The market is likely to remain volatile in the near future

förbli volatil Vad som såg ut att vara en positiv dag på marknaderna har gett vika för en förnyad nedgång när avkastningen på 10-åriga statsobligationer ökade, vilket raderade Nvidia (NVDA) ledde pop i teknikaktier. Återhämtningen i den avkastningen på statsobligationer följer starkare än väntat varaktiga order i juli före transport som steg 0,5 %, upp från 0,2 % föregående månad och den 0,2 % ökning som marknaden förväntade sig.

What looked to be a positive day in the markets has given way to a renewed decline as yields on 10-year Treasuries rose, erasing the Nvidia (NVDA) led pop in tech stocks. The recovery in government bond yields follows stronger than expected durable goods orders in July before transportation which rose 0.5%, up from 0.2% in the previous month and the 0.2% increase expected by the market.

The report also showed an increase in spending on core capital goods (up 0.1% in July compared to a 0.4% decrease in June). These figures lifted the Atlanta Fed’s GDPNow model for the current quarter to +5.9% up from its previous reading of +5.8% and 2.2% GDP print for 1H 2023.

See the comment from former Fed chief James Bullard:

“The faster (economic) growth is a bit of a threat because the forecast was that you would get very weak growth or even a recession, and now it doesn’t really look like that’s materializing. So you have to upgrade your inflation outlook is probably just based on that.”

And that explains why government interest rates are moving higher.

Again, the market is trading based on the latest data point, but as we look ahead to next week, we have plenty of data that will update expectations on the speed of the economy, labor market tightening, and inflationary pressures. If the data follows what yesterday’s rapid US PMI data for August showed – slowing growth, recovery of input cost inflation and much slower employment growth – we are likely to see downward revisions in the Atlanta Fed’s GDPNow model.

For this reason, we believe Fed Chair Powell will reiterate that the Fed remains data dependent and that it has a lot of data to chew through in the coming weeks. That is essentially what Philadelphia Fed President Patrick Harker (voting member) said today: “Absent any alarming new data between now and mid-September, I think we may be at the point where we can be patient and keep rates stable and let the monetary policy measures we have taken do their job.”

We reiterate that the market does not expect another rate hike – the CME FedWatch Tool continues to show the Fed holding rates steady until its first cut in May. Again, this is based on the data received so far, and any unexpected upside surprises to the economy or upcoming inflation data could change these probabilities.

Once again, the market will vacillate back and forth between tomorrow’s comments from Powell to next Friday’s back-to-back employment report for August and final August manufacturing PMI data from ISM and S&P Global.

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