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Week in Review: 31 July - 4 August 2023

Summary and Comment

 

The Eurozone economy grew by 0.6% year-on-year (YoY) in the second quarter of 2023, easing from a 1.1% expansion in the previous period but slightly surpassing market consensus of 0.5%, a preliminary estimate showed. It was the weakest pace of growth since the 2020-21 period. We may question this number, as it is only an estimate, and given the significant inflation, we can wonder whether the inflation adjustment was adequate or not. The economy has stalled.

The Reserve Bank of Australia (RBA) left its key interest rates unchanged at 4.10%, saying past increases were working to cool demand, but also flagged that some more rate hikes might be needed to curb inflation. Price pressures in the country had slowed to a 13-month low in May for the second quarter, which pointed towards reduced consumer spending.

On Wednesday (Aug. 2, 2023), the S&P 500 fell 1.4%. Also, AMD issued a weaker guidance for the third quarter, leading chip stocks lower. This is good, to cool off the A.I. fever.

Also on Wednesday, the ratings agency Fitch downgraded the US's long-term debt from AAA to AA+, pointing to this summer's last-minute debt deal, rising government debt, and suspect long-term management. Here's what Fitch said in its statement: "There has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025." This rating downgrading is probably inconsequential.

The unemployment rate in the US decreased slightly to 3.5% in July 2023 from 3.6% in June. The so-called U-6 unemployment rate, which also includes people who want to work, but have given up searching and those working part-time because they cannot find full-time employment, fell to 6.7% in July from 6.9 percent in June. The labor force participation rate was unchanged at 62.6 percent. The US economy created 187K jobs in July of 2023, below market expectations of 200K and following a downwardly revised 185K in June. The reading is also below the average monthly gain of 312K over the prior 12 months but remains about twice the 70K-100K needed per month to keep up with growth in the working-age population.

Regarding the financial markets, for the week, the main stock market indices are down, with the NASDAQ 100 losing 3.0 %, the S&P500 down 2.3%, and the RUSSEL 2000 down 1.2%. Gold and silver lost 0.8% and 2.9%, respectively. The barrel of WTI gained 2.4% this week (now at ~82 USD), while natural gas dropped slightly (2.4%). Bitcoin dropped slightly and is now at ~29000 USD.

The relative strength of the US dollar rised 0.3%, and bond yields rised on the long end (4.2% is the 30-year yield). The US bond yield is peaking at 5.47% in 4 months from now, and the 10-year yield now sits at 4.04 %. The yield curve remains inverted (a recession indicator).


Sources:

https://www.nasdaq.com/articles/australia-shares-finish-higher-after-rba-keeps-rates-unchanged

https://www.msn.com/en-us/money/markets/fitch-just-downgraded-us-debt-goldman-sachs-says-its-no-big-deal/ar-AA1eHbwn

https://tradingeconomics.com/

 

 

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