Fed Collins: Be patient and not get ahead of data

    Boston Fed President, Susan Collins, offered a cautionary stance on the current monetary policy trajectory in her latest remarks. Addressing the possibility of further rate hikes, Collins noted, “We may be near, we could even be at a place where we would hold” and not lift rates further.

    While not ruling out the possibility of future hikes, Collins emphasized a measured approach, stating, “But certainly additional increments are possible, and we need to look holistically and be really patient right now and not try to get ahead of what the data will tell us as it unfolds.”

    On the topic of inflation, Collins expressed her confidence in the Federal Reserve’s capabilities, saying she is “hopeful Fed can bring inflation back to 2% in a reasonable amount of time.”

    However, she cautioned against making premature judgments about potential rate cuts, remarking it’s “premature to send a clear signal about the timing of rate cuts.”

    Fed Harker: We’ve Probably Done Enough

      Philadelphia Fed President, Patrick Harker, shared his insights on the current stance of Fed’s monetary policy. Addressing the topic of monetary tightening, Harker said, “Right now, I think that we’ve probably done enough because we have two things going on.”

      Elaborating further, Harker mentioned the twin pillars that have influenced his perspective: “The Fed funds rate increases — they are at a restrictive level, so let’s keep them there for a while. And also we are continuing to shrink our balance sheet that is also removing accommodation.”

      Looking to the future, Harker emphasized a data-driven approach, noting, “I see us staying steady throughout the rest of this year, next year is data driven.” When prompted about the potential timing of a rate cut, he candidly stated, “Can’t predict when Fed will cut rates.”

      US initial jobless claims down -10k to 230k

        US initial jobless claims fell -10k to 230k in the week ending August 19, better than expectation of 241k. Four-week moving average of initial claims rose 2k to 238k.

        Continuing claims dropped -9k to 1702k in the week ending August 12. Four-week moving average of continuing claims rose 6k to 1697k.

        Full US jobless claims release here.

        US durable goods orders down -5.2% as transport equipment fell -14.2%

          US durable goods orders dropped -5.2% mom to USD 285.9B in July, worse than expectation of -4.0% mom. Ex-transport orders rose 0.5% mom to USD 187.2B, above expectation of 0.2% mom. Ex-defense orders dropped -5.4% mom to USD 270.9B. Transportation equipment fell -14.2% mom to USD 98.7B.

          Full US durable goods orders release here.

          Silver accelerates up, taking Gold higher

            Silver’s impressive rally intensified yesterday, pulling Gold upwards in its wake. This surge seems to be a direct response to the retracement of benchmark treasury yields in both the US and Europe, which were affected by less-than-stellar PMI figures. Market sentiment is now swaying towards the belief that major central banks might be quickly approaching the finale of their tightening cycle. All eyes are set on upcoming Jackson Hole Symposium. While the spotlight is certainly on the speech by Fed Chair Jerome Powell, insights and comments from other prominent central bankers are also poised to influence market directions.

            Technically, Silver’s strong break of 55 D EMA affirms the case that consolidation pattern from 26.12 has completed with three waves to 22.21. Further rise is now expected as long as this 55 D EMA (now at 23.56) holds, to 25.25 resistance first. Decisive break there should confirm this bullish case, and should also resume whole up trend from 17.54 (2022 low). Next target would be 100% projection of 17.54 to 24.62 from 19.88 at 26.96.

            As for Gold, a short term bottom is in place at 1884.83, with D MACD crossed above signal line. Further rebound is now in favor to 55 D EMA (now at 1932.52). Sustained break there will argue that whole corrective pattern from 2062.95 has completed with three waves down to 1884.83, after defending 38.2% retracement of 1614.60 to 2062.95 at 1891.68. Stronger rally would then be seen to 1987.22 resistance to confirm this bullish scenario.

