This morning it looked as though US equities would round the corner on Day 3 of equity stabilization, which started Friday and continued into this morning’s futures trading. But investor’s ability to keep equities elevated proved unsustainable. The SPX and CCMP both closed near lows of the day, the former -30bps into the red and the latter was able to eke out a green day, but only just, up a measly 6bps. These last few days of strength haven’t been enough to erase August’s initial weak weeks, and now we are less than a day away from one of the biggest catalysts this month, with the highest expectations– Nividia’s (-2.6%) earnings. Treasuries were mixed, seemingly unable to hold a bid, giving inflation bulls fuel for their narrative that yields have further to rise thanks to robust growth, reaccelerating inflation, and geopolitical tensions. Another part of that argument is regarding Energy strength though, and crude was weaker for a second day running, down another 50bps. Meanwhile, DXY strength continued +27bps.

A mixed morning for equities with traders patiently awaiting the Jackson Hole meetings later this week. All eyes will be on Powell’s press conference on the 25th as the “higher for longer” rhetoric takes a firm grip on markets.  All indices bounced at the open with the S&P up about 60bps 30 mins into the session. That gain quickly evaporated, not helped by a headline flagging the 10-year TIPS jumping above 2% for the first time since 2009. In addition, the US10y closed at another high for the year, continuing to push to levels not seen since 2007 and a full point higher since mid-May. Despite these new highs in interest rates, indices were able to shake it off and push higher throughout the afternoon session and into the close. The NASDAQ 100 was the clear winner today up 165 bps. Nvidia (+8.4%) was the main driver behind the rally after another round of bullish calls ahead of the company’s report post close Wednesday.  There are 52 buys on the name and one sell whilst the stock was 30% higher one week after their last report. Not to be overlooked was an impressive gain from Tesla (+7.3%), snapping a six-day losing streak as excitement around the new Cybertruck grows. The Russell was again a notable laggard, down 18bps and 7.3% this month.

Since the beginning of August, red has been seeping into US equities as investors assess the higher for longer economic impact, plus growing concern over China’s property developer fallout. That latter point pushed traders into the classic risk-off trade early this morning, heading into Treasuries and away from equities. But US stocks have been nursing losses all week and rallied throughout the session, closing just off their best levels. While most sectors finished in the green today, led by Energy and Food Retailers, the weekly result was still negative, and the S&P 500 closed with its third weekly loss. On a positive note, the Russel 2000 closed above its 200-day moving average (1842), maintaining that level it has held since the beginning of June.

Now we’re worried about rates? Most of 2023 has been characterized by the market’s willingness  (cognitive dissonance?) to move past the how high and how long narrative from the Fed. Even as prognostications were proven wrong time and again, equities have largely kept calm and carried. But we are in a brave new world as yields continue to climb and the light summer schedule is taking advantage.  One curious development is the Street’s seemingly sudden appreciation for the Fed’s sticktoitiveness. A week that’s already seen strong economic data fired another salvo with a jobless claims figure that saw a slight uptick but hardly suggested a labor market that’s softening. Throw in some positive earnings report and an increasingly bearish sentiment (see below) and the die was cast. Indices toyed with going better to start but per usual this week any strength was sold and that only picked up steam as the day progressed.

The forecast in markets today was mostly cloudy with a chance of showers as markets are stuck in choppy summer sideways trading with a moody bias.  Despite early gains, US indices were unable to hold in the positive and slipped below the breakeven line by the early lunch hour as volumes and activity remained depressed.  Afternoon trading saw barely an uptick in excitement as indices bounced around in modest loss territory and ultimately closed on the lows after July FOMC minutes release that saw headlines run rampant with a more hawkish commentary that “*MOST FED OFFICIALS SAW ‘SIGNIFICANT’ UPSIDE RISKS TO INFLATION.”  In reality, the minutes were a bit more measured than headlines would suggest.  And to that end, the CME probability for the September meeting barely budged holding tight around 88% that are expecting the Fed to hold next month.  Insert healthy debate and bringing it back to the hawks that Redburn Atlantic’s resident economist, Melissa Davies, continues to shout her belief that inflation will remain sticky in the 3-4% range, with rising energy prices a key driver, and that this will lead to two additional hikes (to 6%) yet ahead. 

Another case of good news is bad news today for stocks as retail sales came in strong with all metrics beating estimates. Today’s data confirms the US consumer remains strong and willing to spend, supporting a more restrictive Fed policy. This was reiterated by Fed Kashkari today, during a townhall where he would not commit to stopping rate hikes. However, he does see “positive signs” and will rely heavily on the data leading up to the next Fed meeting. Despite this move in retail sales, CME data still showing an 88% chance of a pause in September.