1. Moving the markets

An early dump in the markets was not followed by the usual afternoon pump, as a meager rebound attempt failed to make up for the early losses.

Contributing to the sour mood were declining retail sales, as the artificial boom created by almost 18 months of “stimmy checks” had worn off. Other econ data points were mixed with Homebuilder Confidence collapsing to 13-month lows, but US Industrial Production showed some hope with its indicator rising 0.9% MoM, which is the 5^th straight month of increases.

Still, signs about a slowing economy are present, causing ZeroHedge to state:

Well, we were right: 3 months later, with China bracing for a softish (if not much harder) landing, with countries imposing Covid lockdowns all over again, and with the US consumer tapped out and no longer spending like a drunken sailor, the peak is long behind us and the painful return of gravity – and stimmy-free reality – is back on deck…

Home Depot disappointed and dropped 4% despite topping estimates, but it was the same-store sales numbers that analysts focused on, and they were below expectations.

The “growth scare” continues as US Macro data is declining/disappointing at the fastest rate since March 2020, as ZH put it. To me, this type of reality must set in when a so-called recovery is based nothing but hot air via reckless money creation without an offsetting increase in production.

The US Dollar rocketed today and touched last week’s highs, while bond yields meandered aimlessly below the unchanged line with 10-Year dropping to 1.26%. Gold held up surprisingly well, given the massive dollar jump, with the precious metal only giving up -0.16%.

1. Moving the markets

Overnight, Chinese econ data came in far below expectations thereby pulling down the futures markets. Even though their retail sales increased by 8.5% in July, it was a far cry from the expected 11.5% forecast. The manufacturing sector figure disappointed as well.

This negative sentiment carried over into the regular session with the Dow sinking some 200 points with the other major indexes showing similar losses. Not helping the mood initially was the Fed with their statement that they will announce “a tapering of its bond purchases in September,” which then would be implemented within a month or so thereafter.

Still, traders opined that “fundamentals” still support the “risk on” meme, and a slow and steady recovery pulled the indexes out of an early hole with only the Nasdaq failing to close in the green. Helping the retail sector climb higher were positive prospects of quarterly earnings reports from the big players like Home Depot and Walmart.

The US Dollar inched higher, while bond yields slipped a tad. Gold was the beneficiary of today’s uncertainty, and the precious metal added 0.62% but stopped short of its $1,800 level.

Bloomberg reported that August is shaping up to be one of the calmest on record. The equity benchmark has fluctuated an average 0.5% each day, a level of tranquility that, except for 2017, has rarely happened. Makes me go “Hmmm.”

My posting schedule for this week looks like this.

1. Moving the markets

Despite worsening inflation numbers, the markets jumped right after the opening bell, with only the Nasdaq losing momentum during the session, while the Dow and S&P 500 remained solidly in the green.

July’s CPI showed that prices surged 5.4% YoY, which was a tad higher than expectations of 5.3%. MoM the CPI increased at a rate of 0.5% in July. Sure, this could have supported a sell-off, but traders looked at it from a different perspective.

Because, when excluding the energy and food prices, the rise was only 0.3% last month, which was below the expected 0.4% increase. That’s how you turn a negative into a positive giving markets a reason to rally. After all, who uses food and energy anyway?

If you can believe it, this inflation reading, according to the mood on Wall Street, supports the Fed’s belief that these inflationary pressures are still “transitory” and a sign that the economy is indeed recovering from the pandemic. Go figure…

The battle between “growth” and “value” continued unabated, as Small Caps (VBK) took an early hit but managed to crawl back to their breakeven point, while “value” (RPV) ran with the bulls all day to score a 1.30% gain.

Bond yields stair stepped lower, with the 10-year bouncing off its 1.3% level to end around 1.34%, while the US Dollar index swan dived back to its unchanged level for the week. Despite that mixed showing, Gold surged higher with GLD adding 1.38% and again pursuing its $1,800 level.

Tomorrow, we will find out if the Producer Price Index (PPI) will have a surprise in store for the markets.