US Equities: The markets are closed today due to the Labor Day holiday. Last Friday, equities saw an initial boost following a Goldilocks employment report, which led to a decline in bond yields and provided support to stocks. However, sentiment took a turn for the worse when the ISM Manufacturing data surprised on the upside, pushing the "interest rates higher for longer" expectation to the forefront. The S&P500 ended the session 0.2% higher while the Nasdaq 100 ticked down 0.1%. Tesla (TSLA:xnas) plunged 5.1% after the EV maker cut prices in the US market.
At Saxo, our inclination is to look beyond the recent data noise and prepare for a potential cyclical downturn in the US economy, coupled with a negative fiscal impulse. Given that equity valuations appear to have peaked, it might be prudent for investors to consider adopting a more defensive stance at this point. For further insights, we recommend checking out the latest article from Peter Garnry.
China/HK Equities: When the Hong Kong equity market reopens on Monday after a typhoon-related closure last Friday, investors will have the chance to respond to recent regulatory changes in the mainland property market. These changes include reducing the minimum down payment for first-home buyers to 20% (from 30%, with Beijing and Shanghai previously at 35%) and for second-home buyers to 30% (down from 40%, with tier-1 cities previously at 50%-70%) across all-tier cities. Shanghai and Beijing have also relaxed eligibility criteria for first-home buyers, joining Shenzhen and Guangzhou in doing so. Additionally, Chinese authorities have lowered the mortgage rate floor for second-home buyers by 40bps and instructed banks to renegotiate interest rates on existing mortgages. Despite these regulatory changes, the CSI300 only saw a modest 0.7% increase in reaction on Friday.
FX: Dollar regained strength later in Friday’s session to end the week for a 7th consecutive gain, while CNH was also up in the week. Losses were led by sterling, with GBPUSD sliding below 1.26 on comments from BoE Chief Economist Pill who talked about holding rates as an option. Poor GDP and PMI reports saw USDCAD jumping higher to 1.36 from lows of 1.3490. EURUSD dipped below 1.08 despite some hawkish ECB remarks, and AUDUSD stays below 0.65 ahead of RBA meeting tomorrow.
Commodities: WTI oil rallied over 7% in the week to record its largest one-week gain since Q1 2023 and refreshing YTD peaks. Tightening supplies and inventory drawdowns underpin, and Russia’s claims to unveil new parameters of the supply deal remain on watch. Gold jumped higher to $1950+ on jobs report but could not sustain the move as yields moved higher.
Fixed income: Last Friday, Treasury yields staged a rally, bringing an end to four consecutive days of yield declines. Initially, yields dropped due to a slower 3-month moving average of job gains (attributed to downward revisions in the prior two months), softer hourly earnings growth, and an increase in labor force participation. However, market sentiment shifted, leading to selling pressure driven by a stronger-than-expected ISM report, a rise in crude oil prices, and announcements of upcoming corporate supply next week. On Friday, the 2-year yield increased by 2 basis points to 4.88%, while the 1-year yield surged by 7 basis points to 4.18%. We see value at the current levels of yields particularly in the 2-year to 5-year segment of the curve.
US Macro: US nonfarm payrolls came in above expectations at 187k in August, although data for last couple of months was revised lower by -110k. The unemployment rate edged up to 3.8% from 3.5% in July (with labor force participation picking up) and wage growth moderated. Report further boosted soft-landing hopes, prompting markets to further reduce the possibility of another Fed rate hike. The ISM Manufacturing PMI data rose above expectations to 47.6 (exp. 47.0) from 46.4, while price paid increased. Fed's Mester (non-voter) acknowledged that employment growth has slowed, but at 3.8% she said the jobless rate is still low while inflation remains too high.
Asia Macro: August Caixin China Manufacturing PMI came in at 51, returning to the expansion territory after the dip into contraction in July, and reaching the highest level since the 51.6 print in February. The output, raw material input prices, new orders, and employment sub-indices all bounce from contraction to expansion while new export orders remain in contraction.
In the news: Country Garden wins bond extension in relief for China's property sector – Full article in Reuters. China’s Xi Jinping vows to open service sector to boost cross-border trade and investment – Full article in SCMP. Nio (NIO) delivered 19,329 vehicles in August, +81% Y/Y; Xpeng sold 13,690 vehicles last month, up 24% Y/Y – via SCMP.
Macro events: US & Canada Labor Day holiday.
Earnings events: Trip.com
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