Nasdaq, Bitcoin and Oil rally on lower rate expectations

Stocks rallied as Treasury yield fell immediately on the release of weaker economic data this morning – expressing the belief that interest rates might have peaked. Nasdaq led the rally. The Vix fear index dropped to bull market levels. Oil resumed its bullish trend. Bitcoin, a key risk asset, rallied by 7% on news that a Bitcoin ETF might be closer than expected. The US dollar was weaker, reflecting the expectation that dollar assets might yield less going forwards.

Bottom-line: risk-on.

TODAY’S MAJOR NEWS

US economy showing signs of slowing

The Fed’s monetary policy is having a greater impact on slowing the jobs market and crimping consumer confidence, potentially benefitting inflation prospects – potentially reducing the need for higher interest rates, or prompting rate cuts. Job openings shrunk markedly in July, and consumer confidence fell during a hotter than normal August. The CME’s Fedwatch tool, projecting the likelihood of rate increases, cut the probability of a September rate hike to 13% from 20% yesterday. All eyes remain fixed on Friday’s Nonfarm Payroll data.

Job openings shrinkage points to marked economic slowdown

• Today's Job Openings and Labor Turnover Survey (JOLTS) report showed "just" 8.827 million job openings posted at the end of July, significantly down from the forecast 9.559 million
• July’s figure was the lowest since March of 2021, down from the all-time high of twelve million recorded in March of last year.
• Last month's data was revised to 9.165 million openings, down from the 9.582 million originally reported

Consumer confidence wilts in summer heat

• The Conference Board’s consumer confidence index for August came in at 106.1, less than an expected 116.5 reading, down from a downwardly revised 114.0 in July
• Consumers are preoccupied with rising prices, especially the higher price of groceries and gasoline

More Chinese stimulus prompts a further rally in stocks

Chinese stocks rallied on rumors that China’s central bank may consider cutting its bank reserve requirement ratio soon, further stimulating the economy. This could bearish the yuan, which initially held relatively steady near 7.29 to the dollar in today’s trade. China’s property sector is in trouble, with sales in the four first-tier cities fall by nearly 23% month-on-month in July, while property inventory in eight other sample cities rose a bit over 2% month-on-month. The greatest inventory pressure is seen in Shenzhen, where unsold properties increased by nearly 7% month-on-month, followed by a 5.6% increase in Shanghai. The typical consumer has three-fourths of their assets tied up in property, so a weak property market tends to reduce consumer confidence, and therefore reduce consumer spending. Loser monetary conditions are required to reverse this vicious cycle.

Is a Bitcoin ETF closer?

A federal appeals court ruled that the Securities and Exchange Commission (SEC) must review its rejection of Grayscale Investments' attempt to convert its Grayscale Bitcoin Trust (GBTC) into an ETF. Several institutions are vying to launch a Bitcoin ETF, opening the crypto asset to retail investors.  Circuit Judge Neomi Rao, agreed with Grayscale’s argument: " Petitioning for review of the Commission’s denial order, Grayscale maintains its proposed bitcoin exchange-traded product is materially similar to the bitcoin futures exchange-traded products (which were approved) and should have been approved to trade on NYSE Arca.” Traders placed bets that the ruling could pave the way for an ETF conversion of GBTC, which rose 17%, narrowing its discount to net asset value (NAV) from 25% to 17%.

TODAY’S MAJOR MARKETS

Equity markets bounce on lower rate hopes

• Equity markets rallied this morning with the Nasdaq, Russell 2000, and S&P 500 up 1.7%, 1.4% and 1.3% respectively
• Global markets were stronger overnight, with the FTSE 100 up 1.7%, the DAX up 0.9% and the Nikkei 225 0.2%
• The VIX, Wall Street’s fear index, fell back to 14.6

Bonds rally, dollar falls

• Bond yields fell back, with 2- and 10-year bonds falling to 4.91% and 4.12% respectively
• The dollar index fell 0.5% to 103.5
• The Yen, Euro and Sterling were up 0.5%, 0.5% and 0.4% versus the dollar

Oil and Gold rally

• Crude oil prices rose 1.3%, to $81.1 per barrel
• Gold rallied, up 0.9% at $1,964 per ounce, while Silver was up 2.0% at $24.7 per ounce
• Wheat prices hit sell stops below recent lows, triggering expanded technical selling
• Losses in corn and soybeans were limited by continued reports from the field that crops are still deteriorating

Analysis by Arlan Suderman, Chief Commodities Economist: [email protected] 

Market outlook by Paul Walton, Financial Writer: [email protected]