Global equity markets are mixed, with Chinese stocks down again as Chinese manufacturing continues to contract, albeit less than feared, while services PMI shows slowing growth. Recent signs of continued weakness in China have been accompanied by further signs of official support. However, China's problems are structural, so it is questionable whether the various measures, while certainly helpful, will be enough to revive the economy.
In Europe, recent data on economic activity and inflation remain worrisome. Inflation has accelerated in the major eurozone economies, while economic activity and confidence data have continued to deteriorate. We still see European equities in the green today, supported by temporary weakness in the EUR following statements by Lagarde that interest rates are already high.
US equities are slightly higher ahead of PCE data and further labor market data (jobless claims). After four days of gains on Wall Street – the longest winning streak since late July – we see another mixed picture, but overall sideways movement as investors await insights into the labor market and the state of inflation. I expect more signs that the U.S. labor market is easing. The PCE data will likely show little change from the previous month – with some risk of acceleration. However, since the PCE data is from July, it is more likely that the picture of inflation approaching the 2% target will remain intact.
We will see mostly sideways movement today, with many major indices near key levels. With the put-call ratio remaining quite high, the bulls could continue to push stocks higher. A strong report from Salesforce provides further upside for tech stocks. AI and chip stocks, led by Nvidia, also continue to trend higher. Chip and infrastructure software giant Broadcom reports after the market close and is likely to issue a strong revenue forecast, which will provide further tailwind for chip stocks. Nvidia will make another attempt to rise above $500.00 today.
Oil prices continue to rise as concerns about tight supply resume. Commodity prices are generally benefiting from Chinese stimulus measures. A USD that recovers some of its recent losses will limit gains today, but overall the Fed is expected to suspend rate hikes in September, supporting bonds (and thus pushing T-bill yields further down – positive for stocks, headwinds for the USD).
👁 ROB'S MARKET OVERVIEW:
August 31, 2023
🇺🇸 US Markets ↕️/↗️ (slight further gains with more evidence of cooling labor market and if no negative surprise from PCE data)
Cyclical Stocks ↕️/↗️
Tech/Growth Stocks ↗️/➡️ (AI stocks continue to rise; tailwinds from strong Salesforce earnings report)
Financial Stocks ➡️/↗️
Defensive Stocks ➡️
Energy Stocks ➡️/↗️
Materials Stocks ➡️
USD ➡️/↗️ (win back some of recent losses)
CAD, CHF ➡️
EUR ↘️/➡️/↗️ (headwinds on weak economic data & dovish comments from Lagarde – but high inflation will support EUR)
GBP, AUD ➡️/↘️
⚒ Commodity Markets ➡️/↗️
Oil prices ↗️ (remains bullish with tight supply remaining)
Natural Gas prices ➡️/↗️
Metal prices ➡️/↗️
Precious Metal prices ➡️/↗️ (continues to benefit from lower US Treasury yields & expectations of Fed rate hike pause)
⚡️Cryptos ➡️ (optimism from ETF approval keeps cryptos supported, but this optimism boost likely to fade)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)