentially expand its financial services offerings, while also providing a new partner to help manage the program’s risks and regulatory challenges.

Apple shares are trading down $-0.31 or -0.15% at $216.01. The low price today reached $214.50. The high price extended to $216.90. The recent decline has been off of the expectations for sluggish demand for the new iPhone due to AI software not being ready for the new phone. Nevertheless, dictations still remain strong that once things kick in, it will give consumers a reason to upgrade.

Looking at the hourly chart, the price gapped lower after the sluggish demand reports over the weekend. That made the high price from Friday look foreshadowing. The price high stalled right at the 100 hour moving average (blue line on the chart below).. That is the bearish news. The not so bearish is the low price yesterday and today stalled right at the 50% midpoint of the move up from the August low. So the buyers are staying play above that level. However, the price will need to get back above the 50-hour MA, the 200 hour MA and the 100-hour MA between $220.14 up to $222.96 to give the buyers more control in the short term.

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

The Atlanta Fed GDPNow growth estimate was raised to 3% today from 2.5%.

Now Goldman is also raising its estimate but only by 0.3% from the same 2.5%. They now see growth for Q3 at 2.8%.

2.8% or 3% and S&P/Dow at new record level, 50 basis points seems a stretch?

Meanwhile the 10 year yields made a new low for the run lower today down to 3.599%. That is the lowest level since Early June 2023.

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

This one isn’t going to make life easier for the Fed doves.

The Atlanta Fed’s Q3 GDPNow tracker rose to 3.0% today from 2.5%.

After recent releases from the Treasury’s Bureau of the Fiscal Service, the US Census Bureau, the US Bureau of Labor Statistics, and the Federal Reserve Board of Governors, the nowcasts of third-quarter real personal consumption expenditures growth and third-quarter real gross private domestic investment growth increased from 3.5 percent and 1.2 percent, respectively, to 3.7 percent and 3.2 percent, while the nowcast of the contribution of the change in real net exports to third-quarter real GDP growth increased from -0.40 percentage points to -0.36 percentage points.

The market continues to price in a 63% chance of a 50 bps Fed cut tomorrow.

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

On the day:

• STOXX 600 +0.7%
• German DAX +0.5%
• Francis CAC +0.6%
• UK’s FTSE 100 +0.5%
• Spain’s IBEX +1.1%
• Italy’s FTSE MIB +0.6%

Those are some decent gains, though I would have liked to have seen a better finish as a good portion of the gains evaporated late.

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

An incredible attack occurred in Lebanon today with 2800 members of Hezbollah and other Iranian-linked individuals wounded and 200 in critical condition.

The pagers they were using exploded at the same time in what was surely some kind of long-planned attack.

Hezbollah had been using cell phones to coordinate but evidently switched to pagers due to phone security risks. However the pagers must have been intercepted with small explosives placed inside.

It’s perhaps the greatest-ever example of a technological, targeted attack.

Lebanon’s heath authority said so far 8 people are confirmed dead.

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

• Price index at $3883
• Whole milk powder +1.5%

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

Today’s Canadian CPI report highlights how far the Bank of Canada has fallen behind the curve.

Virtually the lone sources of inflation are mortgage interest and shelter, which is due to laggy rent calculations. Overall inflation is at 2.0%, hitting the target for the first time since 2021 but a deeper dive shows a weaker picture.

Excluding mortgage interest — something the Bank of Canada directly controls — inflation is 1.2% y/y. Excluding shelter, prices only rose 0.5% in the year.

Rents rose 1.0% in the month and 9% in the year but those numbers likely reflect lags in how the data is calculated. Market-based rents are falling in Canada’s biggest cities and slackening elsewhere.

CIBC also highlights some worrisome trends, especially in back-to-school shopping.

“Clothing & footwear prices also fell on the month,
which Statistics Canada noted was atypical for August, which generally sees price increases due to back-to-school
shopping. Indeed, it was the first August decline in that component since 1971, and could be an indication that weak
demand had left retailers with a stock overhang towards the end of the summer.”

They also noted soft vehicle prices as well as downward pressure on travel tour, air
transportation and traveler accommodation prices.

This certainly doesn’t look like a central bank that needs to have borrowing rates at 4.25%.

CIBC writes:

“With gasoline prices falling further into September, headline inflation should ease again in the
next release and CPI excluding MIC could well fall below 1%. The bottom line then is that inflation remains unthreatening
and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the
unemployment rate. We continue to forecast a further 200bp of interest rate cuts between now and the middle of next
year.”

The big question for the BOC is whether to start cutting by 50 bps. Governor Tiff Macklem has highlighted growth data as something that will tilt his decision but the inflation numbers show he’s already behind the curve.

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

• Prior 0.3%
• Business inventories 0.4% vs 0.3% expected
• Retail inventories ex-autos 0.5% vs 0.2% last month

Sales:

• July distributive trade sales and manufacturers’ shipments: $1,880.7 billion
• Increase from June 2024: 1.1%
• Increase from July 2023: 2.9%

Inventories:

• July manufacturers’ and trade inventories: $2,574.9 billion
• Increase from June 2024: 0.4%
• Increase from July 2023: 2.5%

Inventories/Sales Ratio:

• July 2024 ratio: 1.37
• July 2023 ratio: 1.37

The Inventory to sales ratio is back within the pre-Covid range after the Covid volatility in 2020 and 2021 (and into early 2022). That seems to be the sweet spot.

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