European stocks recovered some of yesterday's sharp losses, with Italian (bank) stocks in particular recovering as Italy watered down its surprise bank windfall tax. Italian bank stocks, which had fallen very sharply yesterday, were among the biggest winners today. Cyclical stocks also narrowed yesterday's sharp losses, which were triggered by worrisome data from China.
The current and the further auctions of government bonds in the U.S. began on Tuesday with solid demand for bonds, so a possible sharp rise in bond yields due to possible low demand reduced. However, we expect Treasury yields to rise again ahead of another highly anticipated auction later today. The U.S. government will sell $38 billion worth of new 10-year bonds, up $3 billion from the last 10-year bond auction in May.
Treasury yields also remain elevated on concerns about U.S. inflation data tomorrow, which show further signs of slowing disinflation. Analysts expect U.S. inflation to be little changed in July (compared to June). There is a risk that inflation data could show a renewed acceleration – especially if prices for fuel, oil and food start to rise again. Wages have also risen faster than expected recently.
As risk aversion begins to fade (already did yesterday), investors are desperate for clear signals. The risk of renewed profit-taking is high, especially if concerns about prolonged tight monetary policy persist – which could be exacerbated if inflation data comes in better than expected.
In China, inflation data have shown that strong disinflation continues. They show that domestic demand remains weak and Chinese companies are trying to boost demand by cutting prices. Falling producer prices and higher base prices after inflation, higher energy prices and supply chain disruptions in 2021 – 2022 also play a role.
We will see the markets mostly moving sideways today. U.S. markets seem to be able to cut some of the recent losses. However, we expect investors to become more cautious towards the end of the U.S. trading session and there will be profit-taking as tomorrow's U.S. CPI data could again significantly increase expectations for a rate hike, which could lead to another wave of selling. Profit warnings from companies like **WeWork **(currently -10.5%) could also lead to further profit taking.
👁 ROB'S MARKET OVERVIEW:
August 9, 2023
🇺🇸 US Markets ➡️/↗️ (profit taking towards NYSE closing)
Cyclical Stocks ➡️/↗️
Tech/Growth Stocks ➡️/↗️
Financial Stocks ↗️
Defensive Stocks ➡️
Energy Stocks ➡️/↗️
Materials Stocks ↘️
EUR ➡️/↗️ (benefiting from rebound of European stocks/banks; upside limited)
CHF, JPY, CAD ➡️
GBP, AUD ➡️/↘️
⚒ Commodity Markets ↕️
Oil prices ➡️/↗️ (after strong gains limited short-term upside; oil prices remain bullish)
Natural Gas prices ↗️
Metal prices ↕️
Precious Metal prices ➡️/↘️ (remains pressure from high yields)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)