MAXIN ADVISORS Weekly Market Review adresses the issues of the moment and the events of the past week in the financial markets.
MAXIN ADVISORS Weekly Market Review
28 Aug 2022
News of China’s Demise May Be Premature
The Magazine cover indicator is a somewhat irreverent contrarian indicator which says that the cover story on the major business magazines, particularly magazines such as Times or The Economist are often marking the peaks and throughs of important trends.
There is a serious psychological argument for the accuracy of that indicator in that news outlets tend to reflect opinions that have become largely shared by the public, and therefore that all the news is encompassed in the common narrative.
The same could apply to China today aswherever one looks, the press is full of articles announcing the Decline or the Demise of China.
The following is an example of all the articles that were published this week only in Foreign Policy magazine,
It is worth noting those articles are written by Western analysts that have deep knowledge of China, but very few are actually coming from Chinese commentators themselves.
Let us mention as a foreword that we have seen similar waves of “China Demise” many times in the past, in the 1990s, the 2000s and the 2010s and the dire predictions of a Chinese collapse never materialised. Quite the contrary….
Will it be different this time ?
In this article, we will delve into the subject, exposing the current situation of China, its challenges ahead and the possible outcomes.
China’s Perfect Storm
The headwinds currently hitting the Chinese economy are formidable.
And they come at a time of a fierce internal political battle ahead of the Chinese Communist Party’s 20th Congress in October.
There is no doubt that the current confluent of trends creates one of the most challenging environment of the past 50 years for the Chinese Communists Party, but this is not surprising considering the exponential social and economical growth of the past decades in one of the most populated country of the planet.
The morphing of an emerging economy into a maturing economy has always been, in every nation, every region of the world and every period in history, the most delicate transition phase.
And this is precisely where China is today.
At the time of writing, China is facing three major headwinds that are all resulting in the economic lull that currently is agitating Western commentators, leading them to call for China’s demise and causing foreign investors to flee Chinese assets.
These headwinds are
1. The aftermath of Covid restrictions
2. An extraordinary heat wave
3. The real estate crisis and re-structuring of the technology and financial sectors that are leading to a plunge in consumer confidence and sharp rise in youth unemployment, and
4. Political paralysis ahead of the 20th congress
Before addressing each one of them, let’s first put the political context in perspective :
Xi Jing Ping’s first mandate was all about fundamental reforms such as land property rights, the judiciary, the adoption of a civil code, and the rationalisation of agriculture, but is was also a phase of intense investments in technology, telecommunications, land and air transportation, roads, airports, railways, power plants, the development of a free market economy and the phasing out of the inefficient state-owned enterprises that had carried out the first phase of China’s development. It also saw the development of the second largest financial markets in the world, and the structuring of vehicles for savings, retirement and medical care for the masses.
His second mandate focused on reining in the effects of the phenomenal growth of the past decades on society, keeping the social cohesion of the Nation, reducing inequalities, fighting the star system of the Billionaires and Social Media influencers, further integrating the Uygur regions or cementing the One country concept of the “One Country Two systems” of Hong Kong, reining in the excesses that had developed in the Real estate sector or the Big Data power of the Chinese tech giants. It was a five-years period of containment and adjustments deemed to be necessary to avoid the dangerous excesses seen in the western societies.
But it was also taken off course by two external shocks that were not foreseen at the beginning of his second mandate :
The brutal pivot of the USA vis a vis China with the election of Donald Trump as President of the United States and the sudden appearance of COVID in 2019, a major health hazard that hit the world with the violence and daunting economic consequences that we all know today.
The election of Donald Trump had a major impact on China and on its ruling elites. Up until Donald Trump, China was happily developing in interaction and collaboration with the rest of the world, participating in multi-lateral diplomacy, world policies its and the development of trade and globalisation. It opened its markets far more than it was ever allowed to develop itself in foreign markets, relied on foreign technology even for crucial national security applications, and maintained at all time its core philosophy of not interfering in foreign countries’ political affairs.
With Donald Trump’s unilateral sanctions, tariffs and bans, China realised that it had to change its strategic course and build the next phase of its development on its own, relying on domestic technology and having to fend off the interferences of the west in what it sees as its own National affairs be it in Hong Kong in 2019 with the foreign support to the pro-democracy movements or more recently in Taiwan with America’s blunt support of Taiwan’s independent movements.
Collaboration turned into competition… and unfortunately, the recent events in Taiwan indicate that it may even lead to confrontation in the future.
But we shall come back to that in the last section
1. The Aftermath of COVID
When dealing with the second external shock, COVID – 19, China took a radically route than the West.
China’s assessment has always been that COVID is a highly dangerous virus that may have lasting health consequences on its vast population.
Maybe China knows more about the origins of the virus than we do and we ourselves explored a plausibility scenario in an article titled NORTH KOREAN FLU ? published in February 2020. The exercise was a pure a chess playing exercise and we have no data or information to support that thesis. It simply analysed a possible and plausible, rational explanation for its sudden appearance.
Contrary to the West, when dealing with COVID, China fought COVID as a pure HEALTH HAZARD, implementing harsh policies to avoid a wide contamination of its population with population controls, general lockdown, stringent quarantines and the immediate isolation of contaminated people..
By opposition, The West, and America in particular, focused on the economic consequences of COVID rather than on the health issue itself, with massive monetary and fiscal policies, but little constraints and restrictions on their populations to avoid the spreading of the virus.
To give a sense of the difference of achievements on the health front, using the WHO official statistics, COVID contaminated 600 million people and caused 6.5 million deaths worldwide, with America and France being the most impacted relatively to their population size.
The following table shows, country by country, the contamination levels, number of death, number of testing and current cases.
America was, by far, the most affected m^nation with almost a third of its population contaminated and in excess of a million fatalities.
By contrast, China, despite its huge 1.4 Billion population, reported extremely low numbers of contaminations ( 250’000 people ) and fatalities ( 6409 ) officially.
Regardless of the actual accuracy of the official data reported by China, the world at large and any one living in China or Hong Kong witnessed how harsh and expeditive the measures of isolation taken by the Chinese authorities to fight the virus were and still are.
But the ultimate conclusion is that XI Jing Ping’s harsh ZERO COVID policies have probably yielded better results and far less contamination and fatalities in its population than in the West.
Clearly, China privileged the protection of the health of its population when the West privileged the economic aftermath of Covid
On the economic consequences of COVID -19, it is paramount to understand that faced with COVID and its economic impact, contrary to most Western Nations, China did not resort to exceptional monetary and fiscal stimulus.
