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The impact of the US economic crisis on businesses and families

The US economy is in a state of crisis. The Federal Reserve and the Administration are not taking the economic slowdown seriously. They do not understand that it will not be easy to reverse or slow down. The slowdown is gathering unstoppable speed.

The key data released yesterday shows that the economy is crumbling. Durable goods orders fell 5.2%, the biggest decline since 2020. Mortgage rates also hit a 22-year high.

This is a major turning point for the economy. The Federal Reserve and the Administration are now facing a choice: they can either take action to slow down the economy, or they can let it collapse.

If they do nothing, the economy will likely enter a recession. This would have a devastating impact on businesses and families across the country.

The Federal Reserve has a limited number of tools to slow down the economy. They can raise interest rates, which will make it more expensive for businesses to borrow money. They can also sell assets from their balance sheet, which will reduce the amount of money in the economy.

However, these measures will also slow down economic growth. The Federal Reserve will need to carefully balance the risks of a recession with the risks of inflation.
The Administration also has a role to play in preventing a recession. They can provide tax breaks and other stimulus measures to help businesses and families. They can also work to address the supply chain disruptions that are causing inflation.

The next few months will be critical for the US economy. The Federal Reserve and the Administration need to take action to prevent a recession. If they do not, the economy could collapse, with devastating consequences for businesses and families across the country.

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Chart of the Day - CNH Cash

Chinese equities were outperformers during today's Asia-Pacific session and there was a good reason behind this outperformance. A number of measures was announced over the weekend by Chinese authorities with an aim of supporting domestic equity markets. Those measures include:

1. Halving stamp tax on securities trading (from 0.10% to 0.05%).
2. Relaxing deposit requirements while trading at margin (from 100 to 80%).
3. Imposing limits on stock selling by some institutions.

While the first two measures listed are clearly positive for stock markets and have a potential to boost liquidity as well as encourage more investors to trade, the impact of the third measure is not so simple. Of course, putting restrictions on stock selling by major shareholders will reduce downward pressure on prices but it is a short-term measure. After all, putting restrictions on how investors can manage their portfolios is not a move that inspires confidence. It looks like that after an initial euphoria, the market seems to have realized it and started to shed gains.

Taking a look at Chinese index CHN.cash chart at H4 interval, we can see that the index launched today's trading with a big bullish price gap (over 3.5%) and traded near the downward trendline at the start of today's trading. However, no breakout above the trendline occurred and gains started to be trimmed after session launch. Price dropped back below the 6,300-pts price zone and reduced daily gain to below 1%. The key question now is whether the sell-off will continue and the stock drops below the 6,150-pts zone.

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Germany Consumer Sentiments - Lower GFK Reading

A recent report shows that German consumers are feeling less confident about the economy. The GfK, a market research company, found that consumer sentiment in Germany is lower than expected and has decreased from the previous reading. This has caused a slight drop in the value of futures contracts on the DAX, a stock market index in Germany.

This decrease in consumer confidence could be a sign that the German economy is weakening. The European Central Bank (ECB) has been tightening its monetary policy, but with this new information, there may be pressure to keep interest rates unchanged at their next meeting in September.

According to the GfK, the chances of a strong economic recovery before the end of the year are decreasing. It is unlikely that private consumption in Germany will have a positive impact on the economy in 2023. This means that people may not be spending as much money, which could slow down economic growth.

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Fundamental Outlook

The US dollar has risen slightly after a strong run, but traders are waiting for more economic data before making any big bets. The Japanese yen, on the other hand, is near levels that triggered intervention last year.

The dollar index is up over 2% this month and has had six weeks of gains due to strong US economic data. This has led to expectations that interest rates may stay higher for longer. Federal Reserve Chairman Jerome Powell suggested that further rate increases may be needed to control inflation, but he also promised to move with care.

This week, there will be several important economic data releases, including personal consumption expenditure data and non-farm payrolls. Markets are currently pricing in a 78% chance that the Fed will not change interest rates next month, but the odds of a hike by November have increased.

