Dow +1.19%, S&P 500 +1.53%, Nasdaq +2.11%, Russell 2000 +1.95%, SOX +2.39%, Eurostoxx +1.64%, SMI +1.02% .
You can’t sell the bull’s hide… no, you can’t. Market sentiment, held captive by bears since mid-August, has not succumbed to the Stockholm Syndrome and has been in rebellion since last Wednesday, allowing US stock indexes to gain more than 2.5% for the week. The lines appeared to be moving as early as Wednesday, but things started to calm down in earnest on Thursday. The market faces a Game of Thrones type wall flanked by two rather scary guardians, the ECB and the Fed. Christine Lagarde and her colleagues raise interest rates by 75 basis points, leaving no doubt that the cycle of rate hikes will continue. For his part, Jerome Powell reiterates the Fed’s hawkish stance without any ambiguity. What about the market? Not at all, quite the opposite, the cheery stock kingdom moves north on Thursday only to do so again on Friday, oh in rather intimate trading volumes of course (9.38 billion shares traded on the NYSE) but as my teachers do In other words, missing people are always wrong and movements happen.
The S&P500 (SPX) index is consolidating from 4,000 points and recovering from its 50 and 100-day moving averages, it’s now just above 200 points from its very important 200-day period, which ended on 16 September 2009 when sentiment was held hostage bears). Risk appetite has returned as reflected in the sector performance for the day. We specifically avoid utilities and healthcare in favor of growth stocks. Today’s podium for the SPX consists of communications services, energy (also a cask of WTI Light Crude rebels) and technology. Over the week, the SPX is up 2.5%, the Nasdaq is up 2.8% and the Russell2000 (RTY, the rating’s small caps) is up 3.3%, telling us that the buying spree across the board is that the Army leading the generals of the hill, he can always help…
Things get a little more interesting as we look at the yield on the US 10-year bond, which is rising and stands at 3.33% this morning without the stock seeming to bat an eyelid. One could almost ask whether the market, limited to these Valais imitation seeds (redundancy, I know…) would not finally have accepted the idea of rising interest rates. Currently, Fed Funds is forecasting an 86% probability of a 75 basis point hike at the September 21 Fed meeting. Getting back to that nice weekend in equity markets, the dollar’s weakening has something to do with it, the eur/usd pair is trading at 1.0153 this morning and the dollar index (DXY) is down 2.1% since Wednesday, which is a lot for a currency. Also note that bearish sentiment has recently reached extreme levels, which is almost always a contrarian indicator. Finally, Friday’s breadth is once again exceptional as more than 90% of stocks close, in short everyone wants it all, quite an encouraging phenomenon for the bulls.
To top it off, Wall Street-listed Chinese stocks are also buoyed after Beijing (which, in this case, is operating in “I don’t love you either” mode) reported fresh support measures.
Here cybersecurity measures have increased by 6% in the last week, we should think about posting a topic on this topic one day…
All eyes in the market are on tomorrow’s US Consumer Price Index (CPI) and its little brother, Wednesday’s Producer Price Index (PPI), the latest key inflation statistics ahead of the US decision. The CPI is expected to show an 8.0% price increase in August, marking the second consecutive month of slowdown. The market will then find itself in front of the FOMC without a compass, the members of the Fed enter a blackout period, in short, they must remain silent. Analysts warn that dovish inflation shouldn’t stop the FOMC from raising rates another 75 points at the meeting given its dovish stance. In his final public appearance before the FOMC meeting, Fed Chair Jerome Powell said that the central bank’s policy interventions are aimed in part at bringing the labor market back into balance and bringing wages to levels more consistent with inflation of 2% is compatible.
Bloomberg agency reports that Russian troops are fleeing in despair while Ukrainian forces are advancing into the Kharkiv region. Ukraine has reportedly taken over the strategically important city of Izyum and reoccupied more than 3,000 square kilometers of territory. Volodymyr Zelenskyy says Russian bombs have caused power outages in parts of eastern Ukraine.
The preliminary results of the Swedish elections show that a bloc of right-wing parties in an alliance led by Prime Minister Magdalena Andersson could take the lead. The group, which includes Swedish anti-immigration Democrats led by Jimmie Akesson, is expected to win 176 seats in the 349-seat parliament, compared to 173 for the four left-leaning parties led by the ruling Social Democrats. Final results are not expected until Wednesday.
After nearly 18 months of negotiations, the European powers are expressing “serious doubts” about Iran’s commitment to a new nuclear deal. France, Germany and the UK issue a joint statement criticizing “Tehran’s inability to complete the deal” while “intensifying its nuclear program well beyond what could reasonably be justified under civil law”. The IAEA Executive Board will meet on this subject starting today.
Germany is considering direct intervention in the energy market to avoid a wave of insolvencies, says Chancellor Olaf Scholz’s SPD co-managing director. “We have to pay the bill anyway,” says Lars Klingbeil. “I want us to take the first step, intervene now.” Due to rising electricity prices, Germany is increasingly importing essential chemicals.
Joachim Nagel says that if inflation does not subside, “other clear measures must follow”. Consumer prices could peak at over 10% in December and “remain far too high” at over 6%, the Bundesbank President told Deutschlandfunk. Frank Elderson warns more rate hikes are imminent as the ECB looks to meet its 2% target. Mario Centeno calls on those responsible to act “on the sidelines, with the smallest possible measures”.
Nothing to eat on the macro menu of the day, we are saving for the very important US consumer price report tomorrow.
Walt Disney CEO doesn’t want to give ESPN. Google and Apple are the subject of an anticompetitive lawsuit in Mexico. The CEO of Porsche AG says investors are showing “great interest” in the IPO – the company will go public as soon as possible and aims to have the deal ready by the end of the month. The IPO will make a “significant” contribution to the company being able to develop its full potential. Porsche gains greater autonomy as the Porsche board of directors can make decisions without instructions from Volkswagen. The company is aiming for a payout ratio of 50% of earnings in the medium term. The weekly newspaper Barron’s publishes a positive article about Porsche AG. The hardening of Washington’s positions on semiconductor exports to China is confirmed. KLA, Lam Research, Applied Materials, Nvidia and Advanced Micro Devices have received letters asking them to stop selling certain chips. This position also affects European players, especially quasi-monopolies in the field of production equipment such as ASML and ASM International.
Tonight and this morning in Asia, the major indices are closed with the exception of Tokyo which is up 1.16% on the IPO. SPX futures up 8 points and Europe opens up 0.7%, tomorrow’s US CPI report will be the highlight of this week. The barrel of WTI Light Crude is recovering and is trading at $86, gold is dozing at $1720 an ounce, the greenback weakness should have pushed it up significantly, to be continued…
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