Stage set for Intermarket Trading Excitement

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Chief Market Analyst

There haven’t been many days of late filled with trading excitement based on the news. This day should be an exception given that there is a host of news with market-moving potential.

That would include:

  • The ECB’s decision to raise its three key interest rates by 25 basis points, but dangling the possibility that it is done raising rates.
  • The People’s Bank of China announcing a 25 basis points cut in the required reserve ratio, effective September 15, for all banks that have not implemented a 5% reserve ratio.
  • ARM Holdings (ARM) pricing its IPO at $51, the top end of the $47-51 expected price range.
  • Reports that the UAW and automakers remain far apart in their negotiations, setting the stage for a potential strike action.
  • Delta Air Lines (DAL) reaffirming its full-year guidance but following suit with other airlines yesterday in lowering its Q3 guidance.
  • Oil prices ($89.89, +1.37, +1.6%) pushing $90.00 per barrel.
  • The release of the August Producer Price Index, August Retail Sales, and Weekly Initial Jobless and Continuing Jobless Claims reports.

Currently, the S&P 500 futures are up 22 points and are trading 0.5% above fair value, the Nasdaq 100 futures are up 62 points and are trading 0.4% above fair value, and the Dow Jones Industrial Average futures are up 155 points and are trading 0.5% above fair value.

The 2-yr note yield, which bumped up to 5.02% after the data, is back to 4.97%, down two basis points from yesterday’s settlement. The 10-yr note yield, which hit 4.30% after the data, is at 4.25%, unchanged from yesterday’s settlement. The U.S. Dollar Index is up 0.3% to 105.08.

The disposition of the equity futures market implies that today’s open should have a positive slant, but after that is when the real trading excitement should unfold as market participants take stock of the movement in interest rates, oil prices, the dollar, and stock prices themselves.

In other words, we expect today’s trading to have some intermarket relationship flair knowing that so much of today’s news is tied into economic activity and central bank policy decisions.

Looking at today’s data:

  • The August Producer Price Index for final demand increased 0.7% month-over-month ( consensus 0.4%) following a 0.3% increase in July. The index for final demand, excluding food and energy, increased 0.2% month-over-month, as expected. On a year-over-year basis, the index for final demand was up 1.6% and the index for final demand, excluding food and energy, was up 2.2%.
    • The key takeaway from the report is that 80% of the rise in final demand prices was attributed to a 2.0% jump in the index for final demand goods, which was driven by a 10.5% increase in prices fir final demand energy. That understanding softens the blow of the headline surprise for the index for final demand; however, until energy prices back down, concerns about rising inflation expectations and the Fed holding higher for longer will persist.
  • August retail sales increased 0.6% month-over-month ( consensus 0.2%) following a downwardly revised 0.5% increase (from 0.7%) in July. Excluding autos, retail sales rose 0.6% month-over-month ( consensus 0.4%) following a downwardly revised 0.7% increase (from 1.0%) in July.
    • The key takeaway from the report is that gasoline station sales (+5.2%) had a big impact on the overall increase in retail sales. Excluding gasoline stations, retail sales were up a more modest 0.2%, which is suggestive of a consumer that is softening but not breaking.
  • Initial jobless claims for the week ending September 9 increased by 3,000 to 220,000 ( consensus 226,000) while continuing jobless claims for the week ending September 2 increased by 4,000 to 1.688 million.
    • The key takeaway from the report is the same: the low level of initial claims — a leading indicator — is reflective of a fairly tight labor market, which is the basis for why consumer spending continues to hold up in the face of inflation pressures and rising rates.

Originally Posted September 14, 2023 – Stage set for intermarket trading excitement

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