Nasdaq and the dollar lead markets after stronger economic data

No sign of economic slowing in today’s data: consumer spending surged last month, inflation remain stubbornly high, and jobless claims fell. Economists expect to see 168,000 jobs added to the US economy in August in tomorrow’s report, with the unemployment rate unchanged at 3.5%. Consumer’s core consumer inflation ticked up to 4.2% in today’s data, well ahead of the fed’s 2% inflation target. Bonds rallied, lowering long-term yields. Equities trod water. The dollar rallied. Oil continued its upward trek on hopes for more OPEC+ production cuts.

Bottom-line: risk-hold.

TODAY’S MAJOR NEWS

Personal Consumer Expenditure (PCE) highlights economic strength

• The headline PCE price index was up 3.3% year-on-year in July, as expected, up from 3.0% last month
• The PCE price index rose 0.2% month-on-month in July, as expected, and as per last month
• The core PCE price index, a Fed favorite inflation measure was up 4.2% year-on-year in July, as expected, up from 4.1% in June
• The core PCE price index, ex volatile food and energy sectors, rose 0.2% month-on-month, as expected in the same as last month
• PCE data reported strong consumer spending (much of it on credit cards) and a worryingly persistent rate of inflation measured on consumption
• Personal expenditures rose 0.8% month-on-month in July, ahead of 0.6% expected, and up from 0.5% in June
• Personal income rose 0.2% month-on-month, a shade lower than expected, and down from last month’s 0.3%

Chicago’s economic data remains weak

• The Chicago purchasing managers index rose to 48.7 for August, up from 42.8 in July (a number below 50 still indicates month-on-month contraction)
• The PMI has reflected contraction each month over the past year, although today's number is the highest of the past year, raising hopes that it is a sign that a recovery is coming

Unemployment claims fall, again showing tight labor market

• First-time claims for unemployment benefits fell to a low 228,00 in the week ending August 26, less than expected, down from 232,00 the previous week
• The four-week moving average at 237,500 claims matches the previous week
• Continuing claims for the week ending August 19 rose 28,000 to 1.725 million,
• The four-week moving average rose 8,250 to 1.704 million
• However, today’s private sector Challenger job-cut report highlighted 75,151 layoffs announced in coming weeks, up from 23,697 announced last month

China boosts property buying incentives

• China lowered the amount required to buy a first home from 30% to a 20% down payment, and for a second home, the down payment was lowered from 50% to 30%
• Authorities hope that it will spur buying interest near-term to reverse the property sector decline
• Chinese markets responded positively, with the yuan surging in value versus the dollar
• China’s property market is a key indicator for the health of its economy – accounting for 30% of gross domestic product, and three-fourths of the typical citizen’s assets are tied up in real estate
• This year’s slump in real estate sales risks cutting off sources of funding for developers to meet a wall of financial obligations coming due later this year (short-term liabilities and investment commitments are expected to exceed cash on hand by 18.9 trillion yuan by December)

TODAY’S MAJOR MARKETS

Equity market’s unchanged, Nasdaq relative winner

• Equity markets were basically unchanged, with the Nasdaq up 0.3%, while the S&P 500 and Russell 2000 were unchanged
• Global markets were mixed overnight, with the FTSE 100 off 0.5%, while the Nikkei 225 and DAX were up 0.9% and 0.4% respectively
• The VIX, Wall Street’s fear index, was unchanged at 14.9

Bonds and dollar rally

• Bond yields continued to fall, with 2- and 10-year bonds down to 4.85% and 4.08% respectively
• The dollar index rose 0.5% to 103.7
• Versus the dollar, the Euro and Sterling fell 0.8% and 0.4% respectively, with the Yen up 0.4%

Oil rallies on hopes for production custs

• Crude oil prices rose 1.2%, to $82.6 per barrel on hoped for OPEC+ production cuts
• Gold was pretty much unchanged at $1,968 per ounce, while Silver fell 1.1% to $24.8 per ounce
• Grain and oilseed prices were mixed in quiet trading
• Soybeans were weak, while corn and wheat prices found chart support
• Russia continues to dump wheat on the world market at a record pace

Analysis by Arlan Suderman, Chief Commodities Economist: Arlan.Suderman@StoneX.com 

Market outlook by Paul Walton, Financial Writer: Paul.Walton@StoneX.com