            Eyes on NASDAQ’s next move after Nvidia’s earnings triumph boosts confidence

              In a significant boost to investor sentiment, Nvidia’s earnings report surpassed even the loftiest expectations, particularly spotlighting its thriving data center business. The company’s A100 and H100 AI chips, integral to powering AI marvels like ChatGPT, stood out as key contributors to their success. In a forward-looking statement, Nvidia anticipates a fiscal third-quarter revenue of approximately USD 16B, hinting at a colossal 170% growth compared to the same quarter last year.

              NASDAQ, seemingly anticipating this optimistic news, had already surged by 1.59% at the day’s close, prior to Nvidia’s earnings announcement. The development now argues that pull back from 14446.55 has completed at 13161.76, just ahead of the medium term channel support, as well as 38.2% retracement of 10982.80 to 14446.55 at 13123.39. More importantly, if this turn out to be true, rise from 10088.82 should then remain intact for another high above 14446.55.

              Market watchers will now keenly focus on the momentum in the coming days, especially awaiting reactions post the much-anticipated speech by Fed Chair Jerome Powell at the Jackson Hole Symposium. This will likely shed light on the feasibility of this bullish prognosis.

              US PMI composite fell to 50.4, near stagnation

                US PMI Manufacturing fell form 49.0 to 47.0 in August. PMI Services fell from 52.3 to 51.0. PMI Composite fell from 52.0 to 50.4.

                Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said:

                “A near-stalling of business activity in August raises doubts over the strength of US economic growth in the third quarter. The survey shows that the service sector-led acceleration of growth in the second quarter has faded, accompanied by a further fall in factory output.

                “Companies report that demand is looking increasingly lethargic in the face of high prices and rising interest rates. A resultant fall in new orders received by firms in August could tip output into contraction in September as firms adjust operating capacity in line with the deteriorating demand environment. Hiring could likewise soon turn into job shedding in the coming months after a near-stagnation of employment in August.

                “Rising wage pressures as well as increased energy prices have meanwhile pushed input cost inflation higher, which will raise concerns over the stickiness of consumer price inflation in the months ahead. One upside is that weak demand is starting to limit pricing power, which should help keep a lid on inflation around the 3% mark.”

                Full US PMI release here.

                Canada retail sales up 0.1% mom in Jun

                  Canada retail sales rose 0.1% mom to CAD 65.9B in June, above expectation of 0.0% mom. Excluding gasoline stations and fuel, motor vehicle and parts dealers, sales were down -0.9% mom. In volume terms, retail sales dropped -0.2% mom.

                  For Q2 as a whole, sales were unchanged in value terms, and down -0.8% qoq in volume terms.

                  Advance estimate suggests that sales rose 0.4% mom in July.

                  Full Canada retail sales release here.

                  UK PMI composite fell to 31-mth low, inflation fight carries a heavy cost

                    UK PMI Manufacturing fell from 45.3 to 41.5 in August, a 39-month low, and missed expectation of 45.1. PMI Services fell from 51.5 to 48.7, a 7-month low, below expectation of 50.8. PMI Composite fell from 50.8 to 47.9, a 31-month low, and first contraction since January.

                    Chris Williamson, S&P Global Market Intelligence’s Chief Business Economist, commented on the data’s implications: “The early PMI survey for August suggests that inflation should moderate further in the months ahead, but also indicates that the fight against inflation is carrying a heavy cost in terms of heightened recession risks.

                    The numbers tell a story of a stalling economy. The service sector’s earlier signs of rejuvenation are waning, and the manufacturing sector’s decline is becoming more pronounced. Williamson added that the data suggests a -0.2% contraction in GDP for Q3.”

                    He also alluded to the broader monetary implications, noting, “While a further hike in interest rates in September looks to be on the cards, the August PMI data will add to speculation that rates could soon peak.”

                    Full UK PMI release here.

