Monday's Markets Update (July 17, 2023)

17 Jul 2023 by rate3

On Monday, The Nasdaq Composite index opened up 0.3%, as traders prepared for a week of corporate earnings. Meanwhile, disappointing economic data from China weighed on investor sentiment. The economic calendar is light and Fed officials will be muted ahead of the FOMC monetary policy decision next week.

Details
The NY Empire State Manufacturing Index fell from 6.6 in June to 1.1 in July 2023. This is a decline of 5.5 points, but it is still better than market expectations of -4.3.

Comment: Overall, the NY Empire State Manufacturing Index for July 2023 suggests that business activity in New York State is flattening out. However, there are some positive signs in the report, such as rising demand for goods and easing supply chain disruptions. It remains to be seen whether these positive signs will be enough to prevent a recession.

Macroeconomy
Nigeria: Annual inflation rate accelerated for a sixth month to 22.79% in June, the highest since September of 2005. The biggest upward contribution came from the cost of food and non-alcoholic beverages (25.3% vs 24.8% in May), namely oil and fat, bread and cereals, fish, potatoes, yam, fruits, meat, vegetable, milk, cheese. The Nigerian government has taken some steps to address the rising cost of living, such as declaring a state of emergency and providing farmers with fertilizers and seeds.

Comment: The removal of fuel subsidies, the depreciation of the naira, and the ongoing war in Ukraine have been major contributors to inflation. For example, fuel prices have risen sharply, which has led to higher transportation costs and increased the cost of goods and services that rely on transportation. However, it is more likely that the monopolization of the food industry in Nigeria has led to higher prices in the long term, rather than just the rising costs of fuel (see my analysis in How Blockchain and Cryptocurrencies Can Reduce Food Inflation

The Chinese economy grew by 6.3% year-on-year in Q2 2023, faster than Q1 but below market expectations. In June, economic indicators presented a mixed picture: retail sales rose at a much softer pace, while industrial output growth accelerated. The urban jobless rate remained unchanged at 5.2%, but youth unemployment reached a new high of 21.3%. Earlier released data indicated that China's exports declined the most in three years.

Comment: The slower-than-expected economic growth in Q2 is a cause for concern, as it suggests that the Chinese economy is facing headwinds. This reverberate through the world economy as China is one of the world's major consumers of natural resources. The decline in exports is particularly worrying, as it is a sign that global demand for Chinese goods is weakening. The rising unemployment rate is also a worrying trend, as it suggests that the Chinese economy is not creating enough jobs enough even for its declining population.

Commodities
Wheat: Futures soared (+4%, past USD 6.8) after Russia refused to extend the deal guaranteeing a safe trade corridor for vessels to export Ukrainian grain out of Black Sea ports.