In Europe, the euro zone CPI report will be released on Thursday and is expected to have a big impact on the market. The euro is currently flat at $1.081.

The yen has been under pressure due to the widening gap in interest rates between Japan and the US. The currency is currently at 146.69 per dollar, near its weakest level since November 9th. Traders are watching for any signs of intervention from Japanese authorities.

If US data continues to be strong, there could be more pressure on the yen. However, the threat of intervention has retreated at sub-150 levels due to a lack of comments from Bank of Japan Governor Kazuo Ueda and no signs of verbal intervention yet.

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Euro’s Recovery Hinges on Inflation Data and US PCE Price Index

The Euro is trying to recover against the US Dollar and British Pound before the release of Euro area inflation data and US core PCE price index data. The Euro area economy has had some recent positive surprises, while the US economy has been less overwhelming. However, there is a risk that activity in the Euro area could contract again due to a drop in services PMI.

The key focus is on Euro area inflation data and US core PCE price index data. If the data meets expectations, the Euro's rebound could struggle. However, if the US core PCE figure is lower than expected and the drop in Euro area inflation is smaller than expected, it could be a bonus for the Euro.

There is still resistance for the Euro to clear before its short-term outlook turns positive again. The immediate hurdle is at last week's high of 1.0930, followed by a stronger barrier at the early-August high of 1.1065. A break below 1.0500-1.0600 area is needed to pose a threat to the multi-month uptrend.

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CPI in France Significantly Higher

France inflation data for August was published at 7:45 am BST time today:

1. CPI: actual 4,8% y/y; expected 4,6% y/y; previously 4,3% y/y
2. HICP: actual 5,7% y/y; expected 5,4% y/y; previously 5,1% y/y

Inflation data came in worse than expected. France is the only country among major EU members today that was expected to publish higher CPI data. Later today, investors will be presented with HICP and HICP core inflation data from the EU. EUR is clearly appreciating after the publication and EURUSD is trading higher.

Chart of the Day - USDCAD

This week, there have been several important reports about the economy of the United States, and more are expected. One report showed that the number of new job openings is decreasing, which means the job market is not as strong as it was. Another report showed that the growth of the US economy was lower than expected. If future reports show that the job market and economy are getting weaker, the value of the US dollar could decrease. This could also mean that the Federal Reserve will stop increasing interest rates. On the other hand, the Canadian dollar is doing well because of high oil prices and good economic data. The Canadian economy is strong, and inflation has decreased to 3.3%.

From a technical standpoint, USDCAD reacted to the key resistance zone around 1.365. This level has repeatedly thwarted growth in this currency pair in the past, and it was the same this time. If USDCAD returns to growth and breaks this level, we may see a sharp rise, at least in the short term—historically, USDCAD hasn't stayed above this level for long. Otherwise, if the current trend continues, the next support zones worth noting are 1.335 and 1.308, marked on the chart with a green line.

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WTI is testing $83 per barrel area amid expectations of further supply cuts

WTI (West Texas Intermediate) is a type of crude oil that is used as a benchmark for oil prices. It is currently trading at around $83 per barrel, which is higher than usual. This is happening even though the US dollar has become stronger, which usually causes oil prices to go down.

The main reason for the increase in WTI price is that people are worried that OPEC+ countries will reduce the amount of oil they produce. Saudi Arabia has already said that it might continue to produce 1 million fewer barrels of oil per day until October. Russia might also continue to produce 0.5 million fewer barrels of oil per day until October.

Another thing that could affect oil production is the hurricane season in the Gulf of Mexico. This area produces around 2 million barrels of oil per day, but if there are hurricanes, production could be reduced. The Gulf of Mexico also has many natural gas drilling rigs, so the price of natural gas (NATGAS) could also be affected.

Barclays thinks that the reduction in oil production by OPEC+ countries is more important than any changes in demand for oil in China. They expect the price of Brent (another type of crude oil) to go up to $97 per barrel next year.

