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Breakfast Bites - Wed Aug 23, 2023

Rise and shine everyone.

Today is the big day! NVDA reports after market close. This is probably the most watched earnings of the season and the price action following results will tell us a lot about what the market is thinking. I know it sounds dramatic but, NVDA has largely led this rally and sentiment will give us a hint of whether or not this rally has lost its mojo.

Speaking of losing their mojo, retail stocks had a tough day yesterday with the Retail ETF XRT down -2.78% mostly pulled down by the -24% drop in Dick’s Sporting Goods. The market is looking at this as tough times to come for many of the specialist retailers who deal in the more discretionary items compared to the likes of Walmart and Costco. As if that wasn’t enough, Foot Locker just reported this morning and cut heavily yet again. The stock is down -30% pre-market.

US Equity Futures are still higher this morning after a choppy session yesterday and lower close. Yields have pulled back and the curve is flatter (more inverted) with the Yield Curve now at -0.73%. Oil and Bitcoin are both lower this morning while Gold is higher.

US PMI data is on the cards as well today.

Asia and Australia

  • Asia equities mostly higher Wednesday in a quiet session. Greater China markets mixed as Hong Kong endured a volatile day either side of the flatline slightly higher, mainland bourses down sharply.

  • Overseas funds have been fleeing mainland China equity markets for thirteenth straight session, shedding more than CNY10B via Stock Connect as of Wednesday afternoon.

  • Various ministries including CSRC, MoF, NDRC and State Taxation Administration have jointly issued several preferential tax and fee policies in a bid to drive capital market development

  • Yesterday in Japan, the wires reported that PM Kishida is planning to extend, at least partially, energy subsidies. Looser fiscal policy is a mild boost to growth which in turn boosts the price outlook.10yr JGB yields is climbing higher but remains below the 0.7% level where BoJ intervention is likely.

  • Japan flash manufacturing PMI remains in contraction - manufacturing PMI was 49.7 in August, edging up from 49.6 in the previous month.

  • Baidu Revenue Outperforms as ChatGPT-Style AI Awaits Beijing Approval

  • BOK set to hold rate amid increasing risks to economic growth

Europe, Middle East, Africa

  • European equity markets higher - defensives outperform with healthcare star performer; cyclicals lag with energy main decliner

  • The current flash composite PMI for the Eurozone indicates that the private sector is contracting. Unfortunately, there is little hope for improvement in the near future, as policy rates remain high and yields continue to rise.

  • Over in the UK, flash PMIs for August showed very weak picture for economy. Composite PMI hit 31-month low of 49.9 versus prior 50.8 with manufacturing at 42.5 and services at 48.7. UK private sector output falling at fastest rate since January 2021

  • Bank of England (BoE) in recent analysis said share of non-financial UK companies facing debt stress will rise to 50% by the year-end. That is certainly a significant number.

The Americas

  • After terrible Flash PMI numbers from Japan, Europe and the UK, eyes will be on the US PMI numbers. A softening in the services number is what we need to keep an eye on. It could very well indicate that the Fed’s tightening is beginning to work and may lead to a softer jobs market.

  • Foreign investors are dumping short-dated Treasuries making the case for additional yield rise. Not surprising but, this creates a bit of a conundrum for the Treasury and their $1T issuance. We’re already seeing higher long term yields in anticipation of this.

  • Analyst views are pouring in on Jackson Hole. Most see rates as being too high and the Jackson Hole speech could actually temper that which would be good for risk assets. Personally, I don’t think we will see anything vicious as we did last time but, they will definitely leave the door open to a further hike.


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


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