                    Eurozone PMI composite fell to 33-mth low, services downturn mirroring manufacturing

                      Eurozone PMI Manufacturing rose from 42.7 to 43.7 in August, above expectation of 42.8. However, the services sector took a hit, with its PMI descending to a 30-month low of 48.3 – the first contraction witnessed since December. Consequently, the Composite PMI declined to 47.0, its lowest in 33 months, and, excluding pandemic months, since April 2013.

                      Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, weighed in that services downturn is now mirroring the lackluster performance of manufacturing. He anticipates a -0.2% contraction in the Eurozone’s Q3 based on current indicators.

                      August’s data echoes ECB President Christine Lagarde’s warning about rising wages and declining productivity potentially boosting inflation. “as a result, the ECB may be more reluctant to pause the hiking cycle in September,” de la Rubia commented.

                      Despite the broader decline, there’s a semblance of hope for manufacturing. The sector’s PMI showed minor improvement, hinting at a potential gradual recovery by early next year.

                      A notable contributor to the downturn was Germany’s swift service sector contraction which fuels the discussion of “Germany being the sick man of Europe.”

                      Full Eurozone PMI release here.

                      Germany PMI services fell to 9-month low, hope of rescue evaporated

                        Germany PMI Manufacturing ticked up from 38.8 to 39.1 in August. PMI Manufacturing Output fell from 41.0 to 39.7, a 39-month low. PMI Services tumbled sharply from 52.3 to 47.3, a 9-month low. PMI Composite dropped from 48.5 to 44.7, a 39-month low.

                        Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said:

                        “Any hope that the service sector might rescue the German economy has evaporated. Instead, the service sector is about to join the recession in manufacturing, which looks to have started in the second quarter. Our GDP nowcast model, which incorporates the PMI flash estimate, now indicates a deeper fall of the whole economy than it did before, at almost -1%.

                        “Stagflation is an ugly thing. However, it’s exactly what is happening to the services economy, as activity has started to shrink while prices have shot up again, even picking up pace. When inflation cannot be tamed in the eurozone’s biggest economy, this is bad news for the ECB.

                        Full Germany PMI release here.

                        France PMI services down to 30-mth low, economy probably contracts in Q3

                          France’s Manufacturing PMI rose to 46.4 in August, up from 45.1. However, Services sector presented concerns, declining to a 30-month low at 46.7, with the Composite PMI holding steady at 46.6.

                          Norman Liebke of Hamburg Commercial Bank noted, “The French economy is facing challenges, potentially leading to a contraction in the third quarter,” he stated.

                          A noticeable decline in global demand impacts France, with foreign new orders below the desired 50-point expansion mark. Companies have been tapping into backlogs due to the decline in new orders. Liebke also highlighted a subdued growth in employment, the slowest since January 2021.

                          Notably, a stark contrast is evident in input prices. The services sector saw a surge, primarily due to wage growth, whereas manufacturing experienced a drop, influenced by reduced energy and raw material costs.

                          A similar trend is showing in output prices too, and “suggests the core rate, where service prices play a crucial role, could prove to be stubborn.”

                          Full France PMI release here.

                          Japan PMI manufacturing ticked up to 49.7, services rose to 54.3

                            In August, Japan’s Service PMI climbed from 53.8 to 54.3, while the Manufacturing PMI saw a slight increase from 49.6 to 49.7, just above anticipated figures. Composite PMI also edged up from 52.2 to 52.6.

                            Andrew Harker, from S&P Global Market Intelligence, pointed out the robust performance of the service sector, driven by consistent new order growth. In contrast, manufacturing only marginally rebounded but remained below the growth threshold.

                            Despite the overall rise in new orders, manufacturing employment remained flat, ending its 28-month growth streak. Additionally, heightened oil prices impacted both sectors, causing the steepest rise in input costs in four months. Notably, business confidence dwindled in both domains due to longer-term economic uncertainties.

                            Full Japan PMI release here.