But the ultimate results are far from giving the west a clear advantage, and the difference of approach and consequences are clearly visible in the wide differences in interest rates, inflation rates, budget deficits, increases in public debt and final consumption.
As an important footnote, its is probably appropriate to highlight here that all the debate about the trustworthiness of the Chinese official economic data is irrelevant. China’s official statistics have been construed to provide the Chinese Government with reliable tools to monitor and manage a 17 Trillion and 1.4 Billion people economy, not to look good or bad internally or externally. Many independent institutions such as the IMF, the US government itself and independent research firms have built their own indexes and come to results that are broadly similar to the Chinese statistics themselves.
CHINA vs US growth rates
On the GDP Front, China experienced one quarter of contraction in 2020 with a maximum down draft of -6 % while the US went through there consecutive quarters of GDP contraction the same year with a cumulative contraction reaching 15 %. The rebound reached 18 % in China but did not exceed 12 % in the US.
In 2022, China experienced one quarter of contraction in Q2 while the US has now been in contraction for two consecutive quarters now, although, listening to commentators, China’s economy is in dire straits, after the July releases that were less good than expected, even if markedly higher than the US equivalent metrics.
So despite the massive stimulus monetary and fiscal policies implemented by the US or countries like France or Germany, the economic downdraft has not been less damaging in the West when compared to China which maintained orthodox policies of stable interest rates, no quantitative easing and limited recourse to budget deficits.
CHINA vs US Budget deficits
In 2020 and 2021, the US experienced two consecutive annual budget deficits of circa 15 % of GDP when China never exceeded 5 %, resulting in the sharpest increase in public debt to GDP in the US and France when China remained at manageable levels. As a matter of illustration, France’s total public debt increased by 40 % in the five -year tenure of President Macron, the highest increase ever in the History if France’s public finances.
But the mots striking difference is the massive inflationary spiral that the Western economies are experiencing right now cease of the reckless monetary policies pursued by the Western central banks, while China is managing to keep its inflation rates under control.
CHINA vs US Inflation rates
As heralded by Jeremy Powell’s press conference at Jackson Hole last week, the sharp rise in inflation is bound to push US and European interest rates much higher for much longer, almost certainly inducing a deeper economic contraction ahead, while the Chinese central banks has the leeway to reduce rates as it did last week, while the Government has the ability to spend more more on fiscal stimuluses, making its economic contraction probably more temporary.
The causes of China’s current economic downturn are not solely due to COVID and are probably far more transitory than the upcoming recession in the US or Europe.
2. An extraordinary Heat Wave
The heatwave currently affecting large parts of China is, by most metrics, the worst ever recorded in the world’s history. The combined intensity, duration, scale, and impact of this heatwave is unlike anything humans have ever recorded. Over 260 locations have seen their hottest days ever during this 70+ day heatwave. In Wuhan the Yangtze river is running so dry that local residents are taking walks on the river bed itself, something never seen in the past.
It is an environmental disaster that is having a significant and immediate impact on the Chinese economy.
The six areas suffering the extreme heat and drought — Sichuan, Chongqing, Hubei, Henan, Jiangxi and Anhui provinces — accounted for almost half of China’s rice output in 2021. The Chinese Minister of Agriculture and Rural Affairs Tang Renjian has called for “all-out battle” against high temperatures and drought to secure autumn harvest.
Besides disturbing heavily the food chain, the drought is also having major impact on power supply. Sichuan is heavily dependent on hydro power with the Three Gorges dam, the largest hydro electric power plant in the world, and the low water levels have forced power cuts.
That directly affects the production of lithium, polysilicon, aluminium and copper. But, more importantly, it places the entire regional power grid under pressure. Major cities, including Shanghai, are making efforts to economize on power usage. The legendary Bund skyline was not illuminated for two days this week. Toyota and Apple supplier Foxconn are among the companies that have suspended plant operations in south-west China as the region is buffeted by hydropower shortages caused by droughts and heatwaves.
However, as is always the case with climate change, the heatwave is not eternal and the current headwinds on the economy will ultimately fade away.
3. Containing the excesses of the Real estate, technology and financial sectors.
The Chinese real estate crisis has been brewing for a long time in China.
For years, the inclination of the Chinese for investing their savings in real estate has baffled economists and foreign commentators and many times in the past analysts expected the bubble to burst.
To give a sense of the problem, a working paper published by the US National Bureau of Economic Research in 2020 estimated China’s real estate sector accounted for 29% of the country’s GDP or about $4 trillion out of the then $14 trillion GDP.
More to the point, the average cost of a housing unit in China represented 38x the average annual salary to be compared to about 5 x in the US.
Our readers must realize that Chinas’ economic development is still very young with only 5 decades of history as a developing economy. 50 years ago, the Chinese were very poor and the two generations that have made and witnessed this massive rise in living standards still have vivid memories of living out of one meat ball a week, no heating systems, no secured source of feeding and little prospects of enhancements back then.
In a country that is still developing its financial systems, its medical welfare, its retirement systems, the natural propensity to secure their hardly accumulated and increasing wealth has been to channel it towards the tangible assets of Brock and mortar.
Add to that the inverse family pyramid induced by the one child policy pursued for decades, and and young couple would draw on te savings of their four parents and eight grand parents to fund the initial deposit needed to acquire a property, mortgages being serviced by the salaries of the young couple.
As rising living standards made more and more Chinese affluent, the demand for real estate became insatiable, and as the Chinese became richer, households would typically buy one, than two and finally three or four properties with their savings, enticed by ever rising property prices and highly accommodative credit facilities.
By the same token, property developers raking in formidable profits and endless demand for their new developments kept on borrowing to expand, build ore, sell more and finance more, borrowing through the banking system, the domestic and offshore bond markets and offering high-yielding mortgage backed products to investors.
The Chinese Government started being concerned many years ago, tightening gradually the criteria of financing and rinsing taxes on second and third properties. A first crisis of confidence unfolded in 2014, but it was not sufficient to dent the Chinese’s enthusiasm for real estate investments,
In his second term, Xi Xing Ping made the containment of the excesses in the real estate sector strategic priority and enacted tight restrictions on the funding of real estate developers, causing the most leveraged of them to fall into a liquidity crunch.
Some of them went into bankruptcy, leaving hundreds of thousands of buyers with unfinished properties while they still had to honour their mortgages as per the Chinese system whereby mortgages start at the signing of the contract and not at the delivery of the properties.
