Hits Continue, Conflicting Macros, Rising Yields, China Economy, Apple

The stock market tried to rally on Tuesday. There was give and take until near lunchtime. Then the branch broke. The losing streak we talked about about 24 hours ago continued.

catalyst? His ISM Non-Manufacturing survey in August was stronger than expected, enabling more selling across the Treasury range and putting pressure on equities marginally. Don’t fight the Fed. I understand the algorithm at first glance. They’ve been getting regular sales lately, whether it’s with higher trading volumes like Tuesday or lower prices like the last few days, and they’re actually making sales.

On Tuesday, the Nasdaq Composite rose 0.74%, pulled down by the Philadelphia Semiconductor Index, which fell 1.07%. These two indices are now down 26.21% and 34.84% year-to-date. A sharp rise in yields would also hit small-cap stocks hard. As 10-year U.S. Treasury yields have surged recently…

The Russell 2000 is back in the abyss, down 20.17% year-to-date after dropping 0.96% on Tuesday. The Nasdaq Composite, Philadelphia Semiconductor Index and Russell 2000 all fell for seven straight times.

In my opinion, the sustained sell-off has been sharp and one-sided since late August, suggesting an imminent pause in the current rush in outdoor markets. Should the volatility subside temporarily, caution should be exercised in increasing equity exposure for purposes other than short-term trading.

The U.S. stock market has been in a downtrend with the central bank taking a hawkish stance and has never experienced a change in trend without a reversal of stance by the Federal Reserve. In other words, as long as the Federal Reserve is talking about raising short-term interest rates significantly in the short term, it will systematically and aggressively deplete the monetary base while keeping equities more than sloppy and constrained. You can’t exist.

It’s not even a criticism of the Fed. This is the path I can definitely take this morning. This is a fact of life that must be understood by those of us who have to step into the market every morning without nets or guarantees and can only eat if we successfully hunt.

Conflicting macro madness

We have literally just gone through a period of four months when the BLS Founding Survey told us that the U.S. labor market is very enthusiastic, while the BLS Household Survey suggests that the U.S. labor market is nearly perfect. >< Activity. Of course, for August, the business survey cooled while the household survey heated up. Well, on Tuesday, we'll also see his August conflicting findings for the US services sector.

Powering Tuesday’s plunge in both stock and bond markets was a better-than-expected result (and a second straight month of gains) in the ISM Non-Manufacturing survey, which printed a headline of 56.9. Yes, it is in the expansion area. But the S&P Global US Services PMI probably measured about the same space and taped a headline of 43.7.

This is the second consecutive month in severe contraction territory and the fifth consecutive month of deceleration. New orders, the lifeblood of such a survey, hit the highest level in the ISM survey since December 2021 and the lowest level in the S&P Global PMI survey since May 2020. Hmm.

Clearly, both of these studies claim to cover the same part of the U.S. economy, but they speak to different people. , which includes construction, mining, utilities, and government managers. S&P Global surveyed other corporate executives and purchasing managers, sticking to the private sector and not seeing construction, mining and utilities as part of the service economy.

So while each claims to translate and package the economics of the service sector so that the results can be better interpreted, these studies are not apples-to-apples comparisons. Moreover, given that many of his PMI surveys for the world are conducted by S&P Global, his ISM survey data for the US does not cross borders when trying to understand the situation in one country versus another. Probably not suitable for cross comparisons.

silver lining?

While no one can deny that higher yields, especially higher real yields, have been negative for equities lately, the reality is that the U.S. Treasury yield curve is steepening and heading for some key spread inversions. It is working. This could at least enable such a reality, if not lay the groundwork for tomorrow’s economic statistics to be somewhat better than terrible.

The reader above saw the US 10-year Treasury pay out its highest amount in two months. This puts the US 10yr/2yr yield spread at its healthiest position in, you guessed it, about two months…

…Also keep out of Pandora’s Box that there have been many warnings about US 10yr/3month yield spreads…

The spread has regained the 21-day EMA and is as wide as it has been since late July. Just a note… The US Treasury website shows the real yield on the US 10-year Treasury note at 1.11% on Tuesday. It’s been over 1% since Sept. 1, and he’s up from 0.67% on Aug. 1. This real yield has not been negative since March 31st, and was -0.36% on January 3rd, the first business day of 2022.

Chinese economic slowdown

On Tuesday night (NY time), the CGAC (China Customs Administration) announced the US dollar trade balance for August at $7.94 billion. This is down from +$10.13 billion in July and well below economists’ expectations of +$9.18 billion. This marks his one-year growth of 7.1%. He was supported by a 26.5% increase in exports in trade with Russia and his 11.1% increase in exports to the EU. China’s exports to the US contracted by 3.8% year-on-year. This is the first full reduction since May 2020. China’s imports from all sources increased by just 0.3%.

Traders can expect China’s shrinking trade surplus to impact future RMB-USD exchange rates, which will have unique implications for trans-Pacific trade, especially in China’s ability to purchase goods. I guess. China’s central bank, his PBOC, sees himself torn between stimulating the Chinese economy amid his ongoing Covid-related lockdown and the need to slow the country’s currency’s depreciation. It is


Today (Wednesday) is the release date of Apple (AAPL). This does not mean that AAPL will trade higher today. In fact, stocks often do not react well to upcoming Apple news events. However, it does mean that traders should keep an eye on Cupertino today, even if it doesn’t actively name it.

heads up

This morning, news broke that Ukrainian forces were advancing near the city of Kharkiv, which is now conducting an offensive. There also appear to have been other recent achievements made against Russian forces in the east and south of “occupied” Ukraine. Russian supply hubs and routes are known to have come under attack this week.

In the news last night, Russia was also buying millions of rockets and artillery from North Korea to alleviate a severe shortage suffered by Russian troops currently stationed in Ukraine. rice field. This is because Russia is believed to have purchased military drones from Iran for use in Ukraine.

opinion? Demand for large defense contractors remains inelastic. Many contractors are in touch with the major moving averages and are in a much better technical position than the broader large-cap market, even if they are falling.In fact Northrop Grumman ( NOC) is still trading near the top of the chart. But Raytheon Technologies (RTX) is almost in isolation, moving towards (and beyond) established support.

Here we have an underdeveloped “descending triangle” that appears to potentially generate a downward thrust before actually closing the pattern. should be considered and optimally implemented for exit trades. Capital is then reallocated across the space.

Economy (always eastern)

07:00 – MBA 30 Year Mortgage Rates (Weekly): Last 5.8%.

07:00 – MBA Mortgage Application (Weekly): The latest is -3.7%.

08:30 – Trade Balance (July): Last $-79.6B.

08:55 – Redbook (Weekly): The latest figure is 14.2% compared to the previous year.

16:30 – API Oil Stocks (Weekly): Last +593K.

Federal Reserve Board (always eastern)

10:00 – Speaker: Cleveland Federal Reserve Board Loretta Mester

12:35 – Speakers: Vice Chairman of the Federal Reserve System. Rael Brainard.

14:00 – Speakers: Preparatory Board Gov. Michael Barr.

14:00 – Beige Book.

Earnings Highlights Today (Consensus EPS Estimates)

After the close: (AVAV) (.12), (CASY) (3.55), (CPRT) (1.10), (GME) (-.42)

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