Breaking Down the Shifts in Consumer Spending

Consumers get more discerning and cost-conscious

Highlights

• Consumers get more discerning and cost-conscious

• Internals of this week’s inflation reports are not troubling at all

• Nothing stands in the way of the Fed going -50 basis points

• Look for quality in credit at the cost of junk

While We Were Sleeping

U.S. equity futures are mixed to end the week (tech-heavy Nasdaq is flat while S&P 500 futures are up modestly). The Euro Stoxx 50 is up +0.5% and Asia was mixed — Japan’s Nikkei 225 (-0.7%; on expectations of another hike from the BoJ later this year), China’s Shanghai Composite (-0.5%) and India (-0.1%) finished lower, while Hong Kong (+0.8%), Taiwan (+0.5%), Korea (+0.1%), and Singapore (+0.1%) were all up. All market quotes are time-stamped to 4:15 a.m. ET.

Bonds are bid this morning, with core European yields down between -2 and -3 basis points following through on the ECB’s rate cut yesterday. Treasuries are rallying in the overnight trade (10-year yield down -3 basis points) as William Dudley suggested a “strong case for 50 [basis points]” during an address in Singapore (on a related note, see The Fed’s RateCut Dilemma: Start Big or Small? from the WSJ’s Fed whisperer Nick Timiraos). New Zealand is leading the gains outside of the U.S., with the 10-year rallying by -5.4 basis points to 4.08%, closely followed by Australia (-3.5 basis points to 3.81%), China (-2.4 basis points to 2.06%) and Japan (-2 basis points to 0.83%) following the global trend.

A rally in bond markets is reflected in a weak U.S. dollar, too, as the DXY dollar index is down -0.4% to 100.9 to start the day. As for the Japanese yen, it’s responding to the aforementioned BoJ comments (indicating more hikes before the year ends) and is up +0.8% to ¥140.6 — the strongest level since July 2023. The euro and pound are up +0.1% apiece, while the Australian dollar is down -0.1% to 67 cents (U.S.), and the New Zealand dollar is flat. A weaker dollar is boosting commodities overall, with WTI crude futures inching higher for the third consecutive day at $69.28 per barrel, recovering some of the sharp losses seen earlier this week. Copper is up +0.2%, while gold continues to perform very well — up +0.5% so far today and coming off a fresh all-time high yesterday. Bitcoin is down -0.3% to $58,043.

We did get some marginally positive news on the global manufacturing sector overnight, with Japanese industrial production rising +3.1% MoM in July, building on the +2.8% in June. Europe is still in decline, mind you, with IP falling -0.3% MoM, but that was a little better than the -0.5% Refinitiv consensus expectation survey, with Germany being the major negative contributor (-2.4% MoM). The overall economic situation in Germany is now so bad that Chancellor Scholz is the least popular Chancellor in post-war history (see The Woes of Olaf Scholz in this morning’s FT).

Page 9 of the FT just about says it all:

Crude Tumbled Out of Narrow Range as Recession Fears Grow.

Recession? You gotta buy stocks!!

Oil Prices to Keep Falling as Demand Weakens, Says IEA Head.

Weak demand? Buy more stocks!!

Atlanta Fed President Broke Central Bank’s Trading Rules, Says Watchdog.

Well, there you go. The stock market in recent years has become little more than a casino. But a casino where the government is the dealer, and the chips are free. Notice how even the Democrats are boasting about how great the equity market has been doing under their tenure?

Lesson learned. If members of the Federal Reserve are trading the market on the long side based on their own set of confidential information (or the appearance thereof), maybe we should all just fall into line. At least it’s useful to know how the system is rigged.