Minutes from the Fed's July meeting released yesterday indicate that Fed officials remain concerned that inflation will not decline. Preventing inflation from rising again or becoming entrenched remains the Fed's primary focus and could lead to further rate hikes. Two Fed policymakers, on the other hand, favored leaving rates unchanged in the latest rate decision, pointing to risks that could hurt the economy.
The last rate hike in July brought the rate to 5.5%, its highest level in 22 years. The majority of investors still do not expect another rate hike at the upcoming meeting (myself included) and still expect the fed funds rate to fall to around 4.25% by the end of next year. I believe there is room for more hawkishness – in particular, I assume rate cuts are a long way off. Strong U.S. economic data also suggest that the Fed has more room to tighten monetary policy further or keep current restrictive conditions in place (much) longer.
Initial jobless claims were reported with no surprise, falling by 11,000 to 239,000 in the week ended August 12. The U.S. labor market remains tight.
We expect some dip buying at the NYSE open and some tech stocks trading sharply lower. Investors are particularly disappointed with Tesla and Netflix – two stocks that investment banks are positive on. These are exactly the two stocks we have been shoring up over the past few days, making gigantic profits on them as we have been way ahead of the markets. Other interest rate sensitive stocks, including chip stocks, are also trading deep in the red in pre-market trading.
The USD remains in demand as U.S. Treasury yields have risen sharply in recent days. The GBP has also gained after strong wage acceleration and inflation data.
We see commodity prices flat or slightly higher as markets try to stabilize. Gold fell below $1,900, which many investors saw as strong support. Oil prices also fell but are rebounding – WTI fell below the key $80 level, due to concerns about a slowing Chinese economy, China's debt and housing crisis, and falling consumer spending continue to weigh on commodity prices.
There is little that could cause a rise that is not met with profit taking. On the other hand, we will now see calmer markets – which could help stocks stabilize after recent sharp losses. Walmart improved its full-year guidance for adjusted earnings per share (EPS) and net sales. A look at the earnings report shows that the world's largest retailer beat expectations thanks to price-conscious shoppers. While Walmart's earnings report helps risk sentiment for now, I see consumer sentiment dampened as they change their behavior (also due to high inflation in 2022/23).
👁 ROB'S MARKET OVERVIEW:
August 17, 2023
🇺🇸 US Markets ↗️/➡️/↘️ (first stabilizing after pre-market losses, overall remaining bearish)
Cyclical Stocks ↗️/➡️
Tech/Growth Stocks ↕️/↗️/↘️
Financial Stocks ➡️/↗️
Defensive Stocks ➡️/↘️
Energy Stocks ↘️/➡️/↗️
Materials Stocks ↗️/➡️
💱 Forex
GBP ↗️
EUR, USD ➡️/↗️
AUD ➡️/↗️/↘️
JPY ➡️/↗️ (temporary support with JPY at key resistance level which triggers some expectations for BoJ action)
USD ↕️ (first some weakening – USD remains in demand)
CHF ➡️
⚒ Commodity Markets ↕️/↗️
Oil prices ↕️/↗️ (Oil prices remain supported with tight supply).
Natural Gas prices ↕️/↗️
Metal prices ↕️ (first some gains, then sideways/slight losses during second half of US trading)
Precious Metal prices ↗️/➡️/↘️ (trying to rebound, but gold remains bearish)
⚡️Cryptos ➡️/↘️ (risk-off, stronger USD and higher yields weigh on cryptos)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)
Yours, Robert
