Weekly Market Recap (28-01 September)

Monday:

BoJ Governor Ueda spoke on the weekend at the Jackson Hole Symposium and leant again on the dovish side:

We think that underlying inflation is still a bit below our target.
This is why we are sticking with our current monetary easing framework.

China halved the stamp duty on stock trading in another attempt to prop up the market and investors’ confidence. Although the Chinese stock market gapped up at the open, the gains were erased soon after.

BoE’s Broadbent (hawk – voter) spoke on the weekend at the Jackson Hole Symposium and reaffirmed the need to keep monetary policy in restrictive territory for some time wary of the risks on the wage growth side:

Added effects of the surge in prices, such as pressure to push up wages that has led to record growth in pay, were unlikely to fade away as rapidly as they emerged.
As such, monetary policy may well have to remain in restrictive territory for some time yet.
While it’s reasonable to expect a decline in energy and core goods prices over next few months, one can only be cautious about how quickly the pressure on wages will ease off.

The preliminary data for Australian July Retail Sales beat expectations:

Retail Sales M/M 0.5% vs. 0.3% expected and -0.8% prior.
Retail Sales Y/Y 2.1% vs. 2.3% prior.

ECB’s Holzmann (hawk – voter) supports a rate hike in September barring any downside surprise before the meeting:

There is a case for rate hike if no surprises turn up.
Not in the clear yet on inflation.
ECB is behind the curve, can assess policy once at 4%.
Should start debate on ending PEPP reinvestments.

Tuesday:

Japan Unemployment Rate missed expectations but still hovering around the cycle lows:

Unemployment Rate 2.7% vs. 2.5% expected and 2.5% prior.

CryptoQuant, which is a provider of on-chain and market data analytics for cryptocurrency investors, reported that Bitcoin’s trading volume hit its lowest level since 2018.

The Chinese State Media said that the PBoC may cut banks' RRR earlier than expected. The report cited rising rates in China despite recent official rate cuts. Says the People's Bank of China would cut the RRR to better maintain reasonable and ample liquidity.

RBA’s Bullock said that inflation will be her priority as the new RBA’s Governor:

Inflation is still too high, that will be my first priority as governor.
May have to raise rates again but watching data carefully.
All central banks are grappling with how much further to hike.
Climate change likely to lead to more volatile inflation outcomes.

China is looking to cut borrowing costs on existing mortgages which will affect only loans on first homes. Once officially announced, it will be the first time that China has reduced the rates on outstanding home mortgages for the first time since the global financial crisis.

The US Job Openings for July missed expectations by a big margin and the prior release was revised downward.

Job Openings:

Job openings 8.827M vs. 9.465M expected and 9.165 prior (revised from 9.582).
Professional and business services -198K.
Healthcare and social assistance -130K.
State and local government excluding education -67K.
State and local government education -62K.
Federal government -27K.
Information +101K.
Transportation, warehousing, and utilities +70.5K.

Hires:

Hires 5.773M vs. 5.940M last month.

Separations including quits, layoffs, and discharges, and other separations:

Total separations 5.483M vs. 5.691M last month.
Quits decreased to 3.549 million (-253K) versus 3.802M last month.

The US Consumer Confidence for August missed expectations by a big margin as consumers are preoccupied with rising prices in general, particularly groceries and gasoline:

Consumer Confidence 106.1 vs. 116.0 expected and 114.0 prior (revised from 117.0).
Present situation index 144.8 vs. 160.0 prior.
Expectations index 80.2 vs. 88.3 prior.
1-year inflation expectations 5.8% vs. 5.7% prior.
Jobs hard-to-get 14.1 vs 9.7 prior.

Grayscale, an American digital currency asset management company, won the lawsuit against the SEC as the D.C. court ruled that the SEC improperly rejected the Bitcoin spot ETF. The court ordered the petition for review be granted and the commission's order be vacated. This means the SEC was wrong to reject the application for a spot bitcoin ETF and that it must be reviewed again. The court called the denial of the spot ETF proposal "arbitrary and capricious" because the SEC failed to explain the different treatment of similar products.

