Nasdaq leads equity drop, oil and dollar remain strong

Major indexes extended losses after mid-day, dragged down by tech majors in Nasdaq. Oil and the US dollar built on recent gains, with the former rising to $90.7 per barrel and the latter holding the 105.3 dollar index level. US consumer sentiment is finally eroding, signaling the lagged impact of higher rates. On the other hand, China’s retail data was surprisingly strong, prompting a rally in the yuan. US manufacturing data was surprisingly strong.

Bottom-line: risk-off.

TODAY’S MAJOR NEWS

Consumer confidence finally ebbing

High borrowing costs and a cooling labor market showing are keeping the US consumer somewhat on the defensive. This is consistent with the expectations we've had all along in the Fed's inflation battle; the economy must slow. Today’s University of Michigan Consumer Sentiment Index hints at an economic slowdown.

• The headline consumer sentiment index fell to 67.7 in September, well below an expected 69.1, and a 1.8 point drop from August
• The current economic conditions index fell 5.9 points to 69.8, well below an expected 76.6, the sharpest month-on-month drop seen since November 2022
• There was a silver lining: inflation expectations dropped to 3.1%, down from 3.5% in August, the lowest level seen since March 2021
• While consumers are feeling some pain now, their outlook remains relatively positive: consumer expectations improved, climbing 0.8 points month-on-month to a 66.3

Surprising manufacturing uptick

• US industrial production also showed unexpected strength, rising 0.4% month-on-month in August ahead of an expected 0.1% increase
• Industrial production showed its strongest gain since April after consecutive declines over the summer
• August’s reading was more surprising as it offset a 5 percent fall in the output of motor vehicles and parts
• Capacity utilization was at its highest since April at 79.7%, and July was upwardly revised to 79.5%
• The New York Empire State Manufacturing Index reported an expansionary reading of 1.9 for September, a massive jump from August's sharp contractionary reading of -19 and crushing expectations of a moderate improvement to -10
• New orders and shipments improved considerably for New York state manufacturers, with six-month outlooks also optimistic

Chinese retail sales rally, bank pumps more liquidity into economy

• Chinese retail sales rose 4.6% annually, well above the forecast 3.0%, and up from a rise of 2.5% in July
• Retail sales ex autos rose 5.1% annually, up from 3% in July
• China’s central bank took further action to pump liquidity into the economy, cutting its bank reserve requirements by another 25 basis points to pump another 500 billion yuan ($68.7 billion) into the economy
• This suggests that that concerns about the economy continue to build – especially for the property sector where debt payment worries are growing ahead of the end of the year

UAW goes on strike

The United Auto Workers staged simultaneous labor actions at factories owned by Ford, General Motors, and Chrysler. Coordinated strikes are not industry wide for these three companies, but rather a phase one application of the work stoppage in what is being considered the most ambitious US industrial labor action in many decades. It’s the first time that the UAW has initiated a strike at all three of the Big-Three automakers. Negotiating positions are so far apart that it could be a long strike. The labor union is demanding a larger share of the profits and greater job security as the companies migrate toward more electric vehicle production. As we reported yesterday, China just surpassed Japan as the world’s largest auto exporter this year, driven largely by EV sales, with more than half of those cars going to Europe, highlighting the broader risks of US industrial action.

TODAY’S MAJOR MARKETS

Nasdaq leads equity market sell-off

• Equity markets fell on profit-taking, with Nasdaq down 1.6%, while the Russell 2000 and S&P 500 were off 1.4% and 1.1%, respectively
• Foreign markets were stronger overnight, with the Nikkei 225 up 1.1%, the Dax up 0.6% and the FTSE 100 up 0.5%
• The VIX, Wall Street’s fear index, rose modestly to 13.5

Dollar strengthens

• 2-year and 10-year bonds rose to 5.01% and 4.32% respectively
• The dollar index maintained an important technical level, rising 0.1% to 105.3
• Versus the dollar, the Euro bounced back 0.3% after recent weakness, while the Yen and Sterling were off 0.2% and 0.1% respectively

Oil maintains $90+ mark

• Crude oil prices rose another 0.6% to $90.7 per barrel
• Spot gold prices rallied 0.7% at $1,947 per ounce, while silver rose 1.7% to $23.4 per ounce
• Grain and oilseed prices continue to drift as the fall harvest slowly gains momentum.

Analysis by Arlan Suderman, Chief Commodities Economist: [email protected]   and Mike Castle, Analyst

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