Suddenly, the confidence of the Chinese in real estate investments was shaken to the core and the legitimate strike of the couple of hundreds of buyers of unfinished properties became a major test of the Government’s ability to control mass movements of protests, not only through social medias, but actually by physically positing handwritten notes of protests on the developers and banks outlets.
New property sales declined by 35 % in the past 12 months, a major collapse for developers that were used to see sales grow at 15 to 20 % per annum for decades, a collapse that has been more than reflected in the 90 % decline in their share prices since their 2020 peak.
This in turn is having a global impact on economic activity and on the confidence of the Chinese consumer that is starting to worry about the value of their savings invested in real estate.
Adding to that the fact that the regulating of the technology sector and of the financial sector that started in October 2020 has put a lid on investments by tech companies and explains, for a large part the sharp increase in youth unemployment, and China’s consumer confidence has brutally collapsed in Q2 2022.
However, when analysing real estate prices, contrary to what happened in the US with the subprime crisis of 2007, despite th sharp collapse in sales of new properties, real estate prices have remained remarkably stable over the past year, falling only by 1 % for now.
Moreover, all the worries that are currently being voiced by analogy to the same US sub-prime, the massive stock of existing mortgages financed by the banking system dwarfs the volume of mortgages on unfinished properties and is not at risk because it has b^not been refinanced through speculative products as was the case in the US.
98 % of Chinese mortgages are being serviced normally and the banking system has both extremely high capital adequacy ratios at 14 % on average, AND have Non performing Loan provisioning ratios that range between 110 and 150 %, providing the banking system with a large cushion to whether any increase in defaulting payments.
Finally, the Chinese Government is setting up state-financed funds to take over from the defaulted developers and complete the unfinished programs and protect the rights of the investors. in recent days, a variety of non-conventional measures have begun to take shape.
The National Association of Financial Market Institutional Investors (NAFMII), the interbank bond market self-regulatory body under the central bank, is discussing potential credit guarantees with a handpicked group of six developers. Bloomberg reports that to address the delays in project completions that triggered the wave of mortgage strikes, the Housing Ministry is offering 200 billion yuan ($29.3 billion) in special loans to ensure stalled housing projects are delivered as quickly as possible.
Indeed, a couple of small regional banks have been in jeopardy because they overextended their exposure to property developers, in some cases for doubtful motives, but fir as long as we are not seeing a collapse in real estate prices, the Chinese banking system is not at risk.
In the US, the subprime crisis was not a real estate crisis but a financial crisis due to the Ponzi scheme of the issuance by financial institutions of leveraged products backed by low grade mortgages.
Between the 2006 peak and the 2012 bottom, US real estate prices fell only by 27 %. What caused the crisis was the blowing up of over leveraged financial houses such as Lehman brothers. Nothing of that sort is actually happening in China.
Interesting to note where we stand in the US at the moment in terms of overheating real estate.
We have probably seen the worst of the real estate crisis in China, a developers crisis that was fully and voluntarily engineered by the Government itself through its clamp down on the excesses of the real estate developers. The domestic bonds of the major real estate developers have now stabilised and there share prices are bottoming out.
The collateral damages will be contained and real estate prices will probably fall marginally more, but not to the extent of causing a major collapse.
the main consequence has been to quash demand, and that will probably be the case for several years to come. But we are not seeing and are unlikely to see waves of property liquidations in the future.
The silver lining on the other hand is that the Chinese savings will now find their way into other form of investments and primarily the stock and bond markets, especially if they start rising as we expect.
4. Political Paralysis ahead of the 20th Congress
The stakes are high for the Xi Jing Ping’s administration ahead of the October Congress of the Communist Party and the second mandate of XI Jing ping is seen as having been too assertive and too damaging for the economy.
Contrary to what many people in the West believe, China’s political life is fa form monolithic and heated debates take place behind the close doors of the Party, with two main factions fighting for power.
The XI Jing ping’s conservative faction has ben trying to assert its control, over the Party apparatus but the more progressive faction of Jiang Zeming is still fighting back fiercely to regain control of the Party.
The third potential mandate of Xi Jing Ping is all but assured and the recent economic headwinds, coupled with the international tensions over Taiwan, the zero Covid policies and the real estate crisis have weakened his hand.
On Jan. 19, an article titled “An Objective Evaluation of Xi Jinping” was published on the PRC-sponsored overseas Chinese language internet forum 6park. The 42,000 character-long article signed “Fang Zhou and China” was split into three parts and carries a clear Jiang Zemin faction bias.
The article is highly critical of Xi and his nearly decade-long reign. Xi is depicted as repressive, regressive, and a potential renegade who will usher in the collapse of the CCP regime if allowed to remain in power, with his failed policies, anti-Midas touch, and “bad luck.” Virtually every single negative trope about Xi that readers of Chinese and English press would be familiar with are recycled in the piece—Xi is presented as a “worst-of-the-worst” tyrannical dictator, a gross human rights violator, an anti-intellectual, power-hungry, dangerous, etc. Xi is also blamed for all of the regime’s ills, including a deteriorating economy, an uninspired officialdom (prevalence of the “prefer left rather than right” attitude towards policy implementation under Xi), and courting “systemic” and “zero-sum” competition with the Western powers.
Xi is described as lacking in confidence, and comes across as woefully incompetent country bumpkin—descriptions that are hard to square with the ruthless, Machiavellian strategist that he supposedly also is. Xi is also compared very unfavorably to his predecessors, most of all Jiang Zemin, as well as his fellow Party princeling Bo Xilai
In contrast, Bo is depicted as capable, savvy, practical, accepting of Western society and openness, and having good rapport with intellectuals; Xi comes across as being everything Bo is not and preparing to set China on the path to becoming North Korea. Meanwhile, the article claims that “many people are vaguely nostalgic for the Jiang Zemin era.”
The length, scope, and content of “this article is a testimony of the infightings that are taking place within the Chinese Communist Party and a clear but “unofficial” Jiang faction”s counter to Xi Jinping’s “historical resolution.” The article’s dissemination via an overseas Chinese language internet forum is likely intended to let people know how Xi is unpopular within the CCP and how there remains substantial, influential opposition to the Xi leadership despite purges and tightening of control over the elite.
Further, the article appears to be a Jiang faction attempt at propaganda and political mobilisation in response to Xi’s Bid for a third mandate. Its very publication suggests that the Jiang faction is prepared to struggle with Xi to the bitter end and wants the Party elite and foreign interest groups to know the consequences of their actions in the hopes that the latter groups will take action. Anything to be put in relation with Nancy Pelosi’s trip to Taiwan ?
