Mixed signals from today’s data, ECB slightly dovish, SARB’s hawkishness fades, AMC tumbles, Oil to remain in deficit, Gold above $1800, Musk back on Bitcoin bandwagon
US stocks are mixed as the latest wave of earnings results and economic data do not inspire much optimism over the economy. FAANG stocks rallied across the board as the recent surge in Treasury yields came to a screeching halt. Cyclical stocks are underperforming today given some of the softness in todays economic data, struggles in fast-tracking Biden’s infrastructure spending bill, higher price realization, and clear expectations that both the Fed and ECB won’t prematurely tighten (economic growth optimism is needed and not extended accommodation). The tech-heavy Nasdaq is outperforming given the short-term nervousness over the economy, while the Dow Jones Industrial Average is slightly down on the day.
An unexpected increase in jobless claims did not unnerve investors as seasonal adjustment factors may have played into the big miss. Many are attributing the soft reading to adjustments in the auto industry and as some states have returned to stricter restrictions. One bad jobless claims report does not suggest the downward trend is over, but it will put some added pressure over next week’s release. Initial jobless claims rose by 51,000 to 419,000 in the week ending July 17th, higher than the 350,000-consensus estimate, which was also the biggest miss since February. Continuing claims edged lower to 3.236 million a miss of the 3.1 million consensus estimate.
This jobless claim report may have some economists lower expectations over a robust July NFP report given this was the survey week for payrolls.
Continuing claims edged lower to 3.236 million a miss of the 3.1 million consensus estimate.
The Chicago Fed National Activity Index (CFNAI) showed growth is slowing after falling to +0.09 in June from +0.26 in May. The report highlighted that economic growth is moderating as three of the four broad categories of indicators made positive contributions in June and Forty-five of the 85 individual indicators made positive contributions to the CFNAI in June, while 40 made negative contributions.
Existing Home Sales
The housing market still wants to remain a bright spot for the economy. Existing home sales delivered a solid increase of 5.86 million homes, a miss of the 5.90 million consensus estimate, and an increase of 1.4% from the prior month. A streak of four consecutive months of declines is over but no one expects the downward trend to ease up over the next several months.
The Conference Board’s Leading Index showed growth is slowing down but still remains fairly upbeat all the way through 2022.
The ECB decision and press conference didn’t unveil anything new nor did it contain any significant dovish pivots given rising COVID-19 cases tied to the delta variant and deteriorating growth outlook over the short-term. The ECB tweaked their policy outlook following their strategy review, which could suggest more purchases are coming at the September meeting. The ECB is in wait-and-see mode over pandemic, vaccinations, and inflation, so the euro might be stuck in a range until the September 9th policy decision. The ECB President Lagarde has made it clear that “no one wants to tighten prematurely.”
Today’s decision wasn’t unanimous but the dissents were few and at the margin.
The South African central bank (SARB) decision went as expected, as policymakers kept the benchmark repurchase rate unchanged at 3.5%. The rand weakened as the MPC forecasts showed inflation expectations are contained, pushing back some of the hawkish expectations that were brewing.
Drexion’s new budget-stock fund signaled that shares of its largest holding, AMC, will be unloaded. The ETF that normally holds stocks valued between $2 and $5 a share will need to rebalance AMC out of it due to a massive performance over the past year. AMC and GameStop are both sharply lower on the day.
Crude prices are climbing higher as traders continue to believe that the short-term delta variant jitters wont change this market away from a deficit anytime soon. Even as German Chancellor Merkel raises concerns over the Delta variant spread across Europe, improving vaccination rates imply hospitalization rates won’t threaten their healthcare system. The oil market will remain tight and prices will accelerate higher once the trend of new curbs or restrictions starts to ease across Southeast Asia, Australia, and Europe.
According to Baker Hughes, US shale drilling appears poised to decline for the rest of the year and that should keep OPEC+ content in gradually raising output.
WTI crude appears poised to consolidate between the $70 and $75 level in the short-term.
Gold prices are slightly higher as Treasury yields drop following a higher-than-expected jobless claims reading. Gold continues to remain stuck around the $1,800 level and that will probably remain the case until after next week’s FOMC meeting. The debate over tapering will intensify and enough clues will be given to let this market know if the Jackson Hole Symposium in August is in play. Economists’ expectations are all over the place on when the Fed will make the taper announcement and what will be the pace.
Recent softness in some of the labor market readings and mixed signals on pricing pressures could help the Fed err on the side of caution and punt this meeting. Any dovishness from the Fed will be the fuel to help gold rally towards and potentially break above the $1,850 level.
The B-Word Conference was just what was needed to help give Bitcoin a little boost. A growing theme with crypto events is that some of the influencers always seem to make comments or announcements that excite the entire crypto space.
Elon Musk stole the spotlight after he announced he personally holds Bitcoin and so does his private rocket company, SpaceX. Musk also noted progress in Bitcoin using renewable energy and signaled Tesla will soon be accepting Bitcoin again.
Bitcoin momentum is building here and prices could easily make a run towards the July high around the $36,000 level.
The commentary is provided by Edward Moya, Senior Market Analyst, The Americas, OANDA