Hey folks, very interesting week where we say the FED Chair, “Boom Boom” Powell come in and give the markets a big lift essentially all but assuring a rate cut at this coming September meeting. How will this effect the markets and how many rate cuts are coming? Get my take in this week’s market round-up.
MARKET SOUND BITES:
Markets recorded a solid week of gains, as investors appeared to celebrate Fed Chair “Boom Boom” Powell’s announcement that rate cuts would soon be coming. The gains were also broad-based, with small-caps outperforming large-caps and an equal-weighted version of the S&P outpacing its more familiar, capitalization-weighted counterpart. “Boom Boom” Powell acknowledged “the time has come for policy to adjust”—implying that policymakers would cut rates at their upcoming meeting in September (first cut since Mar 2020). Moreover, he appeared to leave room for the possibility that rates could be cut by 50 vs 25 bps but of course it will be based upon incoming economic data. We’ve seen unemployment move up from 3.4% in April 2023 to its current 4.3% this July. Although historically the month of Sep is usually a down month for US Markets… (Past 4 years we’ve seen monthly drops of 3.9%, 4.8%, 9.3% and 4.9%)
The week’s economic calendar came in line with expectations with the S&P Global releasing its first estimate of August economic activity confirming that the manufacturing sector remained in a slump but that the larger services sector continued to expand at a healthy pace. Meanwhile, existing home sales rose slightly as expected, breaking a stretch of four monthly declines. One notable surprise came in the Labor Department’s annual revision of its nonfarm payroll count (through March), which showed 818,000 fewer jobs added over the previous 12 months than originally reported. Treasuries rallied after annual job growth estimates were revised downward by 818,000 jobs—the largest downward revision since 2009.
Eurozone business activity picked up in August after stalling in July, according to S&P Global PMI. A first estimate of the Eurozone Composite PMI Output Index came in at 51.2 from 50.2, as the Olympic Games in France drove the services sector output to a four-month high. The ECB said growth in negotiated wages in the eurozone—a key data point for monetary policymakers—slowed to 3.55% in the second quarter from about 4.74% in the preceding three months. The minutes of the ECB’s July meeting—where monetary policy was left unchanged—expressed concerns about restricting economic growth too much and confidence that inflation was declining to the 2% target as predicted with markets now predicting 2 more rate cuts before year-end.
Following the BoJ’s second interest rate hike this year in late July, early August saw a sharp sell-off in Japanese stocks, driven by a range of factors, predominantly renewed U.S. growth fears. BoJ Governor Ueda reaffirmed that there is no change to the BoJ’s stance that it will adjust monetary policy if economic and price developments stay in line with its forecasts. The latest domestic inflation data were supportive of the BoJ’s hawkish shift this year. The nationwide rate of core consumer price inflation accelerated for the third straight month in July, to 2.7% year on year (y/y) from 2.6% y/y in June, matching expectations.
In China, the PBOC kept its benchmark lending rates unchanged, reflecting policymakers’ desire to protect profit margins for banks. The People’s Bank of China (PBOC) kept the one-year loan prime rate at 3.35%. Many economists see room for further loosening in China this year once the Fed starts cutting rates in the U.S. starting in September.
Enjoy This Week’s Round Up;
Don’t Be a Rat Brain Trader – Be The Red Stripe Zebra !!
Regards
hpb
Trade Smart !
