As the North American session begins, the Aussie is the strongest and the Japanese Yen is the weakest. This combination mirrors what has been more common with the Aussie (or New Zealand Dollar) being the weakest and the Japanese Yen the strongest. Unsurprisingly, there has been a pre-market rally in US stocks, helping to reverse the trend. The Nasdaq is up 200 points (currently) in pre-market futures trading. This reverses the -160 point decline from yesterday. However, the major US indices are on track to fall this week.
The decline in the USD/JPY pair and the so-called “carry trade” where some investors borrow yen at low interest rates to invest in USD assets (or other countries’ assets) for better returns, has been an excuse for money to flow from some assets to others. However, the Nikkei 225 had its worst day since 2021 this week. Bitcoin, oil, silver, copper and even gold have fallen this week. So there may be selling of the USD and liquidation in things like US stocks but it seems to be heading towards cash. It will be interesting to see how this story ends.
Of course, when you have moves like we have seen this week, especially from assets like the Magnificent 7, it is always fun to find the “why” (i.e. getting rid of the carry trade), but it could also be just “profit taking” and yes, holding on to cash or the money market for a while. The Fed meets next week, and with 2% growth or so in the first half of 2024, it could make it harder to cut rates. So holding on to cash for a while and buying dips could be a good idea.
By the way, the Bank of Japan is meeting next week, and markets are pricing in a 65% chance of a 10bp rate hike. The US Federal Reserve is also meeting, and markets are focused on the central bank starting to cut rates in September.
Today’s data could help the Fed make this decision as its preferred inflation gauge (core personal spending) is due at 8:30 a.m. ET. Today’s economic data review will be highlighted by the core personal spending data along with the University of Michigan Consumer Sentiment (Final) at 10 a.m. ET.
- PCE Price Index MoM: 0.1% vs. 0.0% last month. 2.5% YoY vs. 2.6% last month.
- Core PCE MoM: 0.2% vs. 0.1% last month. Estimated 2.5% vs. 2.6% last month
- Personal income per month: Estimated 0.4% vs. 0.5% last month
- Personal Spending MoM: Estimated 0.3% vs. 0.2% last month
- University of Michigan Consumer Confidence Index Revised: Estimated 66.0 vs. 68.2 last month and 66.0 in preliminary estimate
- Revised Current Conditions: Preliminary 64.1. Last Month 65.9
- Revised forecast: Initial 67.2. Last month 69.6
- 1-year inflation forecast: 2.9% initially vs. 3.0% last month
- 5-year inflation expectations: 2.9% initially vs. 3.0% last month
A quick snapshot of other markets as the North American session begins:
- Crude oil price fell $0.37 to $77.91. Although it is down today, at this time yesterday, the price was much lower at $76.36. The price is down -0.80% on the week
- Gold rose $7.80 or 0.33% to $2,373. At this time yesterday, gold was trading at $2,371.44. For the week, gold is down -1.07%.
- Silver prices fell 8 cents or -0.32% to $27.73. At this time yesterday, the price was trading at $27.57. For the week, silver prices fell -5.02%, after falling 8-5.10% last week.
- Bitcoin price rose to $67,298 (well, there is some buying in Bitcoin today). At this time yesterday, the price was trading at $64,208
- Ethereum is trading above $3246. At this time yesterday, the price was trading at $3174.03
In the pre-market session, major indices are trading at higher levels.
- Dow Jones Industrial Average futures are pointing to a gain of 287.93 points. Yesterday, the Dow Jones Industrial Average rose 81.20 points, or 0.20%, to 39,935.08.
- S&P 500 futures are pointing to a gain of 47.78 points, erasing yesterday’s declines. The S&P closed down -27.89 points, or -0.51%, at 5,399.23 yesterday. The S&P is on track for a second straight week of 2% declines.
- Nasdaq futures are pointing to a 223-point gain. The index closed down -160.69 points, or -0.93%, yesterday at 17,181.72. Coming into today (with gains, that may not happen), the Nasdaq was on track for two straight weeks of -3% declines (at yesterday’s close, the index was down -3.08% after falling -3.68% last week). It hasn’t done that since September 2022.
- The Russell 2000 index rose yesterday by about 27.60 points, or 1.26%, to reach 2222.98 points.
European stock indices are mostly trading higher. During the week, the indices were also mixed:
- Germany’s DAX, +0.49%. The index is up 1.19% this week.
- French CAC, +0.91%. The index is down -0.56% this week.
- UK FTSE 100, +0.85%. The index rose 1.22%.
- Spain’s IBEX, -0.07%. The index is up 0.44% this week.
- Italy’s FTSE MIB, +0.25% (10-minute delayed). The index is down -1.01% this week.
Stocks in Asia-Pacific markets closed lower:
- Japan’s Nikkei 225, -0.53%. For the week, the Nikkei fell -5.98%, its worst decline since the week of April 15 when it fell -6.21%.
- China’s Shanghai Composite Index, +0.14%. Over the week, it fell -3.06%.
- Hong Kong’s Hang Seng Index, +0.10%. For the week, it fell -2.28%.
- Australia’s S&P/ASX, +0.76%. For the week, the index fell -0.60%.
Looking at the US debt market, yields are trading mixed:
- The yield on the 2-year note is 4.434%, -0.8 basis points. At this time yesterday, the yield was at 4.366%. The yield on the 2-year note is currently down -7.8 basis points this week.
- The yield on the 5-year note is 4.132%, -1.2 basis points. At this time yesterday, the yield was at 4.088%. Currently, the yield on the 5-year note is down -3.6 basis points this week.
- The yield on the 10-year note is 4.240%, -1.5 basis points. At this time yesterday, the yield was at 4.225%. Currently, the yield on the 10-year note is unchanged this week.
- The yield on the 30-year Treasury note is 4.481%, -1.9 basis points. At this time yesterday, the yield was at 4.495%. Currently, the yield on the 30-year Treasury note is up 3.4 basis points.
Looking at the Treasury yield curve,
- The 2-10-year spread was -19.6 basis points. At this time yesterday, the 2-10-year spread was -14.4 basis points. Currently, the 2-10-year spread has increased by 8.0 basis points this week.
- The spread between 2 and 30 years is +4.5 basis points. At this time yesterday, the spread was 12.6 basis points. Currently, the spread has increased by 11.0 basis points this week.
In the European debt market, benchmark yields on 10-year bonds fell: