Stocks are trading sharply lower after another round of Chinese data showed that the post-pandemic recovery remains disappointing and debt problems also show little sign of resolution. The PBoC unexpectedly cut the benchmark interest rate by 15 basis points to 2.5% to combat signs of a further slowdown in the Chinese economy. Data for July underscored the economic downturn, showing that growth in consumer spending, industrial production and investment fell across the board and unemployment rose.
Stocks in China and most Asian countries fell sharply, while Japan was an outlier, helped by stronger-than-expected GDP growth. Stocks also fell sharply in Europe, especially China-sensitive stocks such as luxury and auto shares. Losses in the U.S. are (currently, during pre-market) less severe and ahead of important U.S. data. U.S. retail sales (12:30 UTC+0) will provide more insight into consumer demand in the United States. Analysts expect that U.S. retail sales increased, rising 0.4% from the previous month. The high expectations leave room for disappointment.
In the UK in particular, inflation fears increased as wage growth accelerated at an unprecedented rate. Average wages excluding bonuses rose by 7.8% year-on-year in the three months to June. That was the highest since records began in 2001 and was up from the previous reading of 7.5%, which was also revised upward and well above expectations of 7.4%.
Rising wages, while essential to addressing the cost-of-living crisis, will continue to drive up prices throughout the economy. While analysts believe that the Bank of England is near the end of tightening, the numbers suggest that further tightening(s) is needed. Bond yields rose sharply in the U.K., as well as in the eurozone and the U.S. – a sign that concerns about stubborn inflation are rising again.
Elsewhere, commodity prices fell, including oil, and gold is near its lowest level since March as investors scale back expectations that the Fed will cut rates sharply in 2024 – I don't see a rate cut on the horizon either.
As Eurozone yields have continued to rise, we see the EUR and GBP also rising slightly against the USD. The GBP remains more supported and should be able to gain against a basket of currencies. Nevertheless, the USD remains in demand as economic data from the US is more stable – however, I expect signs of weakening of US data as well.
The Russian Central Bank raised interest rates by 350 (!) basis points to 12% at an emergency meeting today to stop the rapid depreciation of the ruble.
The strong gains in chip stocks yesterday, especially Nvidia, open the space for sharp losses – especially in the growth sector.
👁 ROB'S MARKET OVERVIEW:
August 15, 2023
🇺🇸 US Markets ↘️
Cyclical Stocks ↘️
Tech/Growth Stocks ↘️
Financial Stocks ↘️
Defensive Stocks ➡️
Energy Stocks ↘️/➡️ (further losses, then stabilizing)
Materials Stocks ↘️
USD, EUR, GBP ➡️/↗️
CHF, JPY ➡️
CAD, AUD ➡️/↘️
⚒ Commodity Markets ↘️
Oil prices ↘️/↕️ (Oil prices see headwinds from weak China data but will try to stabilize)
Natural Gas prices ↕️/↘️
Metal prices ↘️
Precious Metal prices ➡️/↘️ (remains under pressure due to elevated US Treasury yields, testing $1,900)
⚡️Cryptos ➡️/↘️ (risk-off, stronger USD and higher yields weigh on cryptos)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)