The State of Markets: Wave Three?
Upward momentum in US tech stocks faded this week. That is, after a strong ‘wave 2’ relief rally from early August, in which equities retraced a large portion of their July to August losses, several indices have started to roll over.
That includes the NASDAQ100, which generated a bearish Key Day Reversal (KDR) pattern (on 22nd August) and has since broken below its 50 day moving average, see key chart below. Bearish KDRs occur when an index in an uptrend opens above the prior day’s highs, sells off during the session, and then closes below the intraday low (of the prior day). They are technical patterns, designed to signal trend exhaustion (i.e. a change of trend). Other indices with bearish price action this past week include the Philly SOX, which has also broken below its 50 day trend line.
One of the key questions in markets, therefore, is: Has a ‘wave 3’ of selling started? We discuss our view on that in our research, including in our Daily Risk Appetite publication, as well as in our Tactical Equity Asset Allocation research.
Linked to that question, though, as we highlighted in yesterday’s Longview on Friday, the view on the US economy currently sits at the heart of almost all key global investment decisions. Markets will therefore be closely watching this week’s ISM manufacturing and services data (due on Tuesday and Thursday), as well as job openings (Wednesday), Challenger job cuts (Thursday), and nonfarm payrolls (Friday). Please see below for a full list of data and key events this coming week.
Key chart: NASDAQ100 futures candlestick, shown with 50 & 200 day moving averages
Upcoming important data/events this week:
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Events: |
Market holiday in the US & Canada on account of Labour Day (Mon); Bank of Canada policy decision (Wed, 2:45pm). |
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Monday: |
Chinese Caixin manufacturing sector PMI (Aug, 2:45am). |
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Tuesday: |
US ISM manufacturing (Aug, 3pm). |
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Wednesday: |
Chinese Caixin service & composite sector PMIs (Aug, 2:45am); US JOLTS job openings (Jul, 3pm). |
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Thursday: |
US Challenger job cuts (Aug, 12:30pm); US ADP employment change (Aug, 1:15pm); US ISM services (Aug, 3pm). |
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Friday: |
US nonfarm payrolls, hourly earnings & unemployment (Aug, 1:30pm). |
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Key earnings: |
Ashtead Group (Tues); Alimentation Couche-Tard, Copart (Wed); Broadcom (Thurs); Kroger (Fri). |
Key Research
Global Macro Report, 29th August 2024:
“(State Based) Sahm Rule is Improving! A.k.a. Labour market not recessionary”
Concerns about an imminent US recession continue to grow. Most recently, they’ve been fuelled by the deterioration in the US labour market, where key leading indicators have rolled over (with some generating recession warning signals). For detail, see Monthly Global AA No. 43, 9th July 2024 “US Labour Market Risks Rising - Stay OW Treasuries”.
The ‘Sahm Rule’, for example, was triggered in early August (with the July jobs report). That happens when the three month moving average of the unemployment rate rises by 0.5pp (or more) relative to its low during the prior 12 months. Historically, that’s been a useful ‘real time’ indicator for judging whether or not a recession has started. That is, once the signal is generated, the US economy is usually a handful of months into a recession.
Key North American macro data & events
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Events: |
Bank of Canada policy decision (Wed, 2:45pm); speeches by the Fed’s Williams at an event by the Council on Foreign Relations (Fri, 1:45pm) & Waller on the Economic outlook (Fri, 4pm); Fed publishes Beige Book (Wed, 7pm); market holiday in the US & Canada on account of Labour Day (Mon). |
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Monday: |
N/A |
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Tuesday: |
Canadian S&P manufacturing sector PMI (Aug, 2:30pm); US S&P manufacturing sector PMI (August final estimate, 2:45pm); US construction spending (Jul, 3pm); US ISM manufacturing (Aug, 3pm). |
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Wednesday: |
US trade balance (Jul, 1:30pm); US JOLTS job openings (Jul, 3pm); US durable goods orders (July final estimates, 3pm). |
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Thursday: |
US Challenger job cuts (Aug, 12:30pm); US ADP employment change (Aug, 1:15pm); Canadian labour productivity (Q2, 1:30pm); US nonfarm productivity & unit labour costs (Q2 final estimate, 1:30pm); US weekly jobless claims (1:30pm); Canadian S&P service sector PMI (Aug, 2:30pm): US S&P service sector PMI (Aug, 2:45pm); US ISM services (Aug, 3pm). |
