Thursday's Markets Update (April 22, 2024)

23 Aug 2024 by rate3

On Thursday, stocks are down due to a technical correction and anticipation of Powell's speech at the Jackson Hole conference. Tech stocks led the decline, while financials and real estate sectors gained. The market pullback was not deterred by rising jobless claims. Globally, Eurozone manufacturing is slowing as economic activity decreases and inflation rises. Meanwhile, the British pound has reached a one-year high due to its strong local economy, whereas the Indian rupee is at a record low as the country's central bank struggles to support exporters. BTC and ETH have remained unchanged, hovering around their monthly levels of 60K and 2.5K.

Details

The Chicago Fed National Activity Index (CFNAI) fell in July, indicating economic weakness. Production, sales, and employment all contributed to the decline. However, personal consumption and housing showed signs of strength. 1Y trend: "Side" (CFed)
Initial jobless claims rose to 232K exceeding expectations. This reinforces the softening labor market trend, supporting expectations for Fed rate cuts. Outstanding claims also increased, while the four-week moving average declined. 1Y trend: "Up" (DOL)
The business sector continues to grow for the 19th month, but the pace slowed in August. The service sector remains strong, while manufacturing faces challenges. Inflation eased, but input costs remain elevated. 1Y trend: "Up" (SPI)
The Kansas Fed Composite Index rose to -3 in August from -13 in July, exceeding expectations. This marks an improvement in economic conditions in the region. 1Y trend: "Down" (KFed)

World Markets

The Eurozone's private sector expanded in August, led by services. Manufacturing continued to decline, though new orders for services increased. Employment growth slowed, and inflation rose. 1Y trend: "Up" (SP)
Consumer confidence in the Eurozone and EU fell in August, defying expectations. This suggests growing pessimism among consumers despite recent economic improvements. 1Y trend: "Up" (EU)

Currencies

The dollar index stabilized after four consecutive declines as investors await Fed Chair Powell's speech. The Fed is likely to cut rates in September due to moderating labor market and weaker economic data. The dollar has weakened against major currencies this week. 1Y trend: "Side"
The Indian rupee fell to near its record low (84) against the dollar in August. The RBI's efforts to support exports and expectations of a weaker US dollar were overshadowed by concerns about inflation and monetary policy. While inflation has eased, the RBI expects it to remain elevated. 1Y trend: "Up"
The British pound has risen to a 12-month high (1.3) due to stronger-than-expected UK economic data. Manufacturing and services sectors saw growth, boosted by increased spending. The pound's strength is also supported by a weaker dollar as investors anticipate lower interest rates. 1Y trend: "Up"
The Euro declined as slower wage growth in the Eurozone supported expectations for more ECB rate cuts. Markets now see a high probability of a rate cut in September and further reductions by year-end. Business activity in the Eurozone is mixed, with strong growth in France and a decline in Germany. In the US, the Fed is likely to cut rates in September. 1Y trend: "Side"

Commodities

Oil prices rebounded after a four-day slump. The recovery was driven by a decline in oil inventories despite concerns about a US economic slowdown and increased oil supply. Traders are watching for clues on US economic policy from the Fed Chair's speech. 1Y trend: "Side"

Comment: What's Up?

Investors are swinging from one extreme to another, oscillating between concerns about impending stagflation and excitement over anticipated Fed easing. This shifting sentiment influences how market participants interpret economic data.

As a result, rising unemployment is viewed by traders as either a bullish signal, because it reinforces the narrative of Fed cutting rate soon, or alternatively, as a bearish indication if investors choose to view it as an indicator of a slowing economy.

Currently, there are two distinct groups dominating the markets - long-term investors, who focus on economic fundamentals, and short-term traders, who closely follow the Powell's every word. Both are trading simultaneously with high volumes, leading to heightened volatility that characterizes today's market environment.

That is compounded by the inherent instability in global commodities markets as geopolitical tensions around the world escalate. This is reflected in oil prices, which rise due to heating conflicts in Eastern Europe and the Middle East, or fall suddenly as investors reassess their outlook for slowing economies in China and the EU, anticipating a long-term decline that will impact regions worldwide and lead to downward pressure on oil prices.

At the same time, we have bursts of growth in various regions of the world, driven by local factors. For instance, production is rising in Malaysia and Indonesia due to businesses relocating from China, where CPC policies have done little to stimulate the economy. Similarly, the services sector in the EU has seen an expected boost during the two-week Olympics event.