Finally, it’s worth noting that a recent report from the US showed that there are 10.5 million fewer barrels of crude oil in storage than there were before. This means that there is less oil available, which could also cause prices to go up.

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Chart of the Day - USDCAD

The value of the US dollar compared to the Canadian dollar (USDCAD) might change a lot today in the early afternoon. This is because two important reports will be released at 1:30 pm BST. One report is about jobs in the US for August and the other is about Canada's economy for April-June 2023. People will pay more attention to the US jobs report.

The US jobs report for August is one of the last two important reports before a meeting on September 20, 2023. The other report is about US prices for August and will be released on September 13, 2023. The jobs report today is expected to show that 170,000 more people have jobs, and that the unemployment rate and how much people earn did not change (3.5% and 4.4% more than last year). If the report shows fewer new jobs, it would mean that the job market in the US is not doing well.

For Canada, people expect that the economy grew less from April-June 2023 (1.2%) than from January-March 2023 (3.1%).

If we look at a chart of USDCAD, we can see that it is close to an important value of 1.3500. If it goes below this value, it could mean that the value of the US dollar will keep going down compared to the Canadian dollar. We will know more around 1:30 pm BST when the reports are released.

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Bitcoin: Will the Price Drop Below $25,000

Bitcoin’s price is falling and is currently around $25,400. A few days ago, the price went up after Grayscale won a court case against the SEC. However, the excitement didn’t last long. Major cryptocurrencies are having trouble keeping their value because there aren’t enough new investors. The SEC didn’t accept other applications for funds, including one from BlackRock. The next deadline for reviewing applications is in mid-October.

Technically looking at the D1 interval, Bitcoin prices recently reacted at the support level of $26,000 (slightly breaching it earlier). This level stemmed from the lower limit of a broad 1:1 pattern. According to the Overbalance methodology, defending this level could result in a move to new highs. However, the upward movement was halted at the level of the 100-day EMA, after which the price dynamically moved downward. We are currently observing another attempt to negate the 1:1 geometry. Attention should be paid to the horizontal support zone at the level of $25,300, which is currently being tested. If this level is breached, the price drop may intensify. The next noteworthy support level is only at $23,600, which results from a 50% measurement of the last upward wave.

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EURUSD

PMI indexes in Europe mostly performed weaker than preliminary readings. In countries that reported data for the first time today, the readings were also worse than expected. Those are services PMI readings from European countries:

1. Spain: 49.3 (expected 51.5; previous: 52.8)
2. Italy: 49.8 (expected: 50.3; previous: 51.5)
3. France (fin.): 46 (expected: 46.7; previous: 47.1)
4. Germany (fin.): 47.3 (expected: 47.3; previous: 52.3)
5. EMU (fin): 47.9 (expected: 48.3; previous: 50.9)
6. Eurozone composite drops to 46.7 with 47 points expected.

We have the lowest reading since 2020. HCOB writes in a commentary that the eurozone did not fall into recession in the first half of the year, but the second half of the year comes into big question. The services sector, which had been a stabilizing force for the economy for many months, now appears to be a strong drag, and the industrial sector is likely to decline further. HCOB forecasts -0.1% change in GDP for Q3 in EMU.

EURUSD continues its declines and is currently testing the 1.0750 levels.

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EURUSD
Christopher J. Waller, a voting member of the Fed's Governing Council, delivered some comments on monetary policy and economy this afternoon. Comments can be seen as dovish with Waller hinting that the September meeting may see rates being kept unchanged.

Key takeaways from Waller today

1. Data released last week allows Fed to proceed carefully
2. Data doesn't say we need to do anything imminent
3. Data is looking 'pretty good' for no recession
4. Whether more rate hikes are needed depends on data
5. Want to be careful on saying inflation job done
6. Don't think one more hike would trigger recession
7. Not obvious one more rate hike would damage job market
8. Need to keep rates up until inflation eases
9. Treasury yields are about where they should be
10. Fed takes fiscal policy as a given
11. Trillion dollar deficits sustained don't look good for the US fiscal position
12. We are keeping a close eye on the commercial real estate sector
13. I'm not seeing anything in commercial estate that will threaten the economy

Markets saw dovish reactions to Waller's comments, especially to bolded lines. EURUSD bounced off the daily lows and attempted to climb back above 1.0750 mark while European and US index futures revisited daily highs.

