US Markets. Yesterday, the S&P reversed a 4 day losing streak, but on light volumes ($58bn). Today, we’re seeing red because of weak data out of China, a surprise move out of Italy, and negative developments for the banking sector. We’ll cover each of those points today separately. But first we give you one chart, if you’re just listening to the folks cheering the soft landing.
Moody’s lowered credit ratings for 10 SMID banks because of higher funding costs, potential regulatory capital weaknesses, risks on commercial real estate loans, and a less rosy outlook, per Bloomberg. Readers of our Arrows shouldn’t be surprised…we were JUST talking about this…. Also, scuttlebutt is that Moody’s may downgrade major lenders including BNY Mellon as well. And to pile on more bad news–Wells Fargo ($125mm) and BNP ($35mm) are named among roughly a dozen Wall Street firms that agreed to pay $289mm in penalties to the SEC for employees using unofficial comms like WhatsApp to conduct business.
The gov approved a surprise tax on banks’ “extra profits” to fund tax cuts and announced support for first-time mortgage borrowers. The levy, which could haul in €2 billion, was slipped into a package on other things. BBG is estimating the move could reduce banks’ net income by -10% in 2023, per Bloomberg.
the Chinese Market collapse sends shockwaves around the world. ROD EMMERSON 26/08/15
Ruh-roh. Wage growth in Japan slowed to 2.3% in June y/y unexpectedly. Inflation may not be in the cards for them as much as hoped, as underlying momentum in pay hikes is weakening, per BBG. Household spending fell -4.2% y/y, also missing estimates. Japan markets were higher, interestingly: Nikkei up 0.38% and Topix up 0.34%. But data points to a rise in bankruptcies among small businesses, per Nikkei.
Exports were down for the 11th straight mo in July, reflecting poor global demand for chips.
Analysts are arguing that the UST selloff is overdone, so investors should start adding duration; Bloomberg. Treasuries will be facing a key test from ~$103bn in auctions this week, per Bloomberg.
Consumer expectations for inflation for the NTM declined to 3.4% in June. Consumers are expecting only 2.3% for the next three years. While these are above the ECB’s 2% target, they may affect the rate hike path. But the ECB has to be careful about expectations versus reality, as various metrics of inflation are testing record highs, per Bloomberg.
Supposedly Meta is stopping its investment in using AI for scientific protein research, among other projects they call blue-sky research in favor of revenue-generating commercial AI projects, per the FT.
They started testing their high-end, next-gen laptop processor, which could mean we’ll see a super powered Macbook next year, per Bloomberg.