The State of Markets
A brief review of all key upcoming events across the major regions of the globe & an overview of key recent market trends.
The State of Markets: Equities –> ‘V Shaped’ Price Action (so far)
The relief rally in US & global equity markets continued last week. The S&P500, NDX100 and Philly SOX all rallied sharply throughout the week as short covering drove a rapid ‘wave two’ relief rally. Equities were also helped by macro data which added to market participants’ conviction that the US will avert a recession: Retail sales, weekly jobless claims and NFIB small business optimism were all better than expected. Added to that, consumer price inflation was broadly in line with forecasts (& modestly lower at a headline level). That added to the sense that a rate cutting cycle is about to begin. The S&P500 was +3.9% on the week, the NASDAQ100 rallied by 5.3%, whilst the main centre of the weakness in the second half of July, the Philly SOX, bounced by 9.8%.
In all instances the price action in those indices has been ‘V shaped’ in the past few weeks (although trading volumes in the rally have been light). With that strength, both the NDX100 and the SOX are now at/close to a key resistance level (see chart below). Our work/analysis published in the past two weeks looks in detail at prior sharp pullbacks and concludes that, in most examples, headline equity indices retest their initial lows after sharp ‘wave two’ relief rallies. Price action this week, and the remainder of August, will be critical in that respect.
Elsewhere this week, the Kansas City Jackson Hole Economic Symposium is being held, starting on Thursday, and continuing through to Saturday. The main event is Fed Chair Powell’s speech on Friday (3pm UK time, 10am EST, 9am in Kansas). The speech is expected to set the tone for Fed policy over coming months. Other key macro data next week includes the flash PMIs for the manufacturing and service sectors on Thursday. This gives some initial insights into the strength of the major global economies in August (so far). The full list of key events next week is shown below.
Key chart: US NASDAQ 100 shown with 50 & 200 day moving averages
(All in London time BST)
Events: N/A
Data: US Conference Board leading index (Jul, 3pm).
Earnings: N/A
Events: PBoC policy decision (2am); Riksbank policy decision (8:30am).
Data: German PPI (Jul, 7am).
Earnings: Lowe’s, Medtronic.
Events: Fed minutes from July meeting (7pm)
Data: N/A
Earnings: TJX, Analog Devices, Target.
Events: ECB publishes account from July policy meeting (12:30pm).
Data: Manufacturing & service sector PMIs for Japan (1:30am), France (8:15am), Germany (8:30am), Eurozone (9am), UK (9:30am) & US (2:45pm) – all August first estimates; US existing home sales (Jul, 3pm); Eurozone consumer confidence (August first estimate, 3pm).
Earnings: N/A
Events: Speech by the Fed’s Powell on the Economic outlook (Fri, 3pm).
Data: Japanese headline & core CPI (Jul, 12:30am); US new home sales (Jul, 3pm).
Earnings: N/A
Quant Monthly No. 7, 15th August 2024:
“How Strong is the US Corporate Sector ex-Tech? a.k.a. Is the tech sector a significant distortion?”
The outlook for the US economy is heavily dependent on the strength of its corporate sector. There are various ways of determining that strength, but one key measurement is the corporate sector’s financing gap (fig 1). Indeed US recessions don’t happen unless there’s a cashflow deficit (as defined by the financing gap – black line in fig 1).
When there’s a deficit the sector is vulnerable to ‘tight money’ and/or ‘shocks’. Shocks hit revenues and reinforce the need for the corporate sector to cut costs and resize to reflect more expensive money and less revenue. That dynamic then feeds back into the supply chain and generates, more often than not, the recessionary dynamic. In contrast, when’s there’s a surplus (i.e. spare free cashflow/no corporate financing gap), then the corporate sector is resilient as it has a buffer and is not reliant on markets/banks to fund its growth. Recessions, in that scenario, are generally averted.
Events: Speech by the Fed’s Waller at the 2024 summer workshop on money, banking, payments, and finance (2:15pm).
Data: US Conference Board leading index (Jul, 3pm).
Earnings: Palo Alto Networks.
Events: Bostic on innovating for inclusion (6:35pm), Barr on cybersecurity (7:45pm).