EURUSD bounced off the daily lows following dovish comments from Fed Waller.

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Bank of Canada Expected to Keep rates unchanged.

USDCAD enjoyed strong gains between June 2021 and October 2022, gaining over 15% over the period. However, the advance was halted in the final quarter of 2022 and the pair has traded largely sideways since. Recent USD strengthening allowed the pair to bounce off 10-month lows in the 1.3100 area and climb towards the upper limit of the trading range at 1.3650. An attempt to break above this zone was made today but so far, bulls failed to deliver a breakout. Decision from Bank of Canada tomorrow could be crucial for whether the pair breaks above this zone or pulls back from it. Should we see a strong hint that incoming data doesn't support rate hikes at future meetings, CAD may find itself under pressure with USDCAD potentially breaking above 1.3650 area.


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Japanese Government Considers Intervention as Yen Volatility Continues

The yen in Japan has been quite unpredictable lately, which is causing worry for the country’s leaders. Masato Kanda, the Vice Minister of Finance for International Affairs, and other officials have hinted that they might step in to keep the yen stable and control speculative trading. They believe that activities not aligned with basic economic indicators are causing this unpredictability.

Last year in October, the government took similar steps, showing that they are serious and ready to act firmly. However, when the USDJPY fell below 145 in August, the government softened its warnings. This left traders unsure about what the government might do next. Recently, the yen fell to its lowest point in ten months, getting close to levels that have led to government intervention in the past. Market experts have noted that if USDJPY falls to 150, the government might be forced to intervene in the market again.

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Apple Sanctions Shake Wall Street

Wall Street is down today. This is due to a strong reading of US claims, a sell-off in China, and sanctions against Apple. The strong claims reading shows that the labor market is doing well. This fits with the higher-than-expected ISM services report from yesterday.

The dollar is up because people are avoiding risk. Yields are also up, and the chances of the Fed raising interest rates have increased. In China, both imports and exports fell in August compared to last year. This shows that the economy is still weak. The rising dollar is also adding to people’s worries. It is being supported by strong labor market data, which is causing people to sell stocks. Unemployment claims fell again, and productivity and labor costs were revised up more than expected. Markets think there is a 7% chance that the Fed will raise interest rates in September.

Investors are worried about China’s decision to ban state employees from using iPhones. They say this is because of spying concerns. Apple is losing the most out of all the big tech companies today. Its stock is down 3.2% as people wait for the release of the iPhone 15. Investors are worried that China’s decision about iPhones could be part of a bigger plan. They think it could lead to more tension between China and the US, which are still very dependent on each other economically.

The background to today’s decline in the US stock market is the loss of momentum in China. This has happened many times this year, despite efforts to stimulate the economy and help the banking and real estate sectors. Chinese index futures are down nearly 3%. Imports fell 7.2% compared to last year, and exports fell more than 9%.

The US100 index is trying to recover from earlier losses, but sentiment is still down in the short term. The key resistance level on the M15 chart is 15317 points.

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China Inflation to Rebound on Economic Recovery

China’s consumer price inflation, which measures the average change in prices over time that consumers pay for a basket of goods, is expected to increase in the coming months. This is due to the economy’s moderate recovery, which is being driven by various policy measures.

In August, consumer prices rose by 0.1% compared to the previous year. This was a reversal from July, when prices fell by 0.3%. This was the first decrease since February 2021.

The Chinese government has set an inflation target of around 3% for this year. The rise in prices was mainly due to a 0.5% increase in non-food prices, while food prices fell by 1.7%.

Core inflation, which excludes food and energy prices, remained steady at 0.8% in August. This was the highest level since January.

Meanwhile, the annual decrease in producer prices (the prices that producers get for their products) slowed to 3.0% in August from 4.4% in July.