                            Australian PMI composite hits 19-month low, but concerns on inflation and strong employment rise

                              Australia’s August PMI data showed a concerning decline across sectors. The Manufacturing PMI slightly decreased from 49.6 to 49.4, while Services PMI dropped to a 19-month low of 46.7. Composite PMI, reflecting both sectors, also declined to a 19-month low of 47.1.

                              Warren Hogan, Chief Economic Advisor at Judo Bank, drew attention to the employment sector’s resilience. He noted, “Despite weakening PMI figures, the employment index remains positive, indicating robust labour demand across both manufacturing and services.”

                              With businesses maintaining optimism, they might resist workforce reductions even amidst economic slowdowns. “As aggregate demand is supported by ongoing employment growth… it might mean a further substantial lift in interest rates could be required at some stage in the next 6-12 months,” he added.

                              Inflation remains a key concern. After 2022 disinflation trend, 2023 has shown a halt in the falling price indexes. The current data suggests an inflation rate of about 4%, overshooting the RBA’s 2-3% target range.

                              Hogan also noted wage growth concerns. Even with modest official growth figures, he cautioned that wage pressures might exceed RBA’s forecasted 4% annual growth for 2023. “This may mean firm tightening bias to the RBA’s policy deliberations for the rest of the year.”

                              Full Australia PMI release here.

                              NZ retail sales volume down -1.0% qoq in Q2, value down -0.2% qoq

                                New Zealand’s retail sales volume for Q2 plummeted by -1.0% qoq, settling at NZD 25B. This decline starkly contrasts with market forecasts which had anticipated a milder contraction of just -0.2% qoq. A broad-based slump was evident, as 11 out of 15 industries reported reduced seasonally adjusted sales volumes.

                                Highlighting the sectors that bore the brunt of this downturn, food and beverage services saw a sharp decline of -4.4%. Hardware, building, and garden supplies trailed closely, recording a -4.8% drop. These sectors emerged as the primary drags on the overall sales volume for the quarter.

                                While sales volume took a hit, retail sales value also showed signs of weakness, contracting -0.2% qoq to land at NZD 30B. Once again showcasing the breadth of the downturn, seven out of 15 industries registered a fall.

                                Full NZ retail sales release here.

                                Fed Barkin emphasizes need to uphold 2% inflation target for credibility

                                  Richmond Fed President Thomas Barkin voiced his perspective on the importance of adhering to its 2% inflation target today. He emphasized the paramountcy of maintaining the institution’s credibility with the public, noting, “We have one big weapon and that is credibility.”

                                  Elucidating on the choice of the 2% benchmark, Barkin said, “There is nothing magic about 2 except that when you set that as a target you probably want to achieve it.”

                                  In the broader discussion on the economy, Barkin offered a tempered view. Should the US head into a recession, he anticipates it to be on the “less-severe” side of the spectrum. Moreover, he indicated that while the Fed remains vigilant, it aims to not get overly swayed by transient market fluctuations.

                                  BoJ Ueda meets PM Kishida: Exchange-rate volatility not discussed

                                    In a meeting today, BoJ Governor Kazuo Ueda and Prime Minister Fumio Kishida discussed a range of financial topics. However, in a post-meeting address to the media, Ueda clarified that the recent volatility of exchange rates was not a focal point of their conversation. He stated, “There wasn’t anything in particular discussed today,” in response to inquiries regarding the topic.

                                    The backdrop to this meeting was Dollar’s significant surge over 145 Yen mark. To provide some historical context, when the currency reached this level in September 2022, it prompted Japan’s inaugural Yen-buying intervention operation in nearly a quarter of a century, since 1998.

                                    During their dialogue, Ueda shed light on BoJ’s recent decision to ease its hold on long-term interest rates, lifting the cap on 10-year JGB yield from 0.50% to 1.00%. Prime Minister Kishida expressed understanding and agreement with the central bank’s decision, Ueda remarked.