The point we are making is that Xi Jing Ping is in the last mile of a very powerful storm and that prevents him from taking decisive or far reaching measures at the moment.
However, this is also shaping the course of his third mandate if he is nominated in October for a third term as we expect.
China’s current headwinds are temporary for most and it is too early to call China’s final demise.
Quite the contrary, all the above means forces the Chinese Communist Party to make ECONOMIC GROWTH the STRATEGIC PRIORITY of the coming 5 years
The only solution to China’s current dilemma is getting economic growth back on track, and fast.
China needs to find the right balance between controlling the pandemic, preserving the society’s cohesion and boosting the economy and Xi Jing Ping’s second mandate is seen as having been too far.
Whether Xi Ling Ping is nominated for a third term, or the world be surprised by. the nomination Bo Xilai or another figure of the Jiang ZemIn faction, or even a intermediate solution whereby Li Keqiang succeeds to a Xi Jingping taking the blame for the current headwinds,
Whoever the next leader of China is, he will prioritize economic growth and allow market forces to regain traction by launching sizeable very large stimulus plans and public finances reforms.
We have reached a stage where further economic weakness and loss of confidence could endanger the dominance of the Communist Party itself. The scale of the risks is unprecedented not just for China but also for the world at large.
We are only a few weeks away of the 20th Party Congress and Chinese asset markets are extremely depressed.
It is not the first time China faces internal and external stocks, and although the stakes are increasingly high every time due to the growth of China itself, it has always managed to power ahead.
This is probably a unique opportunity for global investors to reposition themselves in Chinese equities for the long term.
Weekly Market Review
28 August 2022
Macro Economic Highlights
Volcker Moment ; FED to push rates as high and for as long as necessary
Reducing inflation is likely to require a sustained period of below-trend growth but failure to restore price stability would mean far greater pain, Fed Chair Powell said during his speech at the Jackson Hole symposium. Fed Chair also said that another unusually large increase could be appropriate at next meeting, but the decision for September will depend on the totality of the incoming data and the evolving outlook. He also added that at some point, as the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases. The Federal Reserve raised the target range for the fed funds rate by 75bps to 2.25%-2.5% during its July 2022 meeting, the fourth consecutive rate hike, and pushing borrowing costs to the highest level since 2019.
US Economy Shrinks Less than Expected
The US economy contracted an annualized 0.6% on quarter in Q2 2022, less than a 0.9% fall in the advance estimate, due to upward revisions to consumer spending and inventories. Still, the economy technically entered a recession, following a 1.6% drop in Q1. PCE grew 1.5%, higher than 1% in the advance estimate, led by food services and accommodations while spending on goods went down 2.4% (vs -4.4% in the advance estimate), namely food and beverages. Also, private inventory investment was revised higher though remained a drag mainly due to retail trade. Also, net trade made a positive contribution for the first time in 2 years, as exports jumped 17.6% (vs 18%), led by industrial supplies, materials and travel while imports were up 2.8% (vs 3.1%). Meanwhile, residential investment sank 16.2% (vs -14% in the advance estimate), mainly due to real estate brokers’ commissions. Investment also fell for structures (-13.2% vs -11.7%) and equipment (-2.7%, the same as in the advance estimate).
US Jobless Claims Below Expectations Last Week
The number of Americans filing new claims for unemployment benefits went down by 2 thousand to 243 thousand in the week ended August 20th from a downwardly revised 245 thousand in the previous period and well below the market estimate of 253 thousand. It was the lowest level for initial claims since the week ended July 23rd. On a non-seasonally adjusted basis, initial claims decreased by 3,039 from the previous week to 184,414, with notable declines being recorded in New Jersey (-1,536), California (-1,312), and Indiana (-1,206). On the other hand, applications increased the most in Massachusetts (3,740) and Connecticut (1,553). The 4-week moving average, which removes week-to-week volatility, was 247,000, an increase of 1,500 from the previous week’s revised average.
US PCE Prices Falls marginally in July
The personal consumption expenditure price index in the United States fell 0.1% month-over-month in July of 2022, after jumping 1% in June which was the largest increase since September 2005. Prices for goods decreased 0.4% while prices for services increased 0.1%. Food prices were up 1.3% while energy costs fell 4.8%. Excluding food and energy, the PCE price index increased by 0.1%. The annual rate slowed to 6.3% from 6.8% in June, which was the highest reading since January 1982.
Core PCE Inflation Slows in July
Core PCE prices in the US, which exclude food and energy, went up by 0.1 percent month-over-month in July of 2022, easing from a 0.6 percent rise in June and below market expectations of 0.3 percent. Meanwhile, the annual rate, the Fed’s preferred gauge of inflation, slowed to 4.6 percent from 4.8 percent in the prior month, also below market expectations of 4.7 percent.
US Personal Spending slows in July
Personal spending in the US edged up a meagre 0.1% month-over-month in July of 2022, after jumping 1% in June, and below forecasts of 0.4%. It is the weakest performance so far this year, as consumption increased for services, namely housing and international travel but declined for goods, namely gasoline and other energy goods. Consumer spending has been resilient despite surging inflation and interest rates, prompted by summer travel, rising incomes, and high savings. Still, it but could soon start slowing as the Fed monetary tightening continues, energy costs remain elevated and the inflation holds close to 40-year highs, weighing on consumers’ affordability.
US Personal Income Rises Less than Forecast
Personal income in the United States increased 0.2 percent from a month earlier in July of 2022, easing from an upwardly revised 0.7 percent rise in June and well below market expectations of 0.6 percent. It was still the sixth consecutive rise, primarily reflecting an increase in compensation that was partly offset by decreases in proprietors’ income, personal current transfer receipts, and rental income of persons. The increase in compensation was led by private wages and salaries. The decrease in proprietors’ income was mainly in nonfarm income. The decrease in personal current transfer receipts followed an increase in June that reflected a legal settlement from corporate business to persons.
US Consumer Sentiment Inched Higher in August
The University of Michigan consumer sentiment for the US was revised higher to 58.2 in August of 2022 from a preliminary of 55.1. The gauge for expectations was revised higher to 58 from 47.3 and the current conditions subindex was revised higher to 58.6 from 58.1. Inflation expectations for the year ahead moderated to 4.8% from 5.2% in the previous month, its lowest in 8 months and below preliminary figures of 5%. Meanwhile, the 5-year outlook was unchanged at 2.9%, compared with 3% in advanced figures.
