Stocks remain mixed after a losing week that saw global equity markets post their worst performance since March this year. We see the sell-off in bonds returning after some investors initially took Friday's non-farm payrolls positively, seeing signs that the U.S. labor market is cooling, easing pressure on the Fed to keep monetary policy tighter for longer (or tighten further).
Bond yields in Germany rose sharply, with longer-term bonds reaching levels last seen in early 2014. U.S. Treasury yields also rebounded after a decline on Friday.
Overall, we see a rather quiet day with earnings reports continuing but no industry leader reporting. The economic calendar is very quiet – however, German industrial data came in worse than expected and hit a six-month low, again highlighting the weakness in the economy. In European trading, trading volume was very low (40% below the 30-day average).
Following recent optimistic inflation data, investors assumed that financial conditions could normalize quickly. However, there are still risks that inflation will remain more stubborn as energy prices have risen sharply recently and now wheat prices are also soaring due to lower exports from Ukraine.
This week, the main focus will be on Thursday's U.S. Consumer Price Index. Any sign that the CPI is no longer weakening or even accelerating could intensify the sell-off. If concerns about the data increase, we will see dip buying and recovery attempts met with profit taking.
It's also possible we'll hear more hawkish comments Risk-off sentiment remains; Hopes for Fed rate shift recede officials that could hurt sentiment as well, especially after investors and analysts mispriced Friday's Non-Farm Payrolls data. The USD remains in demand – largely because the U.S. economy remains the most robust – which also gives the Fed more leeway to keep conditions tighter for longer.
However, after last week's sell-off in New York, I expect markets to stabilize for now. Strong gains in risk assets will certainly lead to profit-taking, however. Gold remains under pressure as the sell-off in bonds will continue, especially as the U.S. government is issuing more bonds this week than originally expected. Riskier currencies, such as the AUD, have some recovery potential.
👁 ROB'S MARKET OVERVIEW:
August 7, 2023
🇺🇸 US Markets ↕️/↗️
Cyclical Stocks ↕️/↗️
Tech/Growth Stocks ↕️/↗️
Financial Stocks ➡️/↗️
Defensive Stocks ➡️
Energy Stocks ➡️/↗️
Materials Stocks ➡️/↘️
AUD, GBP, CAD, USD ➡️/↗️
CHF, JPY ➡️/↘️
⚒ Commodity Markets ↕️
Oil prices ↕️/↗️ (recovering from earlier losses; remaining bullish)
Natural Gas prices ➡️/↗️
Metal prices ➡️/↘️ (remains under pressure)
Precious Metal prices ➡️/↘️ (as bond selloff continues, higher yields continue to weigh on gold)
⚡️Cryptos ➡️ (little upside, but stabilize)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)