Saudi and Russia remain committed…

Thoughts of the Day

Saudi Arabia has extended its voluntary production cut of 1 million barrels per day until the end of the year, with Russia following suit with a 300,000 barrels per day cut. This signals a commitment from OPEC+ members to support oil prices, despite potential tensions with the US.

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Day Ahead

The RBA is expected to hold interest rates in its monetary policy meeting at 4.10%.

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What Happened Yesterday

Market Movements as of New York Close 5 Sep 23

Waller (current voter, known hawk): “Recent data gives fed space before making next rate decision. The job market is starting to soften. It’s not surprising the unemployment rate has ticked up. Data is looking good for a soft landing scenario. If inflation keeps coming down, the economy is in pretty good condition. Data will drive whether fed lifts rates again.”
Mester (2024 voter, known hawk): “We will certainly not continue to raise interest rates until inflation has already fallen to 2%. Nor will we wait to lower interest rates until inflation is at 2%. I think the cost of undershooting in monetary policy at the moment is still higher than the costs of overshooting.”

The Australian GDP grew +0.4% Quarter-on-Quarter (vs +0.3% exp and +0.4% prev [revised upwards from +0.2%]) in Q2, marking the 7th consecutive period of growth. The annual GDP came in at +2.1% Year-on-Year (vs +1.8% exp and +2.4% prev [revised upward from +2.3%]). AUD reaction to the data release was muted.

The RBA maintained interest rates at 4.1% as expected in its monetary policy meeting, extending the rate pause for the third successive month. The RBA said that further tightening may be needed to bring inflation back to the 2-3% target and that they expect inflation to fall to 3.25% (currently at 4.9%) by end 2024 and back to target in 2025.

The US Treasury Yield curve narrowed to 0.67% as the US 2 year bond yield rose +0.07% to 4.94% while the 10 year bond yield rose +0.09% to 4.27%.

The US Stock futures had quite a bit of volatility during the Asian and London trading hours with the S&P 500 futures falling as low as 4500 (-0.44% on the day) and then rising back to 4520 just before the New York session started.

The US stock market opened lower from Friday. The US stock market then oscillated around this level before falling lower as the New York session ended. Consequently, the S&P 500 closed the day lower at -0.42% (intraday high: -0.03%, low: -0.44%), the Dow Jones fell -0.56% (intraday high: +0.10%, low: -0.58%) while the Nasdaq managed to eke out a +0.11% gain (intraday high: +0.43%, low: -0.46%).

Saudi Arabia announced that it will extend its reduction in oil output of 1 million barrels per day to end 2023 despite rising oil prices. Russia followed suit as well with a 300k bpd cut in output till year end. The Brent oil prices spiked above 90 momentarily before settling at 89.69 (+1.03%).

The crypto market remained muted due to the lack of drivers in the crypto market.

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Headlines & Market Impact

Apple, Google, Nvidia and other tech giants are considering buying Arm shares

Notable Snippet: Chip design firm Arm said in a Tuesday filing that Apple, Google parent Alphabet, Nvidia and other technology companies are interested in buying up to $735 million in its shares as it seeks to go public on Nasdaq.

Chip foundry operators Intel, Samsung and TSMC are interested in investing alongside the three trillion-dollar technology companies, along with AMD and MediaTek, which make chip designs based on Arm architectures. Cadence Design Systems and Synopsys, which make electronic design automation software for processor development, have also expressed interest, according to a revised prospectus for Arm’s shares sale. As part of the deal, Arm could wind up with a $52 billion market capitalization and almost $5 billion in new cash.

In 2020, Nvidia announced plans to acquire Arm from SoftBank for $40 billion, but regulators in the U.S. and the U.K. pushed back. The two companies dropped the transaction in 2022, paving the way for Arm’s current U.S. IPO. Nvidia has introduced its own Arm-based chip that can work alongside its own graphics processing units.

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Germany is the ‘sick man of Europe’ — and it’s causing a shift to the right, top economist says

Notable Snippet:Germany is once again the “sick man of Europe,” according to Hans-Werner Sinn, president emeritus at the Ifo institute, and the challenges that poses, particularly in terms of the country’s energy strategy, could serve to benefit increasingly popular right-wing parties.

It “has to do with the automobile industry, which is the heart of the German industry and many things hinge on that,” he said. Cars were Germany’s main export product last year, accounting for 15.6% of the value of goods sold abroad, federal statistics office data shows.

Germany could lose 2% to 3% of its current industrial capacity as companies move operations to countries where gas and electricity are cheaper, such as the U.S. or Saudi Arabia, according to a research note released in August by Berenberg.

Uncertainty about energy prices has likely contributed to a “plunge” in business sentiment, Holger Schmieding, chief economist at Berenberg, wrote in the note. He added that “the current policy uncertainty and the dismay about half-baked government plans are not structural factors that look set to hold back the German economy for long.”

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Japan won’t rule out options if FX speculation persists: Kanda

Notable Snippet:

Japan’s top currency diplomat Masato Kanda said on Wednesday that Japanese authorities won’t rule out any options on currencies if speculative moves persist, a comment apparently warning against a sell-off in the yen.

It was the strongest warning since mid-August, when the Japanese currency slid past the key threshold of 145 per dollar. Since then, the authorities have stopped firing warning shorts, keeping traders guessing on Japan’s intervention strategy.

Kanda, vice minister of finance for international affairs, was speaking to reporters after the dollar broke above 147 yen to edge closer to 148 yen overnight, this year’s strongest ever against the Japanese currency.

“We won’t rule out any options if speculative moves persist,” Kanda told reporters. “Needless to say, it’s important for currency moves to reflect fundamentals.”

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Phan Vee Leung
CIO & Founder, TrackRecord