Dow +1.63%, S&P 500 +2.13%, Nasdaq +2.89%, Russell 2000 +2.95%, SOX +4.25%, Eurostoxx +0.91%, SMI +0.20% .
I swam in Lake Geneva (the real one, not the Lake Geneva which is an invention of Switzerland Tourism) last night. The temperature of the water must have been around 27 degrees and I suddenly wondered how I would react if it dropped to 26 degrees. I very much doubt that that would encourage me to cut ten bottles of champagne at once. Well, that’s pretty much what happened yesterday on Wall Street, which threw the party of the year following the release of the July CPI.
Let’s put things in context. Everyone understood that the general price level has been racing for many months and that this is a big problem that should be fixed immediately please. The Fed gets the job done by raising interest rates at a brisk pace. The problem is that inflation continued to rise in May and June, we gradually began to get impatient in the cottages. Yesterday, however, the “miracle” happened, with the US Department of Labor announcing an 8.5% annualized rise in inflation. That’s less than the 8.7% expected by economists. This decline was mainly due to lower energy prices last month, which offset higher food and housing prices. We agree, 8.5% price increase in July 2022 compared to July 2021, it’s still huge, but the market concludes that the pass has been passed and the decline can begin, and boom the bears!
The reaction for all asset classes is immediate and rather binary. Note here that recent US economic statistics have been more than reassuring (ISM for Services, Employment Report). Add in yesterday’s CPI report and you have a cocktail that we’ll call a soft landing. It is clear that the probabilities of a soft landing in US growth are rising, the specter of a recession is fading somewhat and the market is beginning to dream of a more accommodating Fed faster. The CME’s FedWatch model now shows a 28% chance of a 75 basis point hike at the 21st September meeting, up from 65% prior to the release of the inflation report, so the market is easing. Here we must try to keep sane. One month is not a trend, but it is undeniable that the bulls scored against the bears yesterday increasing the likelihood of the market bottoming on June 17th.
The S&P500 (SPX) index “gap” sharply at the open to stop looking in his rearview mirror and close at the highest of the session, carried north by its little brother Nasdaq100 (NDX), the “Space X” mode contributes and earns 2.85% on the session. The NDX (actually also the Nasdaq Composite) has rallied more than 20% since its June low which puts it back in the bull market, it’s anecdotal and totally useless for the future but the “roubini” of the service have stunned us so much with their bear market that it’s just fair game. The SPX is moving away from its 100-day moving average, it is now facing its 200-day moving average but not yet in the eye (4332 points vs a close of 4210 points yesterday). Volatility trips over the carpet, the VIX index (SPX volatility) falls 9.5% to close at 19.74, key support stands at 15. Trading volume is down at 10.6 billion securities traded on the NYSE exceptional, plus we’re not seeing massive short coverage, at least not yet.
In terms of sectors, it came as no surprise to anyone that growth stocks took the lead last night. Today’s SPX podium consists of materials, consumer discretionary and technology. The breadth (the difference between stocks closing versus those closing) is clear at +90% for the SPX and NDX.
Aside from the merry stock kingdom that rarely lives up to its name so well, the bond market remains in cautious mode, the US 2/10 year yield curve is certainly down from -47 basis points to -42 basis points this morning, which is still up Indicating recession fears, the difference in perception of stocks and bonds is puzzling these days… The dollar is beginning to fall recovering but is still trading below its pre-report levels, EUR/USD is trading at 1.0314 this morning. Oil again attempts to break $90 a barrel for WTI Light Crude, emboldened by greenback weakness, it needs to break $95 to rejoin an uptrend. Gold is breathing above $1,800 an ounce but lacking oxygen and bouncing back to $1,786 quickly.
San Francisco Fed Chair Mary Daly says it’s too early to claim victory in the fight against inflation but says she can support a slower pace of rate hikes, the FT reports. Minneapolis Fed Chair Neel Kashkari’s colleague has called the idea of the central bank starting a rate cut next year “unrealistic” when inflation is expected to be well above its 2% target. Mr. Kashkari, now the Fed’s number one hawk, still sees rates at 4.4% at the end of 2023. The Fed wants to dampen the fervor of the stock markets and that’s probably right, yesterday’s stat is certainly reassuring but only a first step on the long term path leading to calm in household spending power.
Liz Truss’ thoughts on how to deal with the Bank of England adds to a growing list of threats to sterling and UK government bonds. The fear is that if Ms Truss becomes prime minister, she will reverse the three-decade focus on fighting inflation and urge policymakers to use tools that were discredited in the 1980s. If the BOE were changed, we would see gilts and sterling fall,” says Gordon Shannon of TwentyFour Asset Management.
Uncle Scrooge can rest easy on his gold pile, Walt Disney stock jumped post-session after raising the price of its streaming service by 38% as subscriber growth beat estimates. The company added 14.4 million new Disney+ users in the quarter, bringing subscribers across all of its streaming platforms to 221 million, more than Netflix. A surge in theme parks helped top sales and profits. According to Bloomberg Intelligence, the title with the big ears should end 2022 in style.
Two macro stats in the United States today at 2:30 p.m.: producer prices and weekly jobless claims.
Daimler Truck: The Group achieved adjusted profit of 1 billion euros in the second quarter, significantly exceeding analysts’ expectations thanks to strong demand and positive currency effects. Deutsche Telekom: The German telecommunications provider is raising its earnings forecasts. Siemens AG: The group is making losses due to a heavy write-down on Siemens Energy. Revenue is slightly above expectations but targets are reduced due to write-offs. Zurich Insurance: The group announces a CHF 1.8 billion share buyback program on the margins of the publication of its quarterly report. Partners Group sells 50% of USIC to Kohlberg in $4 billion deal. ABB acquires its low-voltage Nema motor activities from Siemens. Boeing has delivered its first 787 Dreamliner in over a year. Roche receives an extension of approval for Ventana in the USA.
Tonight and this morning in Asia, indices are trading higher. Tokyo is closed, Hong Kong is up 2.25%, Shanghai is up 1.56% and Seoul is up 1.73%. The future SPX does not give up a millimeter, on the contrary, it gains 19 additional points. Europe opens 0.6%. The simple fact that the inflation numbers came in below expectations has brought general relief to the markets, that’s the basic reaction. Now let’s see how the market interprets these numbers over time.
#Gonet #Market #news #August #11th