US stocks are off to a lackluster as the start of a new month was filled with a bunch of reminders of how quickly the global economy is slowing down and as the risks to the outlook continue to grow. The shock contraction in China was immediately followed up with a wrath of EU manufacturing data that fell into contraction territory for the first time in almost two years. US factories are growing at the slowest pace in a couple years, but the slower expansion was better than what most economists expected.
Despite a robust July (best month since 2020), Wall Street still has the mindset that the recent stock market gains are still just a bear-market rally. Complicating today’s assessment of the global manufacturing slowdown was a wave of reports that House Speaker Pelosi will visit Taiwan. Rising tensions amongst the two world largest economies won’t support risk appetite anytime soon. Pelosi is expected to visit Taiwan on Tuesday. All eyes will be on China’s military to see how they react if Pelosi does indeed go to Taiwan.
The US ISM manufacturing report showed factory activity continues to soften albeit not as fast as many were expecting. The report shows that the economy is weakening, but still on sound footing. Prices paid plunged the most since 2010 and that along with concerns of a softer economy should support further pricing relief over the coming months. New orders declined, while employment improved, which supports the argument that supply and demand side drivers are balancing here.
The data-dependent Fed is still in a good position to deliver another massive rate increase, but expectations are anchoring them for a much slower pace after the September FOMC decision.
Crude prices tumbled after a wrath factory activity data suggested the world is headed towards a giant global economic contraction and on expectations for more oil output following a very good earnings season for oil companies. Manufacturing data contracted for China and Europe, while the US continues to weaken, which doesn’t bode well for the short-term crude demand outlook.
What was also a surprise was the production increase announcement from Devon Energy. Energy traders were getting used to constant headlines of production shortfalls, so the Devon news nudged the needle for the oil market getting closer to balance. On Friday, Exxon and Chevron noted their respective production would be higher.
This week is all about OPEC+ and since this will be an in-person gathering, we should expect the unexpected. Given the weakening crude demand outlook, a small output boost seems unlikely, but you never know with the Saudis. The White House is hoping OPEC+ will deliver more production, but what will truly motivate the oil cartel is the recent rise in US production and potential loss for market share as exports have increased significantly.
There is a chance OPEC+ could deliver a miniscule output increase and that could be a very short-term negative for crude.
Gold can’t stop climbing higher now that a peak in Treasury yields has been made. King dollar lost its mojo and that has been great news for the yellow metal. Deteriorating economic data along with a weaker dollar is great news for bullion. Technical levels matter here and gold will need a fresh catalyst to break the $1800 level. If the dollar pullback continues, that might be enough for gold’s rally to extend. The dollar days are not numbered, as the interest rate differential will widely remain in the greenback’s favor, as will US growth prospects, and safe-haven flows as Europe rushes towards a recession.
Polkadot led the decline in the cryptoverse today as profit-taking kicked in after prices tested the $9.00 level. Polkadot is one of the smaller cryptos but it is a technology that helps other blockchains talk to one another. If Polkadot continues to crash, that could be a troubling signal for the entire space.
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