Market Thoughts – Tuesday 10th September – The Calm After The Storm

Where We Stand – The start of a new trading week, yesterday, and all was right with the world once more.

I jest, a little, of course, though that is the message that a cursory look at Monday’s price action would’ve sent to any observer – stocks rallying, Treasuries trading a touch softer across the curve, crude finding buyers after a dismal run of late, and, in the FX world, the greenback paring a fair chunk of Friday’s decline, gaining ground against most major peers.

This, naturally, begs the question as to what sparked the turnaround in market fortunes compared to the dismal end to last week after the August US labour market report. Here, I’m reminded of the old adage that stocks seldom need a reason to rally, but almost always need a reason to sell-off.

Friday’s reason to sell-off was, of course, the ambiguity over the September FOMC decision caused by the aforementioned mixed jobs data. Yesterday, both news- and data-flow were lacking, allowing sentiment to steady, as stocks once more took the path of least resistance, which still leads to the upside, even if some choppiness is likely in the run up to next Wednesday’s FOMC announcement.

Thankfully, a quick look at some stats helps to support that old adage. This year, the S&P 500 has rallied on 56% of trading days, notching an average daily gain of around 0.1%, with a similar track record seen if we extend the time horizon back to the start of 2023, and even if we go back to the market bottom during the covid pandemic, on 23^rd March 2020.

All this is not to say that downside moves can be completely moved out – of course, they can’t, and the bears may actually prevail over the next week or so, if the market remains concerned that the FOMC won’t deliver the degree of easing that participants desire in the short-term. It is, however, to say that a consistently bearish position over the long-term is unlikely to bear much fruit. The S&P’s near 15% YTD rally should’ve told us that already.

Away from the equity space, developments were limited. The NY Fed’s monthly consumer expectations survey showed 1-year inflation expectations rising to 3.00%, from a prior 2.97%, though anyone who believes that consumers can predict inflation to within 3bp should probably give their head a wobble.

Apple also announced a slate of new products yesterday, including a new iPhone and Watch, in a health-focused event, which also saw the unveiling of Apple Intelligence, the firm’s AI offering. AAPL stock slid during the event, the 13^th time in the last 18 such launches when the stock has slumped into negative territory.

APAC trade, finally, has seen little by way of significant catalysts, though regional stocks have remained on the front-foot, following the solid handover from Wall Street, as the ASX outperforms. Chinese figures, overnight, were somewhat mixed, with exports rising 8.7% YoY last month, beating consensus expectations, though the more important imports figure rose a meagre 0.5%, a chunky fall from the 7.2% rate seen in July, and data that will do little to soothe ongoing fears over the dismal performance of the world’s second largest economy.

Look Ahead – Another relatively quiet day of scheduled events awaits. This morning’s soon-to-be released UK labour market figures are the highlight of the relatively barren schedule, with unemployment set to have ticked lower to 4.1% in the three months to July, while the pace of earnings growth is set to cool 0.3pp to 5.1% YoY. However, given concerns over the reliability and accuracy of the data, labour market stats have played a relatively minimal role in the BoE’s decision making of late, the figures shouldn’t move the needle too significantly for either the GBP, or the policy outlook at large. The MPC are almost certain to hold Bank Rate steady at the September meeting, next Thursday, before another 25bp cut in November.

Besides the UK data, catalysts are light. The only event of note is 3-year supply due from the US later on, though recent auctions have passed largely without event, and in any case this weeks 10-year (Weds) and 30-year (Thurs) supply is likely to be much more closely watched.