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SEPTEMBER 1, 2023

MIXED JOB MARKET

As revealed in the latest report from the U.S. Bureau of Labor Statistics, the job market in the U.S. showed resilience in August by adding more jobs than expected. The number of nonfarm payrolls grew by 187,000, surpassing the estimated 170,000. However, the unemployment rate also increased to 3.8%, marking the highest level since February 2022. This rise was influenced by a higher participation rate in the labor force, reaching 62.8%, the highest since February 2020, just before the Covid pandemic began. Moreover, although average hourly earnings saw a slight increase of 0.2% for the month and 4.3% year-over-year, they fell slightly short of the projected 0.3% and 4.4% respectively.

FURTHER DELAYS

The U.S. Securities and Exchange Commission (SEC) has decided to delay its decisions on approving spot bitcoin exchange-traded funds (ETFs), following the recent court ruling which stated that the SEC was wrong in rejecting Grayscale’s application for a spot bitcoin ETF. As a result, the SEC is now required to reassess the application. Additionally, the SEC announced that it would be postponing its decision on various ETF applications, including those from BlackRock and WisdomTree. The regulatory agency stated that it needs an additional 45 days to carefully consider the proposed rule changes and the issues raised. Investors now face a period of uncertainty as they await the SEC’s decision on ETF approvals. Moreover, these developments have impacted the cryptocurrency market, causing a slight decrease in prices. Bitcoin, which surged to around $28,000 earlier this week, is currently trading at slightly over $26,000, while Ether is valued at around $1,644.

BOOM AND STRUGGLES

Based on findings from the Bank of America (BofA) Global Research, bullish investors have been consistently pouring money into tech stocks for ten weeks, marking the longest streak in two years. In the past week, there was a net inflow of $10.3 billion into equity funds, with $5.1 billion directed towards tech stocks – the most since May, and $4.9 billion into emerging market stocks. These investments reflect growing optimism about a soft landing for the U.S. economy, where it slows down enough to control inflation without causing a sharp downturn. Nevertheless, the Federal Reserve’s aggressive rate hikes and pandemic-era stimulus have weighed heavily on U.S. Treasuries, making them set for their third consecutive year of declining value, a situation that has never historically occurred. Furthermore, the concentration of investment in tech stocks has resulted in a lack of market diversity, with MSCI’s All Country World index at its narrowest since 2003.

CONCERNS AMONG CONSUMERS

Rising consumer stress has prompted caution among fund managers, despite the stock market’s robust performance. While unemployment remains low, the Federal Reserve’s efforts to combat inflation through interest rate hikes are beginning to affect households. In August, consumer confidence declined, and smaller banks reported record-high credit card delinquency rates. Retailers like Nordstrom have seen card delinquencies surpass pre-pandemic levels, while Macy’s expects a significant reduction in credit-card revenues. In addition, the resumption of federal student loan payments in October may put further financial strain on consumers. Moreover, experts warn that consumer savings from the pandemic are running out, rising the risk of a recession, and leading to increased interest in bonds in sectors like healthcare.

INTERNATIONAL NEWS

According to economists at Morgan Stanley, recent economic data suggests that the European Central Bank (ECB) will not increase interest rates further in light of recent economic data, which showed a slowdown in services inflation and signs of economic deterioration in the eurozone. Previously, Morgan Stanley expected one more rate hike in September, but now they believe that the ninth consecutive rate hike in July was the last one, nevertheless, the bank now anticipates that the July rate hike marked the final one, with the ultimate rate plateauing at 3.75%. This shift in their forecast is in line with current market sentiment, as traders have reduced the likelihood of a quarter-point rate hike to approximately 25%, although some market participants still hold expectations of another increase later in the year, possibly reaching a peak of 4%.

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