Stocks mixed at start of September

Stocks mixed at start of September 150 150 Realm

European markets are generally higher this morning with UK stocks in the red following the Bank Holiday. Manufacturing data from China beat expectations and showed the economy expanding at the fastest rate in almost ten years.

 

Global Macro

  • The yield on the 30-year US government bond rose for a fifth day on Monday to 1.53%, its highest level on a closing basis since June 16th, boosted by prospects of higher inflation after Fed Chair Powell announced a flexible form of average inflation targeting last week. The new approach allows inflation to run moderately above or below the Fed’s 2% target for some time and means that interest rates could be left lower for a longer period despite a rise in inflation. This raises expectations that the Federal Reserve will expand its purchases of long-dated Treasury bonds by mid-September or even earlier, as rising yields lead to higher cost of borrowing for companies and individuals and threaten economic growth.
  • The Federal Reserve Bank of Dallas’ general business activity index for manufacturing in Texas increased 11.0 points from the previous month to 8.0 in August 2020, the highest since February 2019, as activity rebounded amid the easing of coronavirus lockdown restrictions. The production index, a key measure of state manufacturing conditions, came in at 13.1, down slightly from July but still indicative of moderate growth. Other measures of manufacturing activity also pointed to expansion this month: new orders (+2.9 points to 9.8); the growth rate of orders (+10.5 points to 11.8); shipments (+6.0 points to 23.3); and capacity utilization (-3.1 points to 10.9). The company outlook index registered a third consecutive positive reading, shooting up 10.7 points to 16.6, its highest reading in nearly two years. Labor market measures indicated solid growth in employment and workweek length.
  • Gold was hovering near a two-week high of $1,976 an ounce on Tuesday as the dollar came under renewed pressure on expectations the Fed will keep short-term interest rates near zero for years to come. Still, the bullion recorded its first monthly drop in five months in August pressured mainly by fresh progress in the war against the coronavirus.
  • On Monday: European stocks ended notably lower as hopes of fresh stimulus from the European Central Bank faded, and weak inflation data from Germany triggered concerns about the country’s economic recovery. US stocks turned in a mixed performance as investors continued to weigh the likely impact of the coronavirus pandemic on the economy despite recent comments from Federal Reserve Chairman Jerome Powell that said interest rates will likely remain lower for a long time. Asian stocks ended mostly lower on after reaching a 29-month high earlier in the day in reaction to an upbeat reading on China’s service sector activity data.

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