Wednesday:

New Zealand July Building Permits missed expectations by a huge margin:

Building Permits M/M -5.2% vs. 0.2% expected and 3.4% prior (revised from 3.5%).
Building Permits Y/Y -14%.

Australia July Building Permits missed expectations by a huge margin as well:

Building Permits M/M -8.1% vs. -0.8% and -7.7% prior.
Building Permits Y/Y -10.6% vs. -18.0% prior.

Australia monthly CPI Y/Y for July surprised to the downside and likely sealed an “on hold” decision at the next monetary policy meeting:

Australia CPI Y/Y 4.9% vs. 5.2% expected and 5.4% prior.

BoJ’s Tamura said that a sustained, stable achievement of the bank's 2% inflation target was now "clearly in sight" as companies shed their aversion to price and wage hikes:

Personally feel sustained, stable achievement of 2% inflation target is clearly in sight.
Appropriate to keep easy policy now given uncertainty over prospects for hitting price goal.
We are in a phase where we need to humbly look at wage, price developments.
Hoping we will have further clarity around January-March next year on prospects for hitting price goal.
Don't expect 10-year yield to rise to 1.0%, new cap is set as protective measure.
Uncertainty over Japan's economic, price outlook very high.
BOJ's step in July aimed at making operation of YCC more flexible.
Corporate price-setting behaviour has changed from period of deflation.
Positive cycle between wages, inflation being seen as wage rises improve consumer sentiment.
Japan's exports, output moving sideways, capex rising moderately.
Japan's economy likely to keep recovering driven by domestic demand.

Japan's inflation likely to slow for time being, then accelerate moderately again.
Can't rule out chance inflation may overshoot expectations.
I believe we can expect high wage growth in next year's spring wage negotiations.
Whether that happens next year will depend on various data at the time.
Ending negative rates, yield curve control are options in case BOJ were to exit easy policy.
Even if BOJ abandons negative rates, that is not the same as monetary policy tightening.
Monetary conditions will remain loose regardless.
It will take more time to judge whether will meet price target in a sustainable manner.

ECB’s Centeno (dove – voter) acknowledged that downside risks to growth have materialised:

Growth indicators have been surprising to the downside recently.
The downside risks to growth outlined in June projections are materialising.
Need to be very cautious about policy decisions.
A lot has already been done.
Even if we pause, saying we are done would be the wrong message.

The US ADP missed expectations coming at 177K vs. 195K expected and 371K prior (revised from 324K):

Small (less than 50 employees) +18K vs +237K prior.
Medium firms (500 – 499) +79K vs +138K prior.
Large (greater than 499 employees) +83K vs -67K prior.
Job stayers 5.9% vs 6.2%.
Job changers 9.5% vs 10.2%.

The second reading on the US Q2 GDP missed expectations coming at 2.1% vs. 2.4% expected:

Consumer spending +1.7% vs. +1.6% advance.
Consumer spending on durables -0.3% vs. +16.3% advance.
GDP final sales +2.2% vs. +2.3% advance.
GDP deflator +2.0% vs. +2.2% advance.
Core PCE +3.7% vs. +3.8% advance.
Exports -10.6 vs. -10.8% advance.
Imports -7.0% vs. -7.8% advance .
Business investment +3.9% vs. +4.9% advance.
Corporate profits -10.6% vs. -5.9% advance.

Thursday:

Oil analysts expect Saudi Arabia to announce next week that it’s extending its crude oil output cut for at least one more month. Bloomberg added that several delegates from the OPEC and its allies privately predicted the same outcome.

Japan Retail Sales for July beat expectations by a big margin:

Retail Sales Y/Y 6.8% vs. 5.4% expected and 5.6% prior (revised from 5.9%).
Retail Sales M/M 2.1% vs -0.4% prior.

