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Breakfast Bites - Tue Sep 19, 2023

Rise and shine everyone.

US Equity Futures are trading still higher this morning, after closing higher on the day yesterday but on lower volume. The Russell 2000 Small Cap Index however, is not really following the SPX’s lead. We’re seeing a marginal pull back in the US Dollar Index which is expected after rallying past $105.

Oil has been relentless in its climb with Brent Crude crossing $95/bbl and WTI hovering around $91. We noted in our Dashboard yesterday that the next level for WTI is possibly $93.75 but, it’s about time we see a pullback. The recent increase however, is already causing retail gasoline and diesel prices to rise to almost 10-month highs.

Bond Yields, particularly at the longer end continue to remain elevated fueled by inflation fears. We’re seeing Global Bond Yields also inch higher on the longer end.

With pressure from the US Dollar, Oil and Bond Yields, equities still remain steady. We’ve got a seasonal lull and the Fed rate announcement coming up on Wednesday so this week will likely be choppy.

Asia and Australia

  • Asian equities finished mostly lower in another quiet session. Hong Kong turned around a weak open to bounce back off its recent support level, mainland markets tilted lower. Australia, South Korea and Taiwan all down, Southeast Asia mixed. Japan's Topix flat, Nikkei lower. India closed for holiday.

  • China announces their Loan Prime Rate tonight. We saw them cut rates by 10bps on the 1-year last month but not the 5-year. The market wasn’t pleased with how little they did so, all eyes will be on whether they actually take stronger action today. Cutting rates puts pressure on their currency and that something that they have to balance. The currency however has been stronger as of late, so a larger may just be possible.

  • Country Garden won bondholder approval on the last of a batch of eight onshore notes for repayment extensions. It would seem the Chinese property market has temporarily averted a disaster.

  • RBA meeting minutes showed that Central Bank members are still concerned about inflation in Australia and Globally. But, they decided not to hike in September because inflation was still tracking projections. The bigger issue was probably Governor Lowe’s last meeting but, that’s not something to be quoted.

Europe, Middle East, Africa

  • European equity markets firmer after moving off lows. Financials advance on marginally higher yields, Energy Sector boosted by Brent surge; Retail continues to remain under pressure.

  • The OECD published their interim growth outlook. Eurozone growth was trimmed by 0.3% to 0.6% this year and cut by 0.4% in 2024 to 1.1%. Germany and Italy both saw growth reductions in 2023 and 2024, respectively. UK growth to remain steady this year at 0.3% but revised down by 0.2% to 0.8% in 2024. - We doubt that the numbers come in that optimistic. We see a recession in the EZ and the UK.

  • ECB hawks push back against rate cut bets, doves call fiscal policy into play. There’s still debate over whether the ECB should pause from here on out or even cut rates going into 2024. The Eurozone economy has been more sensitive to rate increases and energy costs. With energy costs set to remain elevated, inflation is not only likely to come back but, economic growth with slow further. Our view is that they should hike one more time, and there are plenty of hawks out there who think so too. But, the ECB is a point where a policy mistake could be made and the growth concerns could actually mean an earlier cut.

The Americas

  • We saw the data on the housing market ease yesterday with the NAHB/Wells Fargo Housing Market Index decline from 50 to 45. Higher mortgage rates are certainly weighing on the market - particularly single-family homes. The gauge for current single-family home sales went down to 51 from 57 and the gauge for prospective buyers dropped 5 points to 30. This is a good step towards lower levels of shelter inflation, which by all accounts should have lower by July / Aug.

  • Treasury Department data showed foreign holdings of US Treasuries rose for a second straight month in July to $7.655T from $7.562T in the previous month. But most of the attention went to China's holdings which fell to $821.8B (from prior $835.4B), marking the lowest level since May 2009 and continuing the general downtrend of the past year

  • No real progress on government-funding negotiations as House Speaker McCarthy continues to face stiff opposition to his proposal for a short-term spending patch from hardliners within his own party.

  • Strike against Detroit automakers continuing with UAW saying yesterday targeted stoppages could expand unless there is "serious progress" by noon Friday.


(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)


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