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Brunch Bites - Wed Sep 06, 2023

Happy Wednesday everyone.


A late note instead of Breakfast Bites. My morning started off with Bloomberg TV and a discussion surrounding oil hitting $90/bbl resulting in fear reverberating through the markets, pushing yields higher. But, that’s something we already covered yesterday. Not much has changed from that story. What we do know now is that that the production cuts from Saudi Arabia and Russia have been extended until December.


We are also starting to heavy Investment Grade bond issuance on the long end as people return to work after summer. This is also pushing prices down somewhat and causing yields to rise.


We got final August US S&P Global PMI which posted 50.5 vs consensus of 51.0 and down from July final of 52.3. The number is bordering on contractionary territory - A weaker rise in output was primarily driven by a renewed contraction in new business, as client demand was reported to have been dampened by interest rate hikes and elevated inflation.


Markets are giving up their gains today, as the yields and the US Dollar Index remains strong. Yields are also higher today but the yield curve has actually inverted more to -0.73%. Yield are also higher today but the yield curve has actually inverted more to -0.73%. Oil remains elevated while Gold and Bitcoin take a beating.


We do have a few interesting earnings after the close.


Asia and Australia

  • Asian equities ended mixed Wednesday with MSCI Asia ex-Japan index lower again while Tokyo gained. Hong Kong stocks briefly rallied in the afternoon session led by property stocks before finishing flat, mainland markets mixed. Losses for Australia, South Korea and Taiwan; Southeast Asia tilted lower, India extending opening losses. Japan closed higher for the eighth consecutive day.

  • We're now looking for some better news on the export front after new orders and new export orders came in slightly higher for both the NBS and Caixin Manufacturing PMI numbers. We still expect the trade surplus to decline with exports falling more than imports.

  • With a strong dollar, we’re seeing EM currencies weaken - particularly the Yen, which hit 10 month lows. This brought fresh warnings from officials of intervention, if required. Most analysts see USD/JPY at 150 as the line in the sand.

  • The new Huawei phone is getting a lot of attention. US National Security Adviser Jake Sullivan said Biden administration seeking more details on reports Huawei has developed advanced 7nm processor for its Mate 60 Pro device


Europe, Middle East, Africa

  • European equity markets end lower. Banks and Financial Services underperforming, while Telecom outperforms.

  • Bundesbank chief Nagel, a hawk, pushed back on speculation rate cuts would come shortly after ECB reaches peak rate. As far as I am concerned, I think they should still be concerned about the hikes - not one but, two.

  • Interesting comments coming out of the UK, in the face of rising inflation - BoE Governor Bailey said it is much nearer to the end of the tightening cycle and no longer in a phase when it was clear rates need to rise.

  • German industrial orders declined more than expected in July, coming in -11.7% MoM down from +7.6% last month. That’s a steep decline is likely dampening spirits in the Eurozone.

  • An economic update from the Kiel Institute showed outlook for Germany economy revised lower with GDP expected to shrink by 0.5% in 2023 compared with prior forecast for 0.3% contraction.


The Americas

  • Several airlines have warned about higher Q3 fuel costs this morning. BofA noted that jet fuel costs, which have been volatile this year, have jumped nearly 25% since the start of earnings season on 13-Jul.

  • Seasonal headwinds continue to get a lot of attention. September the weakest month of the year for equities historically. S&P 500 has dropped an average of 1.1% in September since 1928.

  • August ISM Services index up 1.8 points m/m to 54.5, beating consensus of 52.4. Economic activity in services sector expanded for the eighth consecutive month. Employment index grew for third consecutive month rising 4 points to 54.7. - We’ve been watching this number for a downturn because this is what is keeping core inflation sticky. Once this number rolls over, we’re likely to see some easing in core inflation.


Calendars

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









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