US Trade Goods Deficit Narrows in July
The US goods trade deficit narrowed to USD 89.1 billion in July of 2022 from a revised USD 98.6 billion in the previous month, the advance estimate showed. Exports dropped 0.2 percent over the last month to USD 147.3 billion, dragged by lower sales of industrial supplies (-2.3 percent) and consumer goods (-3.4 percent). Meanwhile, imports fell 3.5 percent to USD 234 billion as lower purchases of industrial supplies (-2.9 percent) were offset by higher imports of capital goods (0.5 percent).
US Corporate Profits Hit Record High in Q2
Corporate profits in the United States rose 9.1 percent year on year to a fresh record high of USD 2.62 trillion in the second quarter of 2022, following a 4.9 percent drop in the previous period. Net cash flow with inventory valuation adjustment, the internal funds available to corporations for investment, rose 5.8 percent to $3.34 trillion, while net dividends fell 0.2 percent to $1.47 trillion.
China Industrial Profits Fall
Profits earned by China’s industrial firms declined by 1.1% yoy to CNY 48.93 trillion in the first seven months of the year, reversing from a 1.0% growth in the previous period, as the economy continued to grapple with COVID-19 disruptions and energy crunch due to heatwaves. The National Bureau of Statistics said that it did not report standalone figures for July but In June, corporate profits grew by 0.8% yoy, the first rise in three months.
China’s economic slowed last month, with both retail sales and industrial output missing market forecasts. Policymakers moved to revive growth after the weak data, with measures including cuts to both one-year and seven-day lending rates and a further CNY1 trillion of funding, mainly focused on infrastructure spending.
Tokyo Core Inflation Hits 8-Year High
The core consumer price index for the Ku-area of Tokyo in Japan jumped 2.6% to 102.4 points in August 2022 from a year ago, accelerating at the fastest pace since October 2014 amid broadening inflationary pressures due to higher energy and other commodity costs. The figure also topped market expectations for a 2.5% gain and followed a 2.3% rise in the previous month. The CPI for Japan’s capital, a leading indicator of nationwide price trends, signals further acceleration for the whole country’s consumer prices in the coming months, though the pace of gains has remained modest compared with other major economies. While Japan’s nationwide inflation has now exceeded the Bank of Japan’s 2% target for four straight months and may complicate central bank messaging moving forward, the BOJ is still expected to keep monetary settings ultra-loose to support a fragile economy.
Canada Government Budget Surplus at 4-Month High
Canada recorded a government budget surplus of CAD 4.88 billion in June of 2022, swinging from a deficit of CAD 12.71 billion in the corresponding month of the previous year. Revenues rose by CAD 22.2 percent on the year to CAD 36.22 billion, reflecting broad-based improvements across multiple revenue streams. At the same time, program expenses excluding net actuarial losses were 28.4 percent lower at CAD 28.04 billion, due to lower transfers for individuals and business.
UK Retail Sales Recover but Firms Remain Pessimistic
The CBI distributive trades survey’s retail sales balance in the UK rose to 37 in August of 2022 from -4 in July, the highest since November last year, beating market expectations of -7. Retailers reported solid growth in sales in the year to August and are expecting another firm rise next month (+31). However, sentiment amongst retailers remained gloomy, with firms feeling pessimistic about the business situation over the next three months to the greatest extent since the early phase of the Covid-19 pandemic in May 2020.
Eurozone Household Credit Growth Eases in July
Loans to households in the Euro Area rose 4.5 percent year-on-year in July of 2022, easing slightly from a 4.6 percent advance in June, which was the highest since October 2008. Meanwhile, credit to companies jumped 7.7 percent, the most since February 2009. Private sector credit growth including households and non-financial corporations accelerated to 6.3 percent in July from 6.2 percent in June.
German Consumer Sentiment Hits Fresh Low
The GfK Consumer Climate Indicator in Germany fell to a new record low of -36.5 heading into September of 2022 from a revised -30.9 in the prior month and worse than market forecasts of -31.8. The latest reading highlighted persistent recession fears and mounting concerns over higher energy costs. The propensity to save hit its highest in over 11 years, as households take precautions and put money aside for future energy bills; while the willingness to buy fell 1.2 points to -15.7, the lowest print since October 2008, marking the seventh straight month of declines. Meanwhile, the gauge for economic expectations edged up 0.6 points to -17.6 and the measure of income expectations added 0.4 points to -45.3. The institute warned that the situation could become even worse in the coming weeks and months if there is not sufficient fuel, especially gas, to heat homes, as this would further increase prices and drive up heating bills.
France Consumer Confidence Improves
The consumer confidence index in France unexpectedly edged higher to 82 in August of 2022 from 80 in July which was the lowest since June of 2013. The index rose for the first time in 8 months, beating market forecasts of 79, although it remains well below the long-term average of 100. Slight improvements were seen for future savings capacity (-1 vs -3), propensity to save (22 vs 19) and buy (-37 vs -39), the outlook for the standard living (-64 vs -71), prices (-5 vs 3) and unemployment (8 vs 11).
Registered Jobseekers in France Increase for 2nd Month
The number of people registered as out of work in mainland France rose by 20.3 thousand from the previous month to 2.967 million in July of 2022, following a 13.6 thousand increase in June. Unemployment in the population aged 25 to 49 increased by 21 thousand to 1.749 million, and that of the population aged 50 or older went up by 0.9 thousand to 0.848 million. Meanwhile, the unemployment in the younger population edged down by 1.6 thousand to 0.369 million. Compared to the same month in the previous year, the number of people registered as jobless fell by 402.5 thousand.
Italian Business Confidence at 1-1/2-Year Low
Manufacturing confidence in Italy fell by 2.1 points to 104.3 in August of 2022 from a downwardly revised 106.4 in the prior month, slightly below market expectations of 104.4. It was the lowest reading since March of 2021, due to surging energy costs and amid uncertainty around upcoming elections following a political turmoil that prompted PM Mario Draghi to resign. Manufacturers gave a less favourable assessment of order books (-3.9 vs -0.8 in July) and evaluated inventories to have risen (3.2 vs 1.1), while expectations for future production decreased (4.7 vs 5.3).
Norway Personal Spending Falls 2.7% MoM in July
Household consumption of goods in Norway declined 2.7 percent month-over-month in July of 2022, after a 0.1 percent gain a month earlier. This was the fifth drop in personal spending since the start of the year, dragged down by declines in consumption of both food, beverages, and tobacco (-4.8 percent vs 1.2 percent in June) and other goods (-2.2 percent vs -0.8 percent). Also, purchases of fuel was down 2.2 percent, compared with a 0.1 percent fall in June. Meanwhile, spending on electricity and heating fuels grew faster (2.2 percent vs 1.1 percent).
