Weak or Strong Data?

Thoughts of the Day

Despite recent weaker data, the ISM Purchasing Manager Index indicated expansion in the US services sector, leaving policymakers and investors uncertain about the economy’s direction. Policymakers have become highly dependent on data, and this uncertainty is expected to persist for some weeks as the lagged impacts of previous interest rate hikes continue to affect the economy.

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Day Ahead

The 3rd estimate for Euro Area GDP is expected to show that the economy grew +0.3% Quarter-on-Quarter (vs 0% prev) and +0.6% Year-on-Year (vs +1.1% prev) in Q2.

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What Happened Yesterday

Market Movements as of New York Close 6 Sep 23

Fedspeak:
Collins (2025 voter, known centrist): “The risk of inflation staying higher for longer must now be weighed against the risk that an overly restrictive stance of monetary policy will lead to a greater slowdown in activity than is needed to restore price stability. Too soon to say inflation is sustainably moving back to target. Time for monetary policy to be patient and deliberate.”

The Bank of Canada kept interest rates unchanged in its monetary policy meeting at 5.00% as expected. The central bank cited that the economy is showing signs of a slowdown as a reason for the pause in interest rate hikes. However, the central bank also added that more rate hikes may be needed if inflation shows persistence. The USDCAD rose +0.27% in reaction following the policy decision from 1.3628 to 1.3665.

The US Treasury Yield curve widened to 0.71% as the US 2 year bond yield rose +0.07% to 5.01% while the 10 year bond yield rose +0.03% to 4.30%.

The US Stock futures fell gradually through the Asian and London trading sessions following the weakness yesterday with the S&P 500 futures down -0.28% before the New York session began.

The US stock market opened lower from Tuesday. The US stock market then dipped further following the stronger than expected services PMI from the US (see headline 3) before finding some reprieve through the mid of the New York session. Consequently, the S&P 500 closed the day lower at -0.71% (intraday high: -0.14%, low: -1.21%), the Dow Jones fell -0.55% (intraday high: -0.09%, low: -1.01%) while the Nasdaq decreased -0.98% (intraday high: -0.14%, low: -1.41%).

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

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Headlines & Market Impact

US extends tariff exclusions on some Chinese categories till end of 2023

US extends tariff exclusions on some Chinese categories till end of 2023
Notable Snippet: The office of U.S. Trade Representative Katherine Tai on Wednesday further extended China “Section 301” tariff exclusions on 352 Chinese imports and 77 COVID-19-related categories till Dec. 31 that were set to expire on Sept. 30.

The import tariff exclusions include industrial components such as pumps and electric motors, some car parts and chemicals, bicycles and vacuum cleaners. The COVID-related exclusions include medical products like face masks, examination gloves and hand sanitising wipes.

The extension until Dec. 31, 2023, will allow for further consideration under a statutory four-year review, Tai’s office said in a statement on Wednesday.

U.S. Commerce Secretary Gina Raimondo said on Tuesday she does not expect any revisions to U.S. tariffs on China until the U.S. trade representative’s office completes the review.

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US to cancel Alaska oil, gas leases issued under Trump

Notable Snippet: The U.S. Interior Department on Wednesday will announce the cancellation of oil and gas leases in a federal wildlife refuge that were bought by an Alaska state development agency in the final days of the Trump administration, according to sources briefed on the matter.

The Alaska Industrial Development and Export Authority (AIDEA) was issued seven leases in the Arctic National Wildlife Refuge a day before the inauguration of President Joe Biden, who had pledged to protect the 19.6 million-acre (7.7 million hectares) habitat for polar bears and caribou.

For decades, Alaska officials pushed to open up drilling in ANWR to secure jobs and revenues for the state. Alaska Senator Dan Sullivan on Wednesday criticized Interior’s move.

Alaskan oil production has dwindled in the last three decades. The state currently produces less than 500,000 barrels per day of crude oil, down from more than 2 million bpd in 1988, according to government figures.

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US services sector picked up in August, along with prices

Notable Snippet: The U.S. services sector unexpectedly gained steam in August, with new orders firming and businesses paying higher prices for inputs — potential signs of still-elevated inflation pressures.

The Institute for Supply Management (ISM) said on Wednesday its non-manufacturing PMI rose to 54.5 last month, the highest reading since February and up from 52.7 in July. A reading above 50 indicates growth in the services industry, which accounts for more than two-thirds of the economy.

Economists polled by Reuters had forecast the non-manufacturing PMI would decrease to 52.5, and no economist anticipated a higher reading than 53.9.

A measure of new orders received by services businesses rose to 57.5 last month from 55.0 in July. A gauge of prices paid by services businesses for inputs increased to 58.9 in August from 56.8 in July.

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord