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"GASTASTROPHE": EUROPE KEEPS CALM AND CARRIES ON (1145 EDT/1545 GMT)
While many will blame the current lull across markets on traders sitting on the fence ahead of Jackson Hole, in Europe, there's also a sense that investors have decided to wait for the hard data of the expected recession to kick in before taking further action.
"Europe cannot yet see or smell (literally and figuratively) the 'gastastrophe' that the coming winter may have in store", a MUFG note read this morning, alluding to the feared cut in Russian gas supply which would cripple the economy.
But in the meantime, European equity markets are keeping calm and carrying on with the STOXX 600 index ending the day with a modest gain of 0.25%.
One bright note amid the cautious sentiment was French industrial conglomerate Schneider announcing that it was considering buying out minority shareholders in software company AVEVA and sending the British company's shares up over 40% at one stage.
While this could be taken as a sign that Europe Inc is alive and kicking, there's always two sides to a coin.
"Despite today’s gains the shares are still over 25% below the highs we saw last September, in another example of an overseas business trying to pick up a UK asset on the cheap", commented Michael Hewson, a market analyst at CMC Markets UK.
Another thing to keep in mind is that for all the gloom expected this winter in Europe, there's still quite a lot of optimism out there when it comes to the rest of the decade, particularly for the U.S.
"While the secular bull case has taken a hit over recent months, factors at work in the economy currently falling under the radar suggest that, starting in 2024, the rest of this decade could look more like the second half of the 1990s than the second half of the 1970s", wrote Jason Draho, Head of Asset Allocation Americas at UBS Financial Services. "Even after the recent period of elevated inflation, investors should not discount the possibility of a "Roaring ‘20s" secular bull case for the US", he argued in UBS blog post entitled "Glasses of rosé."
Among the things investors could look forward to are sustained GDP growth above 2%, falling inflation, strong job, rapid productivity improvement and revolutionary technologies, he added.
(Julien Ponthus)
WOMEN, MINORITIES AMONG GROUPS MORE LIKELY TO FEEL UNPREPARED EVEN AS ECONOMY DODGED "RECESSIONARY BULLET" (1100 EDT/1500 GMT)
Women, minorities and lower earners are more likely to feel unprepared in the event of a recession, according to a Bankrate.com report on Wednesday, that also found that more than two adults among five in the U.S. feel unprepared to weather one if it were to strike before the end of next year.
The report comes at a time when the economy is heaving a sigh of relief as indicators point to cooling of inflation and a subsequent gradual loosening of monetary policy that sent markets on a rally.
"The July employment report, showing the creation of 528,000 new jobs, has given many the impression that the economy has dodged a recessionary bullet," David Kelly, chief global strategist at JP Morgan Asset Management said in a note on Monday.
However, massive braking power is still being applied to the U.S. economy that leaves it at a significant risk of more additional quarters of negative real GDP growth in late 2022 or 2023, he added.
We also expect unfilled job openings to decline sharply in the months ahead so the next time real GDP turns negative, economists may not be able to point to booming job growth in denying that the economy is in recession, Kelly said.
As fears of recession loom large, 74% of people said they are taking steps with their personal finances, according to the Bankrate report.
With consumers cutting back on discretionary purchases, economic activity will be impaired and that makes a contraction even more likely, said Mark Hamrick, senior economic analyst at Bankrate.com. Worryingly, 31% who consider themselves unprepared for a recession are currently doing nothing to improve their situations, including 42% who are not at all prepared, the report said.
Some groups that are more likely to feel unprepared:
HEDGE FUNDS WARMING UP TO GROWTH STOCKS (1019 EDT/1419 GMT)
Hedge funds portfolios are starting to rebound along with the rest of the stock market with the high-risk, high-return investment vehicles warming up to their favorite growth stocks that have beaten down this year, Goldman Sachs said in a note.
