The State of Markets: Equities –> ‘V Shaped’ Price Action (so far)
The relief rally in US & global equity markets continued last week. The S&P500, NDX100 and Philly SOX all rallied sharply throughout the week as short covering drove a rapid ‘wave two’ relief rally. Equities were also helped by macro data which added to market participants’ conviction that the US will avert a recession: Retail sales, weekly jobless claims and NFIB small business optimism were all better than expected. Added to that, consumer price inflation was broadly in line with forecasts (& modestly lower at a headline level). That added to the sense that a rate cutting cycle is about to begin. The S&P500 was +3.9% on the week, the NASDAQ100 rallied by 5.3%, whilst the main centre of the weakness in the second half of July, the Philly SOX, bounced by 9.8%.
In all instances the price action in those indices has been ‘V shaped’ in the past few weeks (although trading volumes in the rally have been light). With that strength, both the NDX100 and the SOX are now at/close to a key resistance level (see chart below). Our work/analysis published in the past two weeks looks in detail at prior sharp pullbacks and concludes that, in most examples, headline equity indices retest their initial lows after sharp ‘wave two’ relief rallies. Price action this week, and the remainder of August, will be critical in that respect.
Elsewhere this week, the Kansas City Jackson Hole Economic Symposium is being held, starting on Thursday, and continuing through to Saturday. The main event is Fed Chair Powell’s speech on Friday (3pm UK time, 10am EST, 9am in Kansas). The speech is expected to set the tone for Fed policy over coming months. Other key macro data next week includes the flash PMIs for the manufacturing and service sectors on Thursday. This gives some initial insights into the strength of the major global economies in August (so far). The full list of key events next week is shown below.
Key chart: US NASDAQ 100 shown with 50 & 200 day moving averages
Upcoming important data/events this week:
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Events: |
PBoC policy decision (Tues, 2am); Riksbank policy decision (Tues, 8:30am); Fed minutes from July meeting (Wed, 7pm); ECB publishes account from July policy meeting (Thurs, 12:30pm); speech by the Fed’s Powell on the Economic outlook at the Jackson Hole Economic Symposium hosted by the Kansas Fed (Fri, 3pm). Speech by the Bank of England’s Governor Bailey at the Jackson Hole Economic Symposium (Fri, 8pm). |
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Monday: |
US Conference Board leading index (Jul, 3pm). |
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Tuesday: |
Canadian headline & core CPI (Jul, 1:30pm); Eurozone negotiated wage growth (Q2). |
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Wednesday: |
N/A |
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Thursday: |
Flash PMIs for manufacturing & service sector for Japan (1:30am), France (8:15am), Germany (8:30am), Eurozone (9am), UK (9:30am) & US (2:45pm) – all August first estimates; US existing home sales (Jul, 3pm); Eurozone consumer confidence (August first estimate, 3pm). |
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Friday: |
Japanese headline & core CPI (Jul, 12:30am); US new home sales (Jul, 3pm). |
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Key earnings: |
Lowe’s, Medtronic (Tues); TJX, Analog Devices, Target (Wed); Intuit (Thurs). |
Key Research
Longview on Friday, 16th August 2024:
“China & America –> The Inseparable Twins (still!)”
“economic strategy that privileges industrial production over all else, an approach that, over time, has resulted in enormous structural overcapacity. For years, Beijing’s industrial policies have led to overinvestment in production facilities in sectors from raw materials to emerging technologies such as batteries and robots…
Simply put, in many crucial economic sectors, China is producing far more output than it, or foreign markets, can sustainably absorb.’”
Source: Foreign Affairs, August 6, 2024, Zongyuan Zoe Liu: “China’s Real Economic Crisis: Why Beijing Won’t Give Up on a Failing Model”.
China & the US (& indeed most of the Western world), despite attempts to disentangle them, remain joined at the hip – both economically and geo-politically. Geo-politically, they are key rivals in the new evolving world order. America, the incumbent hegemonic power (and leader of the ‘Free World’), is being challenged by China, the rising global power (and leader of the ‘BRIC’ grouping). That rivalry spills over into economics as China seeks to overtake the US as the world’s most important economy and the US increasingly attempts to undermine China’s ability to project itself (economically).