Chinese PMIs beat expectations on the Manufacturing side and missed on the Services part:

Manufacturing 49.7 vs. 49.2 expected and 49.3 prior.
Services 51.0 vs. 51.2 expected and 51.5 prior.

BoJ Nakamura said that Japan is no longer in deflation although that mindset is yet to be eradicated:

BOJ must patiently maintain easy policy for time being.
Japan's economy no longer in deflation but deflationary mindset is yet to be eradicated.
Current rise in deflation driven by pass-through of import costs, yet to be driven by wage gains.

Must scrutinise whether small, midsize firms are making progress in earning enough profits to sustain wage rises.
Tightening monetary policy before rise in sales prices lead to wage gains would curb demand, weigh on companies' ability to earn profits.
Tweak to monetary policy needs scrutiny of economic conditions, cautious approach.
Need more time to shift to monetary tightening.
Sustainable, stable achievement of price target yet to be foreseen.
Japan's economy recovering moderately.
FX moves have big impact on prices.
BOJ closely watching impact on yen moves on the economy, prices.
Weak yen benefits exports, tourism but is negative for domestic-driven firms and households.
Decision on when to end negative rates depends on economic developments.
If Japan achieves sustained economic recovery, we won't need YCC.
Now is not the time to get rid of YCC.

Germany July Retail Sales missed expectations by a big margin:

Retail Sales Y/Y -2.2% vs -1.0% expected and -1.6% prior.
Retal Sales M/M -0.8% vs. 0.3% expected and -0.8% prior.

ECB’s Schnabel (hawk – voter) just acknowledged the uncertainty around the economy and monetary policy:

We cannot predict where the peak rate is going to be.
Also, cannot predict for how long rates will have to stay at restrictive levels.

Fed’s Bostic (dove – non voter) is leaning towards a pause as he sees inflation getting back to the 2% target with the policy setting:

Monetary policy is appropriately restrictive.
Inflation is still too high.
We should be cautious, patient, resolute.
Policy is restrictive enough to bring inflation to 2% in a reasonable timeframe.
I am not for easing policy any time soon.
Should inflation unexpectedly climb, I would support more tightening.

BoE’s Pill (hawk – voter) remains resolute on bringing inflation down to target but acknowledged the chance of doing too much:

No room for complacency on inflation.
We need to see the job through on inflation.
We need to ensure we do enough on policy.
But there is the possibility of doing too much in the fight against inflation.
Policy needs to be sufficiently restrictive for long enough.

The Eurozone August Preliminary CPI beat forecasts on the headline reading mainly due to higher energy prices, but the Core CPI came out in line with expectations:

CPI Y/Y 5.3% vs. 5.1% expected and 5.3% prior.
CPI M/M 0.6% vs. 0.4% expected and -0.1% prior.
Core CPI Y/Y 5.3% vs. +5.3% expected and 5.5% prior.
Core CPI M/M 0.3% vs. 0.3% expected and -0.1% prior.

The Eurozone Unemployment Rate remained steady at 6.4%.

ECB’s Holzmann (hawk – voter) calls for more rate hikes as the data showed that inflation is still persistent:

August inflation data a conundrum for the ECB.
Data shows that inflation is still persistent.
We are not yet at the highest level for rates.
Another one or two rate hikes is still possible.

The ECB released the monetary policy accounts of its July meeting:

Members concurred that there was ample evidence that policy tightening was being transmitted strongly to broader financing conditions, including bank lending rates and money and credit flows.
It was felt, however, that, on the one hand, the decline in economic activity was less significant than could have been expected in reaction to the substantial monetary policy tightening over the past few months.
Members agreed that tightening the monetary policy stance by further increasing interest rates was warranted.
Members generally concurred that inflation developments had been broadly in line with the June projections.
Members concurred that the outlook for economic growth remained highly uncertain.
A question was raised about the extent to which the deterioration in the short-term growth outlook was related to the ECB’s monetary policy tightening.
It was argued that the deterioration in the outlook showed that monetary transmission was working and that the interest rate increases were doing their intended job.

