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What’s ahead in September?

Financial markets

Bull diminished on Wall Street; will the Fed surrender to bears?

Despite a broad month-end rebound, the US stock markets finished the month lower, with the Dow down 2.36%, the S&P 500 falling 1.77%, and the Nasdaq slipping 2.17%. At a sector level, 10 out of 11 sectors in the S&P 500 were in the red on a monthly performance, where Energy was the only sector ending in the green. The technology stocks lost their shine as jumped bond yields sparked risk-off sentiment. All the tech giants had a negative close for the month, with Apple, Microsoft, Tesla, and Meta Platforms all finishing lower. Investors rebalanced their positions on macro changes, given re-elevated inflation, rebound in energy prices and the Fed’s stance on “long-for-longer” rates.

Nvidia wrapped up the US second-quarter major earnings with a jaw-dropping result. However, investors did not buy into it. According to Factset, “the market is punishing positive earnings” as “79% of S&P 500 companies have reported a positive EPS surprise” in the second-quarter earnings season." in the second-quarter earnings season. In the meantime, the blended year-on-year earnings decline for the S&P 500 is -5.2% so far, which marks the largest earnings decline since the third quarter of 2020. This suggests that the macro environment had a bigger impact on risk sentiment than company earnings.

The US dollar strengthened for the fifth straight week on re-rampant bond yields since the country reported the June CPI data, which marked an eleventh consecutive decline to 3.0%. However, the July data snapped the trend with a higher read of 3.2%, promoting the Fed to keep the hiking cycle. Hence, Wall Street’s correction will likely continue in September if the inflation data for August remains sticky. The Fed’s rate decision will come after the CPI data, which is critical for investment sentiment and market trends.

The Australian stock markets wobbled amid mixed company earnings results; will the RBA offer a rebounding tailwind?

The ASX 200 finished lower for the month amid Wall Street’s retreat and China’s economic jitters, while mixed company earnings results also added to the regional market’s volatilities. A decline in industrial metal prices also restrained the mining stocks’ movements. On the economic front, the weaker-than-expected July CPI data strengthened hopes for the RBA to continue halting its rate hiking cycle, buoying the ASX at the end of the month.

Most of the big caps had a negative close for the month as big banks and miners saw their profits hit peaks in the respective earnings results. In the sector performance, 8 out of 11 sectors finished lower, with consumer Discretionary outperforming, up 4.6% for the month, as Westfarmers, which owns the famous retail brands Kmart and Bunnings, posted record earnings in FY23, suggesting consumers tend to buy discounted goods due to inflationary pressures. The retail conglomerate’s shares were up more than 7% in August. On the other hand, core lithium was among the biggest losers, dragging on the Material sector, down nearly 40% for the month on an announcement of A$100 million share placement. Also, big miners, such as BHP and Rio Tinto, disappointed markets with their full-year results, with their shares down 3% and 4% in August. Notably, gold miners, such as Gold Road Resources and Silver Lake Resources, outperformed, up 12% and 8% for the month due to a rebound in gold prices.

In the new month, the RBA’s rate decision, the Australian second-quarter GDP, and the monthly inflation data are the economic focus for the macro trends. Rebounding opportunities could be seen in September if the CPI data paves the way for an end to RBA’s rate hiking cycle. China’s economic playout will continue to offer clues for the Australian mining stocks.

Chinese stock markets are in a sea of red; can Beijing’s stimulus measures translate into a materialized economic rebound?

The Chinese stock markets fell sharply in August, with the Hang Seng Index down more than 7% and CSI 300 slipping nearly 6% for the month. The country’s faltering economic rebound and less-than-expected rate cuts sank its stock markets. Its property sector was particularly hit by Evergrande’s filing for bankruptcy and bad earnings, with Country Gardens’ shares plunging more than 40% for the month. On the bright side, most Chinese big tech companies, such as Alibaba, Baidu, and Tencent, all reported a revenue jump in their second-quarter earnings, suggesting that consumer demands may be slowly recovering, and hopefully, China’s stimulus measures can soon be translated into a materialized economic rebound. Also, things saw a turnaround with the Chinese government imposing more stimulus measures, in turn lifting sentiment across the region.

In September, investors will remain focused on China’s economic front. The bellwether data can be China’s trade balance, CPI, PPI, new yuan loans, and manufacturing PMIs. A positive read of these economic gauges will add to the rebounding tailwind. The PBOC is also expected to cut mortgage rates and give more access to private firms to aid investment confidence.

The New Zealand dollar slumped throughout August. Can the NZ election save the weak dollar?  

Commodity currencies were hit by risk-off sentiment and a strong USD in August as the US bond yields jumped on the Fed’s hawkish stance. The weakness was particularly seen in the New Zealand dollar, with NZD/USD falling 4%, NZD/EUR slipping 3.3%, NZD/GBP slumping 3%, and NZD/AUD down 0.6%. New Zealand’s economy fell into a technical recession in Q1 as GDP declined for two quarters in a row. The Global Dairy Trade Index fell to its lowest since November 2018 on weakened Chinese demands, with the most important component, Whole Milk Power’s price, slumping 10.9% at the auction on 15 August. However, New Zealand’s business confidence rebounded in the last few months, suggesting inflationary pressure abates with CPI data pointing to a declining trajectory.

In September, New Zealand’s election will be critical for the country’s economic outlook, in turn significantly impacting the local currency. A right-wing government win may lift sentiment and offer a lift to the Kiwi dollar, and a left-wing-led government could sink the dollar further. In addition, the country’s second-quarter GDP will also be eyed to gauge its economic health.

Globally, China’s economic rebound and the US Fed’s decision remain the key factors that move the FX market. China’s demands make it crucial for New Zealand’s exports and impact the NZD’s future trends. And signs of a softening USD may provide some rebounding opportunities to NZD/USD.

Gold sees signs of rebounding

Spot gold finished the month lower but bounced from a month low swiftly amid softened USD and the pullbacks in the US bond yields. The precious metal forms a potential double-bottom reversal pattern and may head off its all-time high level of above 2,070 if the pattern is successfully established.  The US CPI and FOMC meeting will be critical events that drive gold prices. A dovish Fed could sink the USD further and boost gold prices, and vice versa.

Crude oil extended gains after a volatile month

The crude oil markets managed to finish the month higher after swinging in directions as supply concerns overrode China’s economic woes. Expectations for OPEC + to further cut production and a retreat in the USD are key factors that drove bulls. In addition, ongoing stimulus measures by the Chinese government may add to the demand optimism, and the major economic from China in September remains focused on shaping oil demand outlooks.  

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