Key points:

  • Equities: Ulta Beauty surged 14% after Berkshire Hathaway's stake
  • FX: NZD underperforms as RBNZ cuts rate
  • Commodities: Gold trades near record high; oil down due to supply concerns
  • Fixed income:  Treasury yield curve flattens
  • Economic data: US retail sales, US jobless claims, Aussie jobs, China GDP

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The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.

0815 

Disclaimer: Past performance does not indicate future performance.

 

In the news:

  • Stock Market Today: Dow ends above 40,000 as inflation continues to cool (Investing)
  • Cisco shares surge on earnings beat and job cuts (Investing)
  • Japan GPD grows more than expected in Q2 as private spending rebounds (Investing)
  • Michael Burry of ‘The Big Short' increases Alibaba stake, halves stock portfolio (Yahoo)
  • Starbucks CEO Brian Niccol’s base salary is $1.6M, signing bonus $10M (Yahoo)
  • Berkshire invests in Ulta Beauty, Heico as it retreats from Apple (Reuters)

Macro:

  • US CPI was in-line with expectations, keeping market on track to expect the Fed to cut rates in September. Headline CPI rose 0.155%, vs. the 0.2% expectation and prior -0.1%, with the Y/Y rising 2.9%, a touch beneath the 3.0% forecast and prior. Core metrics saw the M/M rise 0.165% vs. the 0.2% forecast and prior 0.1%. The Core Y/Y rose by 3.2%, in line with expectations and a touch beneath the prior 3.3%. Shelter inflation, however, remained a key red flag rising 0.4% M/M vs. 0.2% M/M in June and being the largest contributor in the CPI basket. Still, this CPI print doesn’t resolve the debate around whether the Fed will cut 25bps or 50bps in September. Watch retail sales and jobless claims today for more input on the US economy’s growth and labor market trajectory.
  • The UK inflation data for July came in below expectations. Headline CPI rose from 2% in June to 2.2% but was below the 2.3% expected. Meanwhile, services CPI – a bigger watch for the BOE – eased to 5.2% from 5.7% in June and BoE's expectation of 5.6%. The breadth of cooling in the services inflation components is also very encouraging. The September BOE meeting is live, and markets will likely move towards pricing in another BOE rate cut if signals on the Fed to start easing in September continue to build. Read here for our analysis on the UK inflation data.
  • The Reserve Bank of New Zealand started its easing cycle by cutting the Official Cash Rate (OCR) by 25 basis points to 5.25%, a move that was not anticipated by the consensus. The central bank also hinted at more rate cuts with economic pressures escalating. We discussed the decision in this article.

Macro events: PBoC MLF, Australia Jobs (Jul), China Activity Data (Jul), UK GDP (Jun), US Retail Sales (Jul), US Philly Fed (Aug), US Initial Jobless Claims

Earnings: Alibaba, Walmart, JD.com, Grab, Applied Materials, Amcor

Equities:  On Wednesday, U.S. stocks closed higher as traders evaluated the latest Consumer Price Index data. The S&P 500 rose 0.4%, marking its fifth consecutive win, the Dow advanced 242 points, and the Nasdaq finished marginally up. July's CPI revealed a 2.9% year-over-year rise, the first sub-3% inflation since 2021. This reassured investors and stirred speculation that the Federal Reserve might cut interest rates next month. Financial and energy stocks outperformed, while communication services lagged, with Alphabet dropping 2.3% amid breakup rumors. In extended trading, Cisco Systems jumped 5% on strong results, Ulta Beauty surged 14% after Berkshire Hathaway's stake, and Nike popped 3.4% on Pershing Square's investment.

Fixed income: The front end of the Treasuries curve underperformed as swap pricing shifted back towards expecting a 25 basis point interest rate cut in September, rather than a half-point reduction, following July's CPI data, which largely met expectations. Conversely, the long end of the curve rallied, with 30-year yields improving by around 5 basis points, contributing to a flattening bias. In SOFR options, upside structures were unwound and adjusted in response to the slightly hawkish re-pricing across the swaps curve. Treasury 2-year yields increased by approximately 1.5 basis points, while yields from the belly to the long end of the curve improved by 0.5 to 5 basis points. As a result, spreads tightened, with the 2s10s and 5s30s trading near their flattest levels of the day in the late session, dropping 4 and 4.5 basis points, respectively, compared to Tuesday's close.

Commodities:Gold prices fell 0.7% to $2,447.85 due to routine profit-taking and revised expectations for a smaller September Fed rate cut of 25 basis points instead of 50. WTI crude futures declined by 1.75% to $76.98, and Brent crude futures slipped 1.15% to $79.76, both influenced by EIA data showing an unexpected inventory build of 1.357 million barrels versus the anticipated draw of 2 million barrels. Wheat prices dropped to $5.20 per bushel, driven by a better-than-expected production outlook from Ukraine. Additionally, US natural gas futures surged over 5% to $2.27/MMBtu, the highest in around a month, due to decreased production and forecasts for hotter weather later in August.

FX: The US dollar saw some downside after the soft US inflation report but ended the day unchanged as markets found little new information in the report. The New Zealand dollar led the decline after rising to four-week highs against the US dollar as the central bank of New Zealand surprised markets with a dovish rate cut. The Australian dollar also followed suit, and will be watching the labor data out in today Asian session. Markets will also be on alert for China’s activity data. The Japanese yen was volatile after reports of Japan PM Kishida stepping down from the party leadership in September, and focus remains on US data with retail sales and jobless claims on watch today.

 

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