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AUGUST 22, 2023

OVERSOLD CONDITION

Bitcoin is currently experiencing extreme oversold conditions due to the impact of rising bond yields on cryptocurrencies and other risky assets. The 14-day relative strength index (RSI) for Bitcoin has dropped below 30, marking a level not seen since the market crash in March 2020. The RSI is a momentum indicator that reflects recent price movement relative to its average movement over a specific period, usually 14 days. When the RSI is below 30, it suggests that prices have fallen too quickly, while an RSI above 70 indicates overbought conditions. However, it is important to note that oversold readings do not necessarily indicate an immediate bullish reversal. In regards to Bitcoin, it has recently shifted toward a bearish trend, closing below key moving averages. Its current value is around $26,000, with a decline to the $24,700 level being the next potential area of decrease. This drop in price can be attributed to the 10-year U.S. inflation-indexed security’s yield rising to nearly 2%, reaching its highest point since 2009.

FURTHER DOWNGRADES

Following Moody’s Investors Service’s recent downgrade of U.S. banks, S&P Global Ratings has now also lowered ratings and outlook for additional banks like KeyCorp, Comerica Inc., Valley National Bancorp, UMB Financial Corp., and Associated Banc-Corp, citing challenges stemming from higher interest rates and deposit shifts. This shift has increased banks’ funding costs as deposits move to higher-interest accounts, thereby squeezing liquidity, while the value of securities held by banks has decreased. The ongoing series of interest rate hikes by the Federal Reserve is particularly impacting smaller banks, which traditionally paid less for customer deposits, leading to a 23% drop in non-interest-bearing deposits over the last five quarters. This situation forces banks to choose between obtaining pricier funding or selling assets at diminished values, both of which negatively impact their earnings. Moreover, as these pressures escalate, more bank consolidations are expected to occur as a means of fortifying financial stability in the sector.

RATES SOARED

Mortgage rates have experienced a significant jump following the recent increase in bond yields, driven by investors’ concerns about prolonged high interest rates and inflation. According to Mortgage News Daily, the average rate for a 30-year fixed mortgage reached 7.48%, marking the highest level since November 2000 and representing a 29 basis point increase in just one week. This rise in rates compounds the challenges faced by potential homebuyers, who are already grappling with inflated home prices resulting from the COVID-19 pandemic. Furthermore, the lack of available homes on the market is worsened by the reluctance of current homeowners to sell, given that moving would entail a substantial hike in mortgage rates. Consequently, more borrowers are turning to adjustable-rate loans as an alternative. Furthermore, while homebuilders had previously eased incentives due to surging demand and falling rates earlier this year, they have recently reinstated these measures, nevertheless, the sentiment among homebuilders has taken a sharp decline in August, primarily due to the higher interest rates.

POTENTIAL WEAKNESS AHEAD

According to forecasts, job growth in the U.S. from now until March might not be as strong as initially believed, potentially missing out on around 500,000 jobs. This prediction, put forth by JPMorgan Chase & Co.’s Daniel Silver, suggests that an upcoming government revision could lower the reported employment figures for March by almost half a million, translating to an average of 40,000 fewer jobs added each month over the past year. Nonetheless, despite this adjustment, the average job growth would still maintain its strength, with approximately 300,000 new jobs being added per month, and experts believe that these changes will not have a substantial impact on the overall perception of the job market’s health.

MIXED RESULTS

In the realm of corporate performance, Lowe’s, Macy’s, and Dick’s Sporting Goods have unveiled their recent earnings reports, each with distinct outcomes. For Lowe’s, the second quarter showed a mix of results, with earnings beating expectations while sales fell slightly short. Despite this, the company upheld its full-year forecast, projecting total sales between $87 billion and $89 billion, along with an anticipated 2% to 4% decline in comparable sales for the fiscal year. In contrast, Dick’s Sporting Goods reported a significant 23% drop in profits due to increased retail theft and slower sales in their outdoor category. Consequently, the company lowered its earnings guidance for the year. Meanwhile, Macy’s exceeded Wall Street’s expectations in quarterly sales. However, the department store operator remains cautious about consumer spending in the coming months and has retained its conservative full-year guidance, anticipating a decline of 6% to 7.5% in comparable owned-plus-licensed sales.

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