Risk assets and global equities continue to sell off sharply, indicating the worst week for global equities since March, having already been negative for two consecutive weeks. Bitcoin slid as much as 8%, providing further evidence of heavy selling in assets considered risky. The sharp sell-off in cryptocurrencies was accelerated by the $373 million sale of Bitcoin by Elon Musk's SpaceX. The MSCI World Index is expected to end the week down 2.6% – 3.0%.
We see headwinds WITHOUT a discernible end with rising interest rates, worsening data in China, a potential collapse in the housing market, and the low liquidity typical of summer. In particular, rising yields have weighed on U.S. growth stocks, which posted record first-half earnings. The surprising resilience of the U.S. economy also raises questions about whether years of low yields will “ever” return. Investors are beginning to accept that Fed rate cuts may still be a year away and that further monetary tightening is a distinct possibility.
Investment banks and investors have been betting that the global economy will avoid a sharp recession – but markets are now increasingly pricing in a significant slowdown. Despite signs of a slowdown in consumer spending – which were also reflected in a fall in UK retail sales today – fears that inflation could pick up or become entrenched also returned. We have seen disinflation slowing in CPI readings.
Oil prices also closed lower this week – the first weekly loss since June. Gold found some temporary support from stabilizing, even falling, Treasury yields – but in a world of higher interest rates (and high interest rates for much longer), downward pressure on the yellow precious metal remains.
FX markets continue to be dominated by risk sentiment. The USD remains the safe haven of choice. Riskier currencies such as the AUD and even the GBP are being sold off after the recent surge in the GBP on hot wage and inflation data. The losses in GBP will be rather temporary given the prospect of a much stronger tightening of the BoE's monetary policy.
👁 ROB'S MARKET OVERVIEW:
August 18, 2023
🇺🇸 US Markets ↘️/➡️/↘️ (after sharp losses, likely first stabilization before selloff returns)
Cyclical Stocks ↘️
Tech/Growth Stocks ↘️/➡️/↘️
Financial Stocks ➡️/↘️
Defensive Stocks ➡️/↘️
Energy Stocks ➡️/↗️ (energy should benefit from rotation out of growth – downside potential in oil prices limited)
Materials Stocks ↘️
JPY ↗️/➡️ (benefitting from safe haven demand)
GBP ↘️/➡️ (some correction after recent gains)
AUD ➡️/↘️ (remaining bearish despite oversold conditions)
⚒ Commodity Markets ↕️/↗️
Oil prices ↕️ (Oil prices remain supported with tight supply – $80 level remains key)
Natural Gas prices ↕️/↘️
Metal prices ↕️
Precious Metal prices ➡️/↘️ (slight gains after lower US Treasury yields; Gold remains bearish)
⚡️Cryptos ↘️ (risk-off, stronger USD, higher yields weigh on cryptos)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)