Key North American macro data & events
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Events: |
Speeches by the Fed’s Waller at the 2024 summer workshop on money, banking, payments, and finance (Mon, 2:15pm), Bostic on innovating for inclusion (Tues, 6:35pm), Barr on cybersecurity (Tues, 7:45pm) & Fed minutes from July meeting (Wed, 7pm). Jackson Hole 2024 Economic Policy Symposium: "Reassessing the Effectiveness and Transmission of Monetary Policy," (Thurs – Sat). Powell speaks at that event on the Economic outlook on Friday (at 3pm); |
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Monday: |
US Conference Board leading index (Jul, 3pm). |
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Tuesday: |
US Philadelphia Fed service sector activity (Aug, 1:30pm); Canadian headline & core CPI (Jul, 1:30pm). |
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Wednesday: |
Canadian industrial product & raw materials price index (Jul, 1:30pm); BLS preliminary annual non-farm payrolls revisions (3pm). |
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Thursday: |
US Chicago Fed national activity (Jul, 1:30pm); US weekly jobless claims (1:30pm); US S&P manufacturing & service sector PMIs (August first/flash estimates, 2:45pm); US existing home sales (Jul, 3pm); US Kansas City Fed manufacturing sector activity (Aug, 4pm). |
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Friday: |
Canadian retail sales (Jun, 1:30pm); US new home sales (Jul, 3pm); US Kansas City Fed service sector activity (Aug, 4pm). |
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Key earnings: |
Palo Alto Networks (Mon); Lowe’s, Medtronic (Tues); TJX, Analog Devices, Synopsys, Target, Autodesk, Agilent Technologies (Wed); Intuit, Workday, Ross Stores (Thurs). |
Fig B: US Conference Board leading index (Y-o-Y %)
Key European macro data & events
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Fig C: Eurozone consumer confidence (index
Key UK macro data & events
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Events: |
Speech by the Bank of England’s Governor Bailey at the Jackson Hole Economic Symposium (Fri, 8pm). |
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Monday: |
Rightmove house prices (Aug, 12:01am). |
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Tuesday: |
N/A |
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Wednesday: |
Public sector finances (Jul, 7am). |
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Thursday: |
S&P manufacturing & service sector PMIs (August first/flash estimate, 9:30am); CBI industrial trends orders (Aug, 11am). |
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Friday: |
Gfk consumer confidence (Aug, 12:01am); CBI retail sales survey (Aug, 11am). |
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Key earnings: |
N/A |
Fig D: UK Rightmove house prices (Y-o-Y%)
Key Asia-Pacific macro data & events
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Events: |
PBoC (1 & 5 year LPR) policy decision (Tues, 2am); RBA minutes from August policy meeting (Tues, 2:30am). |
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Monday: |
Japanese machinery orders (Jun, 12:50am). |
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Tuesday: |
Chinese industrial profits (Jul, 2am). |
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Wednesday: |
Japanese imports/exports & trade balance (Jul, 12:50am); Australian Westpac leading index (Jul, 1:30am). |
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Thursday: |
Australian Judo Bank manufacturing & service sector PMIs (August first estimate, 12am); Japan Jibun Bank manufacturing & service sectors PMIs (August first estimate, 2am); Japanese machine tool orders (July final estimate, 7am). |
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Friday: |
Japanese headline & core CPI (Jul, 12:30am). |
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Key earnings: |
Midea Group (Tues); Xiaomi, HKEX (Wed); Ping An Insurance, AIA Group, NetEase, Jiangsu Hengrui, Baidu (Thurs); Meituan, Zijin Mining Group, Industrial Bank (Fri). |
Fig E: Japanese Jibun Bank manufacturing & service sector PMIs (index)
Last week:
Longview on Friday, 16th August 2024:
“China & America –> The Inseparable Twins (still!)”
Quant Monthly No. 7, 15th August 2024:
“How Strong is the US Corporate Sector ex-Tech? a.k.a. Is the tech sector a significant distortion?”
Longview ‘Tactical’ Alert No. 84, 14th August 2024:
“This Pullback: More Selling Expected”
Prior week:
Longview on Friday, 9th August 2024:
“Equities, US Soft Patch, & JGB Fair Value”
Monthly Global Asset Allocation No. 47, 8th August 2024:
“Italian Equities: Stay OW in Strategic Portfolio”
Longview ‘Tactical’ Alert No. 83, 6th August 2024:
“Price Action Post a Crash”