                                    Highlighting the periodic nature of such high-level meetings, Ueda noted that the recent gathering was in line with the tradition maintained by his predecessor, Haruhiko Kuroda. Such consultations, held once every few months, aim to facilitate discussions on prevailing economic and financial landscapes.

                                     

                                    Silver extending rebound, can it take Gold higher?

                                      Silver’s rebound from 22.21 extended higher overnight and the development should confirm short term bottoming there. A bullish scenario for Silver is that consolidation from 26.12 has completed with three waves to 22.21, after defending 61.8% retracement of 19.88 to 26.12 at 22.26 twice.

                                      Sustained trading above 55 D EMA (now at 23.50) will bolster the bullish case for silver and bring stronger rise back to trend line resistance (now at 24.92). However, rejection by 55 D EMA will argue that current recovery is merely some short-covering profit taking, and send Silver through 22.09 support at a later stage to extend the fall from 26.12.

                                      At the same time, Gold is still trying to defend 38.2% retracement of 1614.60 to 2062.95 at 1891.68. A stronger bounce in Silver could be accompanied by similar rebound in Gold back towards 55 D EMA (now at 1933.55). However, if the bearish case in Silver plays out, Gold would likely clear 1891.68 fibonacci support accelerate down to 100% projection of 2062.95 to 1892.76 from 1987.22 at 1817.03.

                                      US 10-yr yield soars to 15-yr high, real yield breaks 2%

                                        US 10-year Treasury yield ascended to an impressive 4.354%, marking its loftiest level since November 2007, before stabilizing at 4.342%. Notably, 10-year inflation-protected Treasury yield surpassed 2% threshold, the first such occurrence since 2009. This move highlights a significant journey from its year-to-date nadir, which hovered around 1%.

                                        Adding to the mix, the ever-relevant two-year yield grazed 5% mark during the later hours of US session. This ascent falls just short of the highs registered earlier this year in both the previous month and March.

                                        This rise can be attributed to indications of a more robust than anticipated growth across segments of the global economy. Such growth metrics are spurring speculations on central banks’ potential inclination to maintain interest rates on current high levels for an extended duration than previously assumed.

                                        As 10-year yield broke through 4.333 resistance, there are two questions now. Firstly, it’s whether TNX could sustain above this resistance level. Secondly, it’s whether there will be upside acceleration after clearing this resistance decisively. In any case, outlook will stay bullish as long as 4.094 resistance turned support holds. Next medium term target is 61.8% projection of 1.343 to 4.333 from 3.253 at 5.100.

                                        Bundesbank: Germany economy to stagnate, inflation to stay above 2%

                                          In its latest monthly report, Bundesbank paints a sobering picture of the German economy, which remains ensnared in a weak phase. Key factors hampering growth include tepid foreign demand combined with escalating financing costs. The bank foresees the economic output remaining largely stagnant for the summer quarter.

                                          Yet, it’s not all gloom. Bundesbank highlights several silver linings. Stable employment conditions paired with robust wage hikes amidst decreasing inflation rates are expected to stimulate private consumption, continuing its recovery trajectory. This, in turn, offers a promising uplift for the service sector.

                                          Nevertheless, the manufacturing sector poses significant concerns. Weak industrial production, attributed to a continued slump in demand for industrial goods, threatens to stymie the nation’s broader economic progress. Interestingly, the report underscores that the recent recovery in demand is predominantly driven by large orders, typically characterized by extended processing times. In the absence of these large-scale orders, demand, both domestically and internationally, would plummet more precipitously.

                                          Peering into the future, Bundesbank’s experts anticipate declining inflation rate in the autumn, largely influenced by dropping energy prices. On the flip side, the institution projects wage growth to persistently remain strong, extending beyond 2023. This dynamic of robust wage growth amid other economic pressures is pinpointed as a primary factor likely to keep the inflation rate hovering above the 2 percent mark for an extended duration.

                                          Full Bundesbank monthly report release here.