Danish Retail Sales Fall
Retail sales in Denmark dropped 9.1 percent year-on-year in July 2022, after a downwardly revised 8.6 percent fall in the previous month. It was the third straight month of decrease in retail sales, and the steepest decline in the current sequence, due to a faster fall in sales of both clothing (-15.6% vs -12.1%) and food and other groceries (-6.1% vs -5.7%). Meanwhile sales of other consumables continued to drop (-10.2% vs -10.3%). On a monthly basis, retail sales showed no growth, following a downwardly revised 1.7 percent decline in June.
Brazil Current Account Balance Swings to Deficit in May
Brazil’s current account balance shifted to a USD 3.51 billion deficit in May of 2022 from a USD 2.50 billion deficit in the corresponding month of the previous year. The goods surplus shrank to USD 3.45 billion from USD 7.38 billion in May of 2021, and the services gap widened to USD 2.38 billion from USD 1.63 billion. At the same time, the primary income shortfall rose to USD 4.93 billion from USD 3.49 billion while the secondary income surplus rose slightly to USD 0.35 billion from USD 0.25 billion.
Mexico Current Account Swings to Deficit in Q2
Mexico’s current account swung into a USD 704 million deficit in the second quarter of 2022 from a USD 5,999 million surplus in the corresponding period of 2021, largely due to the major economic effects of the conflict between Ukraine and Russia, and the slowdown in China’s economy. The goods account swung to a USD 8,126 million deficit from a surplus of USD 2,810 million and the services gap increased to USD 3,601 million from USD 2,843 million. On the other hand, the primary income deficit narrowed to USD 3,827 million from USD 6,920 million and the secondary income surplus rose to USD 14,850 million from USD 12,950 million.
Baltic Exchange Dry Index at 2-Year Low
The Baltic Dry index, which measures the cost of shipping goods worldwide fell 41 points, or 3.7% to a two-year low of 1,082 points on Friday, extending losses for the third straight session. The capesize index, which tracks iron ore and coal cargos of 150,000 tonnes, slumped by 13.3% to an over two-year low of 411 points; and the panamax index, which tracks about 60,000 to 70,000 tonnes of coal and grains cargoes, continued its month-long decline, falling 3.7% to 1,372 points. At the same time, the supramax index fell for the second day, shedding 19 points to 1,744 points. For the week, the Baltic Dry index slumped by 15.4%, the sixth consecutive decline, amid continued weakness in all its vessels segments.
The Week Ahead
Next week, speeches from several Fed officials will remain in focus after Fed Chair Powell confirmed on Friday that inflation is too high and that the Fed’s tightening cycle is far from done. Several economic releases will be released, the biggest of which will be the US non-farm payrolls report. In August, the economy is seen adding 285k positions, with unemployment rate sticking at 3.5%. The ADP Employment Change, JOLTs Job Openings and the ISM manufacturing PMI. Elsewhere in America, Brazil will publish a reading of its Q2 GDP along with unemployment and industrial production figures. Mexico will post its July job report and business confidence.
It will be a busy week in Europe with key updates on inflation, jobless data, Q2 GDP growth and S&P Manufacturing PMIs. The flash CPI print for the Euro Area is expected to show the annual inflation rate accelerated to a new record high of 9% in August from 8.9% in July, as energy cost hit unprecedented levels. Prices should rise faster in Germany and Italy, and those in France are set to be unchanged from the previous month’s 37-year high.
The unemployment rate in the region likely stood at a record low of 6.6% in July, while in Germany the jobless rate is set to rise further to a 12-month high. France, Italy and Poland will publish final Q2 GDP figures whereas Turkey will release preliminary estimates. Other data to follow include: Euro Area business survey and producer prices; Germany balance of trade, import prices and retail sales; Switzerland KOF leading indicators, inflation and retail sales; and Turkey foreign trade. In the United Kingdom, main releases include Bank of England’s monetary indicators, Nationwide house prices and final S&P Manufacturing PMI.
In Australia, August manufacturing PMIs may be pointing to slower growth in factory activity. In neighboring New Zealand, business confidence will be released.
In Asia, the heavily anticipated Chinese manufacturing PMIs for August are divided to point between a contraction and a broad stall, as the country’s energy crisis is droving local governments to ration energy for manufacturers of all industries. In Japan, a busy week of releases include consumer confidence, unemployment, housing starts, industrial production, and retail sales. In India, GDP data for Q2 is set to show strong yearly growth, while investors also await manufacturing PMI figures and the preliminary trade balance for August. Elsewhere in South Korea, inflation in August is expected to ease for the first period since January, while Q2 GDP and August PMI will give further insights on the economy.
EQUITIES
WORLD INDEXES
USA
US Stocks Plunge on Hawkish Fed
US stocks plunged on Friday, fully erasing August gains after Chairman Jerome Powell reassured markets that the Fed will keep interest rates at a restrictive territory until inflation is brought down to the 2% level. In his speech at the Jackson Hole symposium, Powell noted that restoring price stability could require a sustained period of lower growth and that labor market conditions will likely soften. In the meantime, personal spending figures for July missed expectations, further reducing hopes that the Fed can achieve a soft landing as policy tightens. The Dow Junes lost 1,000 points on the day, while the S&P 500 and the Nasdaq tanked 3.4% and 3.9%, respectfully. Tech giants booked the sharpest losses, closing at one-month lows with a near 9% plunge for Nvidia and 5% drop for Alphabet. On the week, the three main equity averages lost more than 4%, notching the second consecutive weekly decline.
AMERICAS
Toronto Stocks Hit 2-Week Low
The S&P/TSX Composite index closed 1.5% lower at 19,870 on Friday, tracking the lower sentiment in Wall Street. Losses in Toronto were led by sectors that are particularly sensitive to tighter policy, with tech stocks declining more than 4% on average while cannabis growers plunged more than 5%. Higher demand for the greenback also drove investors out of bullion positions, pressuring miners to book sharp losses. On the week, the S&P/TSX fell 1.2%.
