August ends solid enough as traders bet on soft landing, inflation in focus

Wall Street's Uncertain September

September is the cruelest month, breeding margin calls, mixing past performance with year-end targets, stirring stranded longs with declining NAV...it’s certainly works out to deliver the lowest returns for Wall Street and several key central bank meetings should introduce a bit more uncertainty and volatility. After doing nothing but go down all August Wall Street posted four straight days of gains and the FTSE 100 six...probably end of month marking up but also perhaps just an absence of sellers + the soft landing narrative gaining some further credence...S&P 500 now down just 1.6% in August, still its worst month since Feb and snapping a 5-month win streak. 

Global Stock Market Movements

Modest gains were registered in London on Wednesday to keep the run going for a sixth day, taking its August dip to below 3%. Glencore fell 5% after going ex-divi. Stocks in London were flattish in early trade on Thursday running into the final day of trading for the month, whilst Frankfurt rallied two-thirds of a percent to touch 16k again. Futures on Wall Street are positive as the main indices attempt to break out of some head and shoulders-like tops(chart 1). Salesforce, a Dow component, rallied 5% after topping earnings expectations and delivering an upbeat outlook.

US Economic Outlook

US Q2 GDP a bit lighter than expected, ADP miss + JOLTS = jobs rolling over maybe...could be the soft landing that the dollar bears are looking for – they are certainly trading it thus right now with DXY futures down hard again to test the 21-day EMA and then the 200-day at 102.84 before steadying this morning above 103. The US Treasury 2yr/10yr yield curve inversion narrowed to 74bps – the resteepening tell. September may be a pause for the Fed but the new dot plot will tell the market whether there is still one more hike left in the tank – currently expected in November. Gold is firming further, building on the bullish MACD crossover but now facing trend resistance around $1,942 (chart 2). 

ADP: "This month's numbers are consistent with the pace of job creation before the pandemic. After two years of exceptional gains tied to the recovery, we're moving toward more sustainable growth in … employment as the economic effects of the pandemic recede.” 

This has been doing rounds but worth a nod: US ‘Quits’ rate (ie people choose to leave their job) is back to pre-Covid levels – this is a good indicator or how people feel about the labour market and their chances. It could also signal inflation impulse dying.

Global Prognosis

German inflation at 6.4%, down from 6.5% in the prior month, but hotter than expected...feeds into a final hike by the ECB in September. EZ inflation out this morning shows headline above expectations at 5.3%, core also at 5.3% - just high enough for the ECB to deliver a final hike next month? Later today we have the US core PCE gauge, expected to rise 0.2% from the previous month, rising annually by 4.2%, up from 4.1%.

China official manufacturing PMI rose by more than expected, though factory activity was still in contraction for a fifth month, while the non-manufacturing PMI fell whilst remaining in expansionary territory. This maybe helped crude oil firm a touch more after yesterday’s EIA report showed a whopping 10.6m inventory draw – excess stockpiles for the year now wiped out – demand remains solid.

Huw Pill – the Bank of England chief economist – on the wires this morning saying he prefers high for long rates rather than more hikes then cuts. We know, we have heard this from everyone. But 

Elsewhere in the market...

Guggenheim on Tesla: “US Inventory trends suggest that supply is running ahead of demand .. a clear sign that US demand is trailing production output. .. further price cuts are likely .. to adversely impact investor confidence .. Lowering estimates and remain Sell.” 

RBA next week – yesterday data showed Australia’s inflation rate eased to 4.9% in July, down from 5.4% in June to its lowest level in 17 months. Although this is still too high, the RBA is likely to choose to wait and see if it comes down further before committing to what would likely be a final 25bps to 4.35% some time later in the year. Odds on a pause shortening fast.  

Citigroup stuck with its buy rating on Apple (AAPL) ahead of its September 12th product event, reiterating a $240-per-share price target on the stock. Apple is likely to introduce the new iPhone 15 at the event, which Citi predicts will serve as a "strong replacement cycle". Apple may also reveal new Apple Watch models, including an updated version of the high-end Apple Watch Ultra. 

Chart 1 – NDX

Chart 2- gold