Interest Rates Seem Bipolar As They Dip Overnight

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In his Daily Market Notes report to investors, Louis Navellier wrote:

Gimme Shelter

Stocks opened lower as they did yesterday, and tech is once again trying to pull up the market, as investors take shelter in what has worked best this year. NVIDIA Corp (NASDAQ:NVDA) is up another $5 after yesterday’s $28 spike off the recent lows.

The weakness in China is dragging down commodities once again, including crude oil testing $81/bbl. Gold is also down below $1,935 a six-month low.

Bipolar Interest Rates

Interest rates seem a bit bipolar as they dip overnight, then ran up sharply on the retail data, the 10yr to 4.28%, 5bps from the 1-year high, then changed their mind and rallied down, the 10yr to 4.18%.

The Hang Seng China index is down 1% on the day, down 7.5% for August, almost the entire -7.8% YTD. China’s central bank did cut rates, first by 15bps on the one year from 2.65% to 2.5%, and later 10bps on other shorter maturities. The market seems to see this as too little, too late.

U.S. retail sales for July were up 0.7%, well above June’s 0.3% and the forecast for 0.4%. Core retail sales were forecast to fall -.3% and came in +1.0%. Also, a surprise was both import and export prices, both of which were negative in June, came in more than double the forecast, reflecting the uncertainty of price trends. Note that Canadian inflation numbers for July came in higher than expectations today as well.

On the earnings front, Home Depot (NYSE:HD) reported a beat on the top and bottom, though that includes a 2% y-o-y sales decline, and they reiterated a fiscal year sales decline of 2%-5%. The stock is up 1% today, +5.4% YTD.

The major themes remain the same: Is the Fed done? Is a soft landing the most likely outcome? Can the global economy grow if China is struggling?

Fed Funds Rate Will Stay Higher For Longer

On a technical level, the 50-day moving average for the S&P 500 is 4,446 which we’ve tested in the last 2 trading sessions, and if broken there’s a short-term risk that automated trading strategies will push the market lower.

Underpinning the US soft landing story is the very low unemployment number, supporting continued retail sales despite record consumer debt. Further, while moving from 3% inflation to 2% will very likely be a lot tougher than getting to 3%, leaving the Fed funds rate higher for longer, it also gives companies wiggle room to continue price increases to support earnings.

Coffee Beans: Never Too Old

A Japanese athlete broke her own world record by participating in the cross-country skiing 2023 Masters World Cup in Austria at age 88. She broke her record in last year’s Japan Masters Championships at age 87 and now has her sights set on breaking her own record again at the February 2024 Masters World Cup in Finland. Source: UPI. See the full story here.