Brazilian Stocks fall 1 % on Friday
The Ibovespa stock index fell 1% to close at 112,300 on Friday, tracking the sour mood in worldwide equity markets. Retailers closed sharply lower, retracting some of the gains in the week with a 4.4% drop for Americanas and 3.6% fall for Via Varejo. Still, Brazilian equities continued to be supported by added stimulus in China, creating more demand for heavyweight Brazilian commodities, and hopes that the BCB’s tightening path is over as consumer prices eased in July. On the week, the Ibovespa added almost 1%.
EUROPE
European Stocks Close Sharply Lower
European equity markets closed sharply lower on Friday, with Germany’s DAX and the benchmark Stoxx 600 falling nearly 2% dragged down by concerns over soaring energy prices around the region and the prospect of higher interest rates. Power-prices for next year in France soared past 1,000 euros a megawatt hour and in Germany broke above the 800 mark.
Consumer sentiment in Germany hit a record low for the third month in a row in September as households brace for surging energy bills. On the other hand, consumer morale in France and Italy rose. For the week, the Eurostoxx fell -1.93 % and the DAX fell more than 4%.
UK Shares End Week Sharply Lower
The FTSE 100 index pared early gains to close 0.7% lower at 7,430 on Friday, notching a 1.6% decline on the week and tracking the downturn in worldwide equity markets. Ofgem announced it will increase the price cap on energy bills by 80% to £3,549, in October, following a 54% hike in April, and representing a big rise in energy costs for British households. While reflecting a sharp decrease in household’s purchasing power and bringing further concerns to British growth, energy services firm Centrica benefited from the move to rise 1.4%. Food retailers were among the main losers of the session, with Just Eat Takeaway.com shares plunging 4.5%, while Sainsbury’s and Ocado Group lost 2% each.
French Stocks Close at 1-Month Low
The CAC 40 slipped 1.7% to finish at 6,274 on Friday, the lowest since July 27th, after a Reuters report showed the ECB could discuss a 75 basis-point hike at its September meeting. On the data front, confidence among French consumers unexpectedly edged higher in August.
Almost all sectors closed in the red, led by Unibail Rodamco (-4.3%), Hermes (-3.7%) and Teleperformance (-3.5%). For the week, the CAC 40 lost 3.4%, the biggest decline since June.
IBEX35 Slips to 1-Month Lows
The IBEX 35 fell 1.5% to 8,063 on Friday, the lowest close since July 22nd and extending weekly losses to over 3%. On a gloomy day for the Spanish index, Cellnex, Inditex, Melia, and Almiral slide the most, losing over 2% each. On the other hand, Sabadell lead the winning pack, gaining over 2.20%, followed by Dia (0.74%), Repsol (0.52%), and Bankinter (0.43%).
Italian Stocks Decline Sharply
The FTSE MIB index sank 2.5% to close at 21,900 on Friday, underperforming its European counterparts to close at a one-month low as investors braced for tight monetary policy by the ECB and the Federal Reserve. A report from Reuters suggested that the European Central Bank considers a 75bps rate hike for its next meeting in September, as the inflation outlook for the currency bloc continues to deteriorate. Banks were among the largest losers in Milan, tracking the sell-off of BTP instruments as the outlook of higher interest rates in Europe pressure Italian credit risk. Healthcare stocks were also deeply in the red, closing over 3.5% down on average. On the week, the FTSE MIB fell nearly 3%.
Russian Stocks Hit 2-Month High
The MOEX Russia Index closed 1% higher at 2,270 on Friday, the highest in two months, with strong support from Moscow’s energy giants as investors continued to monitor energy markets for insights on Russia’s key exports. Gazprom and Novatek shares both closed 1% higher, supported by the 40% surge this week in prices of natural gas for delivery in Europe as the former continues to halt supply through the Nord Stream 1 pipeline. Lukoil shares added 1.5% as investors awaited the release of second quarter results during the weekend, set to show strong profits due to surging oil prices in the period. On the other hand, Bank of Saint Petersburg tanked 12% as the stock traded ex-dividend. On the week, Russia’s benchmark stock index added 3.4%.
MIDDLE EAST
JAPAN
CHINA
China Stocks Fall as Risk Appetite Wanes
The Shanghai Composite fell 0.31% to close at 3,236 while the Shenzhen Component lost 0.37% to 12,060 on Friday, with both benchmarks sliding for the second straight week, as the boost from Beijing’s latest pro-growth measures failed to sustain intra-week gains. Analysts suggested that China’s new stimulus measures were deemed insufficient to support an economy stricken by resurgent Covid-19 outbreaks, property sector woes and power shortages, as well as weakening external demand. Heightened risks of capital outflows also weighed on sentiment as the People’s Bank of China is pressured to maintain an easing bias at a time other major central banks are aggressively hiking rates to curb inflation. Growth stocks led the declines, with notable losses from Contemporary Amperex (-1.4%), Eve Energy (-3.4%) and East Money Information (-1.8%)
Hang Seng Rises for Second Day
Hong Kong stocks rose for a second session on Friday, with the benchmark Hang Seng adding 1% to close above the 22,100 level, driven by gains among healthcare and energy stocks. Hong Kong-US dual-listed companies also enjoyed robust gains following a report that Beijing is nearing a deal to let the United States check Chinese company records in Hong Kong. In other corporate news, PetroChina jumped over 3% after the company posted a record first-half profit. For the week, the Hang Seng China Enterprise index advanced 2.99%.
ASIA
Indian Shares Close Almost Flat, Book Weekly Loss
The BSE Sensex pared early gains to close virtually unchanged at 58,834 on Friday, as investors braced for Federal Reserve Chairman Jerome Powell’s appearance at the annual Jackson Hole conference later in the day. Early in the session, gains were mainly supported by tech and metal stocks. On the corporate front, strength in shares of NTPC (+2.8%), Titan (2.7%), PowerGrid (+1.9%) and KotakBank (+1.7%) were offset by losses in IndusindBank (-1.9%), HDFC (-1.2%), BhartArtl (-1.2%) and AsianPaint (-1.2%).
For the week, the index fell 1.4%, the first decline in six weeks.
BONDS
USA
US 10-Year Bond Yield Approaches 2-Month High
The yield on the 10-year Treasury note moved higher above the 3% mark on Friday, approaching the two-month high of 3.1% touched in the start of the week after Fed Chair Powell reinstated the US central bank’s priority of bringing inflation down to the 2% level by continuing to raise borrowing costs. Meanwhile, worse than expected spending data further dampened bets that the Fed can achieve a soft landing. Also, PCE price indices were cooler than expected, adding to hopes of slower inflation after July’s eased CPI.
2 -year bond yields rose sharply to the highest level since 2018, reaching 3.40 %, marking ahsarp inversion of the yields curve.