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Friday: |
Canadian employment change & unemployment rate (Aug, 1:30pm); US nonfarm payrolls, hourly earnings & unemployment (Aug, 1:30pm). |
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Key earnings: |
Alimentation Couche-Tard, Copart (Wed); Broadcom (Thurs); Kroger (Fri). |
Fig B: US ISM manufacturing (index)
Key European macro data & events
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Events: |
Speeches by the ECB’s Nagel at ECB & European Banking Authority conference (Tues, 5:45pm), Villeroy at Bruegel Annual Meetings (Wed, 12pm) & Holzmann in Vienna (Thurs, 3pm). |
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Monday: |
HCOB manufacturing sector PMIs for Italy (8:45am), France (8:50am), Germany (8:55am) & Eurozone (9am) – all August final estimates apart from Italy; Italian PPI (Jul, 10am); Italian new car sales (Aug, 5pm). |
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Tuesday: |
N/A |
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Wednesday: |
HCOB service sector PMIs for Italy (8:45am), France (8:50am), Germany (8:55am) & Eurozone (9am) – all August final estimates apart from Italy; Eurozone PPI (Jul, 10am). |
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Thursday: |
German factory orders (Jul, 7am); Eurozone retail sales (Jul, 10am). |
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Friday: |
German industrial production, imports/exports & trade balance (Jul, 7am); French industrial & manufacturing production (Jul, 7:45am); Italian retail sales (Jul, 9am); Eurozone GDP (Q2 final estimate, 10am). |
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Key earnings: |
N/A |
Fig C: Eurozone PPI (Y-o-Y %)
Key UK macro data & events
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Events: |
Speech by the Bank of England’s Breeden at a joint ECB and European Banking Authority conference (Tues, 1:45pm). |
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Monday: |
S&P manufacturing sector PMI (August final estimate, 9:30am). |
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Tuesday: |
BRC retail sales (Aug, 12:01am). |
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Wednesday: |
S&P service sector PMI (August final estimate, 9:30am). |
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Thursday: |
New car sales (Aug, 9am). |
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Friday: |
Halifax house prices (Aug, 7am). |
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Key earnings: |
Ashtead Group (Tues). |
Fig D: UK BRC retail sales (3 months smoothed, Y-o-Y %)
Key Asia-Pacific macro data & events
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Events: |
Speech by the BOJ’s Takata in Ishikawa (Thurs, 2:30am); speech by the RBA’s Bullock at Anika Foundation (Thurs, 3am). |
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Monday: |
Australian Judo Bank manufacturing sector PMI (August final estimate, 12am); Japanese capital spending & company sales (Q2, 12:50am); Japanese Jibun Bank manufacturing sector PMI (August final estimate, 1:30am); Australian headline CPI (Aug, 2am); Australian inventories & company profits (Q2, 2:30am); Australian ANZ-Indeed job advertisements (Aug, 2:30am); Australian building approvals (Jul, 2:30am); Australian private sector houses (Jul, 2:30am): Chinese Caixin manufacturing sector PMI (Aug, 2:45am). |
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Tuesday: |
Japanese money supply (Aug, 12:50am). |
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Wednesday: |
Australian Judo Bank service sector PMI (August final estimate, 12am); Japanese Jibun Bank service sector PMI (August final estimate, 1:30am); Australian GDP (Q2, 2:30am); Australian household spending (Jul, 2:30am); Chinese Caixin service & composite sector PMIs (Aug, 2:45am). |
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Thursday: |
Japanese cash earnings (Jul, 12:30am); Australian imports/exports & trade balance (Jul, 2:30am). |
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Friday: |
Japanese household spending (Jul, 12:30am); Australian home loan value (Jul, 2:30am); Japanese ESRI leading index (July first estimate, 6am). |
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Key earnings: |
N/A |
Fig E: Chinese Caixin manufacturing & service sector PMIs (index)
Last week:
Longview on Friday, 30th August 2024:
“US Macro: Soft Landing or Recession?”
Global Macro Report, 29th August 2024:
“(State Based) Sahm Rule is Improving! A.k.a. Labour market not recessionary”
Monthly Global AA No. 48, 28th August 2024:
“Gold: Bull Run Ending? A.k.a. Reduce Weightings in the Strategic Portfolio”
Prior week:
Longview on Friday, 23rd August 2024:
“Sector Rotation and the Case for Wave Three (More SELLing)”
Quant Monthly No. 8, 22nd August 2024:
“S&P500 Quarterly Earnings – Key Trends (& Concerns)”
The SHORT VIEW (& market positioning), 20th August 2024:
“Whither the Dollar?”