The US August Challenger Layoffs reaccelerated and although 30K of job cuts were due to trucking giant Yellow Corp’s filing for bankruptcy, the results point to more softening in the labour market:

75.15K vs. 23.70K prior.

The US July PCE report was in line with expectations:

PCE Y/Y 3.3% vs. 3.3% expected and 3.0% prior.
PCE M/M 0.2% vs. 0.2% expected and 0.2% prior.
Core PCE Y/Y 4.2% vs. 4.2% expected and 4.1% prior.
Core PCE M/M 0.2% vs. 0.2% expected and 0.2% prior.
Core PCE Services ex-Housing M/M 0.47% vs. 0.3% prior.
Core PCE Services ex-Housing Y/Y 4.7% vs. 4.1% prior.

The surge in core services ex-housing was due to portfolio management services and it’s seen as temporary. Excluding that it would have been up 0.2%. This argues that if the Fed wants to sustainably achieve the 2% target it might need lower asset prices.

Consumer spending and income for July:

Personal income 0.2% vs. 0.3% expected and 0.3% prior.
Personal spending 0.8% vs. 0.7% expected and 0.5% prior.
Real personal spending 0.6% vs. 0.4% prior.

The US Jobless Claims beat expectations for Initial Claims and missed on Continuing Claims:

Initial Claims 228K vs. 235K expected and 323K prior (revised from 230K).
Continuing Claims 1725K vs. 1703K expected and 1697K prior (revised from 1702K).

The PBoC said officially that existing mortgage rates will be lowered from September 25. The new rules say down-payments for first homes should be no less than 20% and down-payments for second homes no less than 30%. For second home purchases, the rate floor is now no lower than LPR +20bps while on first homes it's LPR -20bps. The PBOC said lowering existing mortgages rates is beneficial for expanding consumption and investment.

ECB’s de Guindos (dove – voter) just repeated what other members have already said as the sentiment within the Governing Council leans towards a pause:

Latest data from July and Aug point towards economic deceleration in Q3 and probably in Q4.
We need to keep working to get inflation back to the 2% target.
September decision is still up for debate.
Data in the next days is key to the ECB decision.
We are at the finishing stretch of rate hiking process.

The SEC delayed the decision on spot ETFs from WisdomTree, Invesco and Valkyrie. Although the delay was largely expected, Bitcoin sold off erasing all the prior gains.

Friday:

Chinese state media, Xinhua, had the news that the State Council issued a statement that China will further reduce individual income tax for those who have children to raise or elderly to support. The Ministry of Finance and the State Taxation Administration added that the deductions will "ease financial burdens for families to raise children and care for the elderly, improve livelihoods and raise residents' consumption capacity".

The PBoC said it will cut the amount of foreign exchange reserves that financial institutions must hold, a move seen as aimed at slowing the yuan's recent depreciation:

PBoC to lower its FX Reserve Requirement Ratio by 200 bps from 6% to 4% from September 15^th.

This will free up some dollar liquidity and support the yuan. The PBoC previously cut the FX reserve requirement ratio for financial institutions by 200 basis points in September 2022 in a bid to rein in a weakening yuan and make it less expensive for banks to hold dollars.

China Caixin Manufacturing PMI beat expectations by a big margin:

51.0 vs. 49.3 expected and 49.2 prior.

China has two primary Purchasing Managers' Index (PMI) surveys - the official PMI released by the National Bureau of Statistics (NBS) and the Caixin China PMI published by the media company Caixin and research firm Markit / S&P Global.

While the NBS' PMIs cover large and state-owned companies, the Caixin PMI survey covers more small and medium-sized enterprises. As a result, the Caixin PMI is considered to be a more reliable indicator of the performance of China's private sector.
Another difference between the two surveys is their methodology. The Caixin PMI survey uses a broader sample of companies than the official survey. Despite these differences, the two surveys often provide similar readings on China's manufacturing sector.