Data: US Philadelphia Fed service sector activity (Aug, 1:30pm); Canadian headline & core CPI (Jul, 1:30pm).
Earnings: Lowe’s, Medtronic.
Events: Fed minutes from July meeting (7pm).
Data: Canadian industrial product & raw materials price index (Jul, 1:30pm); BLS preliminary annual payrolls revisions (3pm).
Earnings: TJX, Analog Devices, Synopsys, Target, Autodesk, Agilent Technologies.
Events: N/A
Data: US Chicago Fed national activity (Jul, 1:30pm); US weekly jobless claims (1:30pm); US S&P manufacturing & service sector PMIs (August first estimates, 2:45pm); US existing home sales (Jul, 3pm); US Kansas City Fed manufacturing sector activity (Aug, 4pm).
Earnings: Intuit, Workday, Ross Stores.
Events: Powell on the Economic outlook (3pm).
Data: Canadian retail sales (Jun, 1:30pm); US new home sales (Jul, 3pm); US Kansas City Fed service sector activity (Aug, 4pm).
Earnings: N/A
Events: Speech by the ECB’s Rehn in fire-side chat (10:30pm).
Data: N/A
Earnings: N/A
Events: Riksbank policy decision (8:30am).
Data: German PPI (Jul, 7am); ECB current account (Jun, 9am); Eurozone construction output (Jun, 10am); Eurozone headline & core CPI (July final estimate, 10am).
Earnings: N/A
Events: Speech by the ECB’s Panetta in Rimini (12pm).
Data: N/A
Earnings: N/A
Events: ECB publishes account from July policy meeting (12:30pm).
Data: HCOB manufacturing & service sector PMIs for France (8:15am), Germany (8:30am) & Eurozone (9am) – all August first estimates; ECB negotiated wages indicator (Q2, 10am); Eurozone consumer confidence (August first estimate, 3pm).
Earnings: N/A
Events: N/A
Data: French INSEE business & manufacturing confidence (Aug, 7:45am); ECB 1 & 3 year inflation expectations (Jul, 9am).
Earnings: N/A
Events: N/A
Data: Rightmove house prices (Aug, 12:01am).
Earnings: N/A
Events: N/A
Data: N/A
Earnings: N/A
Events: N/A
Data: Public sector finances (Jul, 7am).
Earnings: N/A
Events: N/A
Data: S&P manufacturing & service sector PMIs (August first estimate, 9:30am); CBI industrial trends orders (Aug, 11am).
Earnings: N/A
Events: Speech by the Bank of England’s Governor Bailey in Jackson Hole (8pm).
Data: N/A
Earnings: N/A
Events: N/A
Data: Japanese machinery orders (Jun, 12:50am).
Earnings: N/A
Events: PBoC policy decision (2am); RBA minutes from August policy meeting (2:30am).
Data: N/A
Earnings: Midea Group.
Events: N/A
Data: Japanese imports/exports & trade balance (Jul, 12:50am); Australian Westpac leading index (Jul, 1:30am).
Earnings: Xiaomi, HKEX.
Events: N/A
Data: Australian Judo Bank manufacturing & service sector PMIs (August first estimate, 12am); Japan Jibun Bank manufacturing & service sectors PMIs (August first estimate, 2am); Japanese machine tool orders (July final estimate, 7am).
Earnings: Ping An Insurance, AIA Group, NetEase, Jiangsu Hengrui, Baidu.
Events: N/A
Data: Japanese headline & core CPI (Jul, 12:30am).
Earnings: Meituan, Zijin Mining Group, Industrial Bank.
Longview on Friday, 16th August 2024:
“China & America –> The Inseparable Twins (still!)”
Quant Monthly No. 7, 15th August 2024:
“How Strong is the US Corporate Sector ex-Tech? a.k.a. Is the tech sector a significant distortion?”
Longview ‘Tactical’ Alert No. 84, 14th August 2024:
“This Pullback: More Selling Expected”
Longview on Friday, 9th August 2024:
“Equities, US Soft Patch, & JGB Fair Value”
Monthly Global Asset Allocation No. 47, 8th August 2024:
“Italian Equities: Stay OW in Strategic Portfolio”
Longview ‘Tactical’ Alert No. 83, 6th August 2024:
“Price Action Post a Crash”