Should we listen to the Insider?

Thoughts of the Day

Wall Street Journal’s Nick Timiraos, seen as close to the FED has posted dovish tweets about slowing wage growth and Fed policy effects on output and labour markets. Research suggests the Fed’s actions are curbing output but labour market effects are yet to come, enough to target 2% inflation by 2024 without a recession. Markets may follow his cues until the September policy meeting.

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Day Ahead

The Canadian Employment Change is expected to show that +18.7k jobs were added to the economy (vs -6.4k prev) while the unemployment rate is expected to remain at 5.5%.

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What Happened Yesterday

Market Movements as of New York Close 7 Sep 23

Williams (current voter, slight hawk): “Inflation is moving in the right direction. Labour market imbalances are evening out and that demand is coming down. The question before the Fed is whether monetary policy needs to be more restrictive.” Regarding the September FOMC meeting, he said he needs more data before deciding.

The 3rd estimate for Euro Area GDP showed that the economy grew +0.1% Quarter-on-Quarter (vs +0.3% expected and +0.1% prev [revised from 0%]) and +0.5% Year-on-Year (vs +0.6% expected and +1.1% prev) in Q2. The weaker than expected economic growth will likely make the ECB more cautious about hiking interest rates higher.

The Japanese GDP grew +1.2% Quarter-on-Quarter (vs +0.9% prev and preliminary estimate of +1.5%) and +4.8% Year-on-Year (vs +5.5% expected and +3.2% prev [revised from +3.7%]) in Q2. Reaction to the data was muted.

The US Treasury Yield curve narrowed to 0.67% as the US 2 year bond yield fell -0.07% to 4.94% while the 10 year bond yield rose -0.03% to 4.27%.

The US Stock futures fell through the Asian and London trading sessions with the S&P 500 futures down -0.41% before the release of the Weekly Jobless claims data. The stronger than expected jobless claims data (see headline 2) sent the S&P 500 futures down another -0.32%.

The US stock market opened lower from Wednesday. The US stock market then attempted to stage a comeback in the New York session, recovering some losses made at open. Consequently, the S&P 500 closed the day lower at -0.32% (intraday high: -0.17%, low: -0.78%) while the Nasdaq slipped -0.73% (intraday high: -0.54%, low: -1.51%) due to weakness in tech stocks following China’s ban on iPhones among government employees. The Dow Jones managed to rise +0.17% on the day (intraday high: +0.34%, low: -0.27%) due to the lower percentage of tech stocks in the index.

The crypto market saw some strength this morning with Bitcoin rising +2.2% as the Commodities Futures Trading Commission Commissioner, Caroline Pham, said that the CFTC can sponsor a program to support the development of compliant digital asset markets and tokenization. She made this comment as she feels that it is imperative that US agencies speed up crypto regulations given that international regulations are happening quickly.

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Headlines & Market Impact

Apple shares fall after reports that China banned iPhone use by government employees

Notable Snippet: Apple shares fell about 3% on Thursday, following a 4% decline on Wednesday, after several reports suggesting that Chinese government workers could be banned from using iPhones.

China has ordered officials at central government agencies not to bring iPhones into the office or use them for work, The Wall Street Journal reported on Wednesday. It was unclear how widely the bans were issued. The ban could spread to other state companies and government-backed agencies, Bloomberg News reported on Thursday.

While a ban on all government employees could reduce iPhone unit sales in China by as much as 5%, Bernstein analyst Toni Sacconaghi wrote in a Thursday note, it would be a larger threat to Apple if the bans sent a signal that everyday citizens should instead use electronics made by Chinese companies.

“Perhaps more importantly, restricted use of iPhones among government employees could negatively impact sales among consumers (related family members; general populace) and could be part of a broader move by the Chinese government to promote usage of domestic technology,” Sacconaghi wrote.

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US jobless claims hit lowest level since February; productivity strongest in years

Notable Snippet: The number of Americans seeking jobless benefits for the first time fell unexpectedly last week to the lowest level since February, pointing to a U.S. job market that remains relatively tight even as other recent data indicate it has begun to soften.

Initial claims for state unemployment benefits fell 13,000 to 216,000 in the week ended Sept. 2 from a revised 229,000 in the prior week, the Labor Department said on Thursday. That was the lowest since the same level was touched in the week ended Feb. 11 and it marked the fourth straight weekly decline.

Economists polled by Reuters had forecast new claims would rise to 234,000 in the latest week.

Meanwhile, the rolls of those continuing to receive jobless benefits beyond the first week fell by 40,000 to 1.679 million in the week ended Aug. 26 from a revised 1.719 million a week earlier. That was the lowest since the same level was hit in the week ended July 15.

Continued claims, followed by some economists as a proxy for hiring, had climbed notably from last year at this time through early April when they briefly rose above 1.85 million. Since then, however, they have declined and remain low by historical standards.

Overall, the jobless claims figures show the U.S. job market appears in no danger of rolling over in the near term.

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Biden bets on emerging markets as Xi snubs G20

Notable Snippet: U.S. President Joe Biden arrives at this weekend’s Group of 20 (G20) meeting in India with an offer for the “Global South”: whatever happens to China’s economy, the United States can help fund your development.

Armed with cash for the World Bank and promises of sustained U.S. engagement, Biden hopes to persuade fast-growing economies in Africa, Latin America and Asia that there is an alternative to China’s Belt and Road project, which has funnelled billions of dollars to developing countries but left many deeply in debt.

At the heart of Biden’s pitch are World Bank reform proposals and stepped-up funding for the lender’s climate and infrastructure aid in the developing world, which would free up hundreds of billions of dollars in new funding for grants and loans.

The White House is seeking $3.3 billion from Congress to complement earlier steps by the U.S. and close allies to raise $600 billion by 2027 in public and private money for the Partnership for Global Infrastructure and Investment, a Belt and Road alternative that excludes China.

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Phan Vee Leung
CIO & Founder, TrackRecord