Germany vs US
Italian Bond Yields Climb
The yield on the Italian 10-year government bond rose to the 3.7% mark in late August, the highest in over two months as political uncertainty and the ongoing energy crisis magnified Italy’s credit risk ahead of rate hikes by the ECB. Reuters reported that multiple ECB policymakers mull a 75bps rate hike in their September meeting, as inflation outlooks worsen. The Italian economy continues to endure consequences from record-high natural gas prices, leading to surges in electricity costs amid uncertain supplies from Russia. Political uncertainty ahead of the snap Italian elections also added to the pressure on Italian debt. Polls favor the three-party right-wing coalition, signaling Brothers of Italy’s leader Giorgia Meloni to be the next Prime Minister. Any change in ongoing reforms could risk access to over EUR 200 billion of recovery funds. The spread between the 10-year BTP and its German counterpart widened above 230bps, hovering around a two-month high.
Japan
CURRENCIES
US Dollar Surges to 20-Year High
The dollar index rebounded from early losses to hover above 108.5 on a volatile Friday, approaching the 20-year high of 109 hit this week as investors weighed on the outlook of higher interest rates by the Federal Reserve against growth concerns from restrictive policy.
During his speech at the Jackson Hole symposium, Fed Chair Powell noted that the central bank remains determined in bringing inflation down to 2%, and that restoring price stability could require borrowing costs remain elevated for a prolonged time and dent growth. In the meantime, personal spending for July surprised market expectations on the downside, compounding concerns that the Fed will not achieve a soft landing.
Euro Pulls Back Below $1
The euro cut earlier gains to trade back below $1, after Fed Chair Powell said that the Federal Reserve will continue to raise rates to tame inflation, acknowledging the likelihood that growth will consequently suffer.
The common currency is hovering at 20-year lows, as the region’s growth outlook is dark, with natural and energy prices soaring to record levels and adding inflationary pressures. The latest data showed German consumer sentiment hit a record low for the third month in a row.
Earlier on Friday, the common currency jumped more than 1% on growing bets for a hefty 75 bps interest rate hike by the ECB in September following a report from Reuters saying some policymakers want to discuss such a move despite recession risks.
On Thursday, minutes from the last ECB monetary policy account showed the central bank is set to continue to increase interest rates as inflation in the bloc continues to break record levels, after surprising markets with a 50 bps rate hike in July.
Japanese Yen Weakens On Powell Speech
The Japanese yen weakened to 137.64 against the dollar, as Federal Reserve Chair Jerome Powell emphasized the fight against inflation in his speech at the Jackson Hole symposium. The yen is trading less than 2% above 24-year lows as Bank of Japan board member Toyoaki Nakamura stressed the need to maintain massive stimulus to support a fragile economic recovery, citing fresh Covid outbreaks, supply disruptions and slowing global demand.
The Bank of Japan is expected to retain its current policy even after Japanese headline and core inflation rates accelerated to multi-year highs and remained above the central bank’s 2% target.
Chinese Yuan Weakens To 2-Year Lows
The offshore yuan weakened past 6.85 against the dollar, sliding again toward its lowest levels in two years, weighed down by China’s embattled economy and divergent monetary policy. A looming speech by US Federal Reserve Chair Jerome Powell that is expected to emphasize the fight against inflation also pressured the yuan. Analysts suggested that Beijing’s latest pro-growth measures were deemed insufficient to support an economy stricken by resurgent Covid-19 outbreaks, property sector woes and power shortages, as well as weakening external demand. Heightened risks of capital outflows also weighed on sentiment as the People’s Bank of China is pressured to maintain an easing bias at a time other major central banks are aggressively hiking rates to curb inflation. We see the Yuan rising to 7 in the near term.
CRYPTO CURRENCIES
COMMODITIES
ENERGY
Crude Oil Closes 3% Higher On the Week
WTI crude futures traded above $93 per barrel on Friday, gaining 3% on the week as investors weighed on uncertain supply levels against the outlook of lower energy demand. Earlier in the week, Saudi Energy Minister bin Salman flagged the possibility that OPEC+ nations could cut production to counter the “disconnect” in the oil market and potential return of crude exports from Iran. Meanwhile, data from the US showed a decline in crude inventories while pointing to record levels of oil exports. Further gains on the week were capped by increasing signs of bearish demand for energy.
US Natural Gas Hovers Near 14-Year Peak
US natural gas futures were trading around $9.6/MMBtu, not far from an over 14-year high of $10/MMBtu touched earlier this week, supported by continued robust domestic and overseas demand. A series of heatwaves this summer across the United States has sent demand from gas-fired power plants to all-time highs as electricity generators boost production to meet the need for additional cooling. On top of that, expectations of increased demand for US LNG exports amid growing concerns of European shortages added to the bullish tone. Russia’s Gazprom said it would halt flows through the Nord Stream 1 pipeline to Europe for three days of maintenance at the end of August, putting pressure on the region as it seeks to refuel ahead of winter to avoid a natural gas shortage. Meanwhile, Freeport LNG announced that it would delay the restart of its Quintana export plant to November, backtracking previous statements of an October restart and limiting further upside momentum. Gas is getting over-extended.
METALS
Gold Remains Subdued
Gold prices extended losses to $1735 an ounce on Friday, after Fed Chair Powell committed to bring inflation down and said the central bank will continue to raise interest rates during its speech at the Jackson Hole Symposium. Gold has been under pressure since March as many central banks around the globe raise borrowing costs to try to spur rising inflation. The correlation between GOLD and the US dollar is strong and the environment not favourable.
Palladium Rebounds
Palladium futures rose to $2,108.87 per ounce, rebounding from the one-month low of $1,980 hit on August 23. Still, bearish outlooks for auto sales worldwide capped the gain for palladium futures. Analysts surveyed by Reuters pointed to a negative outlook for the metal as slow growth and semiconductor shortages are set to dent car sales, while the shift toward electric vehicles further hurts demand for palladium used in catalytic converters
SOFT COMMODITIES
Soybeans Hit 2-Month High
Chicago soybean futures rose past $16 per bushel in late August, the highest in over two months, amid concerns of poor growing conditions in the US and higher import demand from major consumer China. Heatwaves in the American Midwest hampered the supply outlook on the current crop, as weather forecasts still do not favor clear indications of rain for the coming days. In the meantime, record-setting heatwaves for multiple Chinese regions damaged the incoming crop, driving grain traders to enter international soybean markets.
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