…Ain’t no fun and games! This is an edited version of our recent live show, which was a dose of reality from Investment Manager Tony Locantro, from Alto Capital. Is the game up, and what are the consequences for investors, home owners and aspiring first time buyers?
In our weekly market update we look at the latest signals from Jackson Hole, plus market reaction to the tech results, and forward expectations for rates and markets. Meantime in China, expect deposit rates to be cut, while in Australia, market weakness and a weak AUD does not bode well.
We must expect rates higher for longer – so when will the markets adjust?
This week has continued to underscore the change in the market weather, following the hopium of July.
“We’ve long been overdue for a correction in equities, and it’s clear that higher rates have now become the catalyst for that,” said Michael Reynolds, vice president investment strategy at investment and wealth advisory firm Glenmede. “When the opportunity cost for capital becomes more competitive, valuations should correct on risk bearing assets, especially large cap equities which have been trading at significant premiums this year.”
And news that China’s seemingly eternally beleaguered property giant Evergrande has sought bankruptcy protection in New York only added to the strange feeling the financial world has turned upside down. While the problems in the Chinese property sector are far better understood than they were when Evergrande teetered two years ago, China’s post-lockdown economic troubles – perhaps best typified by the nation’s slide into deflation – adds a new and worrying link in what seems increasingly like a negative feedback loop.
As 2023 began, the consensus was clear: China’s economy would surge out of COVID-19 lockdowns, with monetary and fiscal stimulus providing tailwinds, while the US would fall into a brief recession that would likely lead to equity market correction and rate cuts.
But instead, the US economy has proven extraordinarily resilient and equity markets have surged 22 per cent from their October 2022 lows. But in the US, the climb in long-term bond yields to levels not seen in more than a decade is a reminder that economic strength can also weigh on investors.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
This week has continued to underscore the change in the market weather, following the hopium of July.
“We’ve long been overdue for a correction in equities, and it’s clear that higher rates have now become the catalyst for that,” said Michael Reynolds, vice president investment strategy at investment and wealth advisory firm Glenmede. “When the opportunity cost for capital becomes more competitive, valuations should correct on risk bearing assets, especially large cap equities which have been trading at significant premiums this year.”
And news that China’s seemingly eternally beleaguered property giant Evergrande has sought bankruptcy protection in New York only added to the strange feeling the financial world has turned upside down. While the problems in the Chinese property sector are far better understood than they were when Evergrande teetered two years ago, China’s post-lockdown economic troubles – perhaps best typified by the nation’s slide into deflation – adds a new and worrying link in what seems increasingly like a negative feedback loop.
As 2023 began, the consensus was clear: China’s economy would surge out of COVID-19 lockdowns, with monetary and fiscal stimulus providing tailwinds, while the US would fall into a brief recession that would likely lead to equity market correction and rate cuts.
But instead, the US economy has proven extraordinarily resilient and equity markets have surged 22 per cent from their October 2022 lows. But in the US, the climb in long-term bond yields to levels not seen in more than a decade is a reminder that economic strength can also weigh on investors.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Wall Street’s main stock indexes closed sharply lower on Tuesday after stronger-than-expected retail sales data stoked worries interest rates could stay higher for longer, while U.S. big banks dropped on a report that Fitch could downgrade some lenders.
The U.S. retail sales data comes on the heels of strong inflation readings for July, and could potentially give the Fed more impetus to remain hawkish in the coming months. Such a scenario bodes poorly for risk-driven assets, particularly tech stocks.
The Commerce Department report showed retail sales grew 0.7% last month against expectations of a 0.4% rise, suggesting the U.S. economy remains strong.
After the data, traders’ bets of a pause on hikes by the Federal Reserve next month stayed intact at 89%, yet analysts said investors were worried rates could stay at current levels longer than anticipated.
Banks saw the brunt of the selling as investors grew more anxious about interest rates. The U.S. Treasury yield curve has been inverted for over a year, with longer-term bonds yielding less than short-term debt instruments. This persistent situation pressures profits that banks can earn on loans.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Wall Street’s main stock indexes closed sharply lower on Tuesday after stronger-than-expected retail sales data stoked worries interest rates could stay higher for longer, while U.S. big banks dropped on a report that Fitch could downgrade some lenders.
The U.S. retail sales data comes on the heels of strong inflation readings for July, and could potentially give the Fed more impetus to remain hawkish in the coming months. Such a scenario bodes poorly for risk-driven assets, particularly tech stocks.
The Commerce Department report showed retail sales grew 0.7% last month against expectations of a 0.4% rise, suggesting the U.S. economy remains strong.
After the data, traders’ bets of a pause on hikes by the Federal Reserve next month stayed intact at 89%, yet analysts said investors were worried rates could stay at current levels longer than anticipated.
Banks saw the brunt of the selling as investors grew more anxious about interest rates. The U.S. Treasury yield curve has been inverted for over a year, with longer-term bonds yielding less than short-term debt instruments. This persistent situation pressures profits that banks can earn on loans.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Our normal weekend market update, as incoming data is all over the show. No wonder things are volatile!
The S&P 500 and the Nasdaq Composite fell on Friday and posted their second straight weekly losses, as hotter-than-expected U.S. producer prices data pushed Treasury yields higher and sank rate-sensitive megacap growth stocks. Being data dependent, means markets will be highly volatile over the northern summer.
Data on Thursday showed U.S. consumer prices increased moderately in July, with the smallest annual increase in core inflation in nearly two years, lifting hopes that the Federal Reserve is at the end of its rate hike cycle.
However, San Francisco Fed Bank President and CEO Mary Daly said that more progress is needed before she would feel comfortable the Fed has done enough to rein in inflation.
US producer prices picked up in July, primarily due to increases in certain service categories, highlighting the choppy nature of getting inflation back down to target.
According to the Bureau of Labor Statistics the producer price index for final demand, as well as the core index which excludes food and energy, both rose by 0.3% in July, While those came in slightly more than forecast, downward revisions to the prior month tempered some of the strength.
Normalizing global supply chains, tepid demand abroad, and a broader shift in consumer spending toward services and away from goods have generally helped alleviate inflationary pressures at the producer level over the last year. But headwinds are building again as oil prices climb.
Service costs rose by the most in nearly a year, reflecting increases in categories including portfolio management, outpatient care and passenger transportation. Several categories from the PPI report, notably in health care, are used to calculate the personal consumption expenditures price gauge — the Federal Reserve’s preferred inflation measure — that will be released later this month.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
In a choppy trading session indexes rose in the morning, then wavered before turning negative so Wall Street closed lower on Friday after a report of slowing U.S. labor market growth, and all three major indexes posted weekly losses as investors braced for more possible downside surprises a day after disappointing earnings from Apple.
A mixed July jobs report showing fewer than expected job gains in July, but an uptick in wages that threatens a re-acceleration in inflation and so more FED action. Still the markets are holding the faith on a soft landing for the economy as the FED tightens. It still though might feel like a hard bump.
The weekly percentage declines for the S&P and Nasdaq were the biggest since March, with some investors taking profits after five months of gains due to economic data, disappointing earnings and rising Treasury yields.
The Labor Department reported that U.S. employers added 187,000 jobs in July. Data for June additions was revised lower to 185,000 jobs, from 209,000 reported previously. Average hourly earnings rose 0.4% in July, unchanged from the previous month, exceeding expectations, taking the year-on-year increase in wages to 4.4%.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
