Mixed signals from today's data, ECB slightly dovish, SARB's hawkishness fades, AMC tumbles

US stocks are rising after another round of solid earnings, improving optimism that an infrastructure deal will get done next week, and mixed PMI readings that are still robust. 

Stocks were unfazed by the drop with the US services PMI, which could mainly be attributed to the labor shortage problem that is not showing any immediate signs of improving.  Overall, the US flash PMI reads show manufacturing is very strong as private sector activity booms.  The headline flash manufacturing index rallied to a record high at 63.1, better than the 62.0 consensus estimate, while services fell to a 5-month low at 59.8, well short of the eyed 64.5 economists' forecast.      

Global bond yields were steadily rallying following mostly strong PMI readings across Europe, except for France.  The big miss with US services helped Treasuries yields give up most of its earlier gains.  The 10-year Treasury yield rose 0.6 basis points to 1.285%, while the dollar edged higher against most of its trading peers except for the New Zealand dollar. 

Despite another blockbuster earnings season, signs the consumer is not blinking at the current price increases, and likelihood the ECB and Fed won’t be raising rates anytime soon, Wall Street could be in for a choppy autumn as taper tantrum fears become a reality, US-China tensions escalate even further, and inflationary pressures show some stickiness.  Given how short-lived last week’s stock market selloff lasted, investors should not be surprised if another pullback presents itself.  The growth story is still there for the third and fourth quarter and while Wall Street could see a selloff once we get beyond peak everything (stimulus, earnings, and growth), the S&P 500 index is still likely to finish the year much higher once the dust settles. 

Earnings

Social media companies are putting up strong results as ad revenues continue to impress.  Both Twitter and Snap posted strong earnings and revenue beats, and guided well ahead of estimates.  If these results are a sign of what to expect next week, many traders might start buying ahead of next week’s big tech earnings from Apple, Facebook, Alphabet, Amazon, and Microsoft. 

American Express delivered solid results as Americans continue to spend and embrace their platinum card.  This is a great sign of how strong the US consumer is behaving and positioned for the rest of the year. 

Oil

A rollercoaster week for oil prices has WTI crude recovering almost half of the 15% plunge that took place over the past two prior weeks.  Crude prices are slightly softer as energy traders await further developments with COVID-19 restrictions and if the demand outlook continues to improve across the US and Europe.  Oil prices seem poised to head higher given US production is close to peaking and since OPEC+’s gradual plan to increase output will leave this market with a huge demand deficit.    

Gold

Gold is softer as risk appetite runs wild, with the S&P 500 index making a fresh intraday record high following robust earnings and as Treasury yields appear poised to close near this week’s high. 

Gold will ultimately benefit from the stimulus trade which got another vote of confidence from the ECB this week.  The ECB signed off on 3 conditions to raise interest rates, which means we might not see them tighten in more than a few years, which implies QE will last much longer.  The next big catalyst for gold will be the Fed’s policy decision on Wednesday.  The Fed will provide more signs on when and how they will start tapering asset purchases, but likely refrain from delivering and hard commitments.  A formal announcement of tapering does not seem likely to happen at Jackson Hole anymore and that should keep gold prices supported next week. 

Gold is likely to continue to trade around the $1800 level leading up to the FOMC decision.   

Bitcoin

Bitcoin is having a solid second half of the week following a strong return for risk appetite that was accompanied by crypto endorsements from Elon Musk and Jack Dorsey.  Musk’s pivot for Tesla accepting Bitcoin and that he personally owns Bitcoin and so does SpaceX helped push prices above the $32,000 level.  During Twitter’s post earnings call, CEO Dorsey noted that Bitcoin could play a key role for their business down the line. 

Bitcoin momentum is growing now that corporate America interest is percolating and as several institutional investors expect to buy or invest in digital assets in the future.  Earlier this week, Fidelity’s Digital Assets 2021 Institutional study showed 7 in 10 institutional are still interested in getting involved with cryptos.    

Bitcoin’s problem of transitioning mining out of China and into embracing renewable energy is gradually getting resolved.  Bitcoin appears to have turned a corner and could be poised to make a run towards the $35,000 level.