Economists Zichun Huang and Julian Evans-Pritchard predict that producer prices will stop falling by the end of the year and consumer prices will continue to rise over the coming months. They expect an average inflation rate of around 1.0% in 2024 and 2025.

They also believe that core inflation will increase in the coming months as excess stock from the pandemic export boom is sold off and policy support leads to a partial recovery in domestic demand.

Despite a slump in the property market, Beijing expects to achieve a growth target of around 5% this year. The Chinese government has introduced several measures to combat the economic downturn following the reopening related bounce back at the start of the year.

The People’s Bank of China has also relaxed its borrowing rules and reduced mortgage rates for first-time home buyers.

In August, bank lending increased sharply to CNY 1.36 trillion from CNY 345.9 billion in July, exceeding the expected level of CNY 1.2 trillion. Total social financing (a broad measure of credit and liquidity in the economy) increased to CNY 3.12 trillion in August from CNY 528.2 billion in July.

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Bitcoin Analysis

Cryptocurrencies extend losses amid fears of FTX asset liquidation!

Bitcoin is down 2.70% and is struggling to maintain the key support zone at the level of 25,200 dollars. The sentiment in the market is not improving, and the upcoming decision on September 13th regarding the liquidation of FTX assets with a total value of 3.4 billion dollars is causing another wave of panic. The next level of support is 24,800 dollars. This was the low on June 15, 2023, following the market panic due to the delisting of many altcoins and SEC lawsuits.

The liquidation of funds from FTX is to take place gradually, with between $100-200 million entering the market week by week. However, the details of the transaction are not yet known. It is possible that the assets will be sold on the OTC market - outside exchanges. In this case, all market concerns are panic, which only confirms the stage of the cycle we are currently in.

Another date to watch this week is the statement by the SEC chairman, Gary Gensler, before the Senate Banking Committee, which will take place on September 12th.

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Apple One Step Closer to iPhone 15 Debut

Apple's stock (AAPL.US) has gone up this year. However, the company hasn't shared its plans for artificial intelligence (AI) technology yet. Also, their second-quarter results showed that device sales are not growing, even though they're still making record profits and increasing their profit margins. Today, Apple is going to show off the new iPhone 15, which is always big news in the tech world. If they give any hints about future developments for their AI system, Siri, during this event, it could affect their stock price.

Looking at the chart of Apple (AAPL.US), we see that the price has settled below the SMA50 and SMA100, and the last time it traded below both of them was at the beginning of the year. The main resistance level is set by the 23.6 Fibonacci retracement of the upward wave from January. A potential lower oversold range is at $170, where we see the 38.2 Fibo, and just below at $165 runs the long-term trendsetting SMA200 (red line).

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UK GDP Below Expectations, GBPUSD Ticks Lower!

The UK's Gross Domestic Product (GDP) data, which measures the size of the economy, didn't grow at all over the past year (0.0%), which was less than what was predicted (0.4%). It was also less than the growth seen in the previous period (0.9%). Over a three-month period, the GDP grew by 0.2%, which was also less than the forecasted 0.3% but equal to the previous period's growth. In July, the economy actually shrank by 0.5%, which was more than the predicted shrinkage of 0.2% and a reversal from the previous month's growth of 0.5%.

This shrinkage in July is attributed to poor weather affecting spending and strikes in the public sector. This makes it increasingly likely that the UK might experience a recession this year.
As for Industrial Production, specifically manufacturing, there was a decrease of 0.8% in a month, which is actually better than the predicted decrease of 1%. However, it's a significant drop from the previous month's increase of 2.4%. Over a year, manufacturing grew by 3.0%, slightly less than the previous year's growth of 3.1%. The overall industrial production over a year grew by 0.4%, which was as predicted but less than the previous year's growth of 0.7%.

In summary, the UK's economic activity is weaker than expected based on GDP readings, and while manufacturing production was slightly better than anticipated, it still shows a downward trend. This resulted in a sudden drop in the value of GBPUSD (British Pound to US Dollar exchange rate) after this data was published.

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