The Switzerland CPI for August ticked higher, but the Core measure fell further:

CPI Y/Y 1.6% vs. 1.5% expected and 1.6% prior.
Core CPI Y/Y 1.5% vs. 1.7% prior.

The SNB should be done as the inflation rate is within the SNB’s 0-2% target band on both the measures.

ECB’s Villeroy (hawk – voter) maintains all the options on the table for the next and upcoming meetings, although the underlying message seems to be the propensity for a “higher for longer” stance rather than more rate hikes:

Underlying inflation has peaked since April and appears to have begun its decline.
But this encouraging sign is still far from sufficient.
Our options are open at the next and upcoming rate meetings.
We are very close to a peak in interest rates.
But far from a point where we could consider rate cuts.
Keeping rates high long enough matters more than the level.

The Switzerland August Manufacturing PMI missed expectations and remains deeply in contraction:

Manufacturing PMI 39.9 vs. 40.0 expected and 38.5 prior.

ECB’s Vujcic (hawk – voter) highlighted the big uncertainty the policymakers are facing:

We won't know in Sept, October or even November where the terminal rate is.
Economic activity is slowing faster than we forecast.
Softening of economy may help bring down inflation faster.
But labour market resilience still an upside risk to inflation.

The US NFP beat expectations, but the jump in the unemployment rate and softer wages have stolen the show:

NFP 187K vs. 170K expected and 157K prior (revised from 187K).
Unemployment Rate 3.8% vs. 3.5% expected and 3.5% prior.
Participation Rate 62.8% vs. 62.6% prior.
U6 Underemployment Rate 7.1% vs. 6.7% prior.
Average Hourly Earnings M/M 0.2% vs. 0.3% expected and 0.4% prior
Average Hourly Earnings Y/Y 4.3% vs. 4.4% expected and 4.4% prior.
Average Weekly Hours 34.4 vs. 34.3 expected and 34.3 prior.
Change in private payrolls 179K vs. 150K expected.
Change in manufacturing payrolls 16K vs 0K expected.
Household survey 222K vs 268K prior.

The Canadian Q2 GDP missed expectations by a big margin:

GDP Annualised -0.2% vs. 1.2% expected.
Q/Q not annualized 0.0% vs. 0.6% prior (revised from 0.8%).
Implicit price Q/Q 0.7% vs. 0.2% prior.
Exports 0.1% vs. 2.4% prior.
Imports 0.5% vs. 0.2% prior.
Household spending on goods 0.1% vs. 1.5% prior.
On services 0.0% vs. 1.1% prior (revised from 1.3%).
June monthly GDP -0.2% vs -0.2% expected.
July advance GDP 0.0%.

Fed's Mester (hawk - non voter) acknowledged the progress on inflation and the labour market but maintains her hawkish views:

Inflation is still too high, but there's progress.
Job market still strong amid signs of rebalancing.
3.8% jobless rate is still low.
Main Fed debate is how restrictive policy needs to become and for how long.
Future policy decisions will be based on incoming data.
Fed must balance risks when setting rate policy.

The US ISM Manufacturing PMI beat expectations coming in at 47.6 vs. 47.0 expected and 46.4 prior:

Prices paid 48.4 vs. 43.9 expected and 42.6 prior.
Employment 48.5 vs. 44.2 expected and 44.4 prior.
New orders 46.8 vs. 47.3 prior

The jump in prices paid component shouldn't be a surprise given higher energy prices.

The highlights for next week will be:

Monday: US and Canada Holiday.
Tuesday: China Caixin Services PMI, RBA Policy Decision.
Wednesday: Eurozone Retail Sales, US ISM Services PMI, BoC Policy Decision.
Thursday: China Imports/Exports data, Switzerland Unemployment Rate, US Jobless Claims.
Friday: Japan Wage data, Canada Jobs Report.

That’s all folks, have a great weekend!