Among sectors, hedge funds rotated back to info tech and consumer discretionary that house Apple, Amazon.com , Tesla and Microsoft, while cutting positions in value sectors including energy and materials at the start of Q3, GS strategists led by Ben Snider said.
The average fund's portfolio weight in its top 10 positions, which is heavily skewed toward tech stocks, jumped to 70%, the highest concentration since Q1 2020, according to Goldman's analysis of holdings of 795 hedge funds with $2.4 trillion of gross equity positions.
"Hedge fund performance has recently improved, matching the typical experience during correction rebounds, though leverage has room to rise if the market remains resilient," Snider writes.
Net leverage sits well below 1- and 5-year averages and single-stock short interest remains close to all-time lows, the report said.
The megacap FAAMG stocks remain near the top of the Goldman's Hedge Fund VIP list of the most popular long positions. Berkshire Hathaway and ServiceNow jumped up the list to join the top 10 constituents alongside Visa, Uber, and Mastercard, strategists said.
Goldman Sachs hedge fund VIP index that tracks the performance of the top 10 stocks that appear most frequently in the long equity holdings of hedge fund managers, has tumbled 23.6% this year, underperforming the S&P 500's 13.4% slide.
(Medha Singh)
U.S. STOCKS: NAP TIME (1004 EDT/1404 GMT)
The main U.S. indexes are little changed, churning around flat, early on Wednesday as some recent economic data has raised concerns over a slowdown ahead of the U.S. Federal Reserve's annual conference this week.
The action, or lack thereof, comes with now essentially two trading days left before Fed-Chair Powell's much anticipated Jackson Hole speech.
Although still very early in the session, in a testament to "wait and see" trading, the SPX's daily range as a percentage of the prior day's close, is on track to be its tightest in exactly one year.
However, the U.S. 10-Year Treasury yield, now around 3.10%, is moving higher. It is on track to rise for a fourth-straight day, and flirting with eight-week highs.
Here is an early snapshot of market prices just after 1000 EDT:
(Terence Gabriel)
CRUDE OIL FUTURES: ENOUGH OF A SPILL YET? (0900 EDT/1300 GMT)
NYMEX crude futures have rallied so far this week, posting a near-4% rise, putting them around $95.00. However, if a longer-term moving average is to once again prove to be a magnet, oil remains at risk for a much deeper decline.
Oil prices jumped on Tuesday as the market grappled with supply concerns amid the sanctioning of Russian shipments and the initial shock of comments that major producers would cut output.
Indeed, Saudi Arabia suggested this week that OPEC could consider cutting output in response to poor liquidity in the crude futures market and fears about a global economic downturn.
However, such cuts may not be imminent and are likely to coincide with the return of Iran to world oil markets should it clinch a nuclear deal with the West.
Meanwhile, NYMEX crude futures, which lost 29% of their value from their early-June high into their mid-August trough on a daily closing basis , and as much as 34% from their early-March intraday peak into their August intraday low, still appear extended above their 200-week moving average (WMA):
In early March, and again in early June, CLc1 topped at 1.98x the 200-WMA, on a weekly closing basis. This was just shy of its 2008 peak at 2.07x and its 1990 top at 2.08x.
The futures are currently trading at 1.50x their 200-WMA.
The pattern projection on the recent disparity double-top still calls for a decline to at least 1.34x, which based on the current level of the 200-WMA (now $62.67), would require a weekly close of at least $83.98.
That said, since 1990, and prior to 2022, there have been seven disparity peaks, 1.38x or higher. In six of those instances, crude ultimately retreated to, and then below, its 200-WMA. It was only subsequent to the 2005 peak, that crude bottomed at only 1.04x the 200-week MA.
Crude, could, of course, mark time and churn, allowing the moving average to, ultimately, catch up. But, that would at least suggest a period of more stable prices.
A weekly disparity close above 2.07/2.08 can instead suggest a major upside breakout.
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(Terence Gabriel is a Reuters market analyst. The views expressed are his own)
