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My view on what's going on in the financial markets and the global economy, and a few other things that might interest me from time to time.

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Week ended Sept 8 2023: stocks and bonds sag (again)


WHAT HAPPENED THIS WEEK THAT MATTERED?


It was a difficult week for both stock and bond markets, not surprising perhaps because it’s the typically-difficult month of September. The general sentiment / “vibe” feels slightly fragile to me overall, although there were a couple of potential drivers this week that didn’t help.

  • Apple shares got hammered (down 6% WoW, and down even more intraweek) related to issues around China (potentially less use of iPhones by government officials, and the launch of a new Huawei mobile phone, the Mate 60 Pro).

  • Yields moved higher in the US Treasury bond market, especially at the policy-correlated short end of the yield curve.

Both the sell-off in Apple shares and higher yields sparked a broader sell-off in tech shares, and this of course splattered sentiment in the rest of the risk markets. US equities were broadly lower, with the value-driven Russell 2000 and tech-heavy NASDAQ Composite indices suffering the most. At the moment, it seems like global stocks had their “day in the sun” in the first half of the year because the second half has proven to be much more difficult.


As far as the bond market, it’s hard to attribute higher yields to any particular economic data per se that I saw this past week, so speculatively, perhaps weakness in USTs can be attributed to the huge amount of new corporate supply (think of it in context that PMs sell USTs to buy new corporate bond issues). I don’t have access to new issue data for corporate bonds, but according to an article in #Bloomberg on Wednesday, 40 companies tapped the bond market the day before, and $36 billion of new corporate bonds have been issued since Labor Day. According to #SIMFA data, the LFQ have had around $1.36 trillion of new corporate bond supply, so $36 billion in a couple of days is very significant. If you are wondering why there has been so many companies wanting to issue debt quickly, I’d say it’s a combination of seasonality (i.e. rolling out of normally-quieter summer months especially August) and companies see ideal conditions as far as near-record low credit spreads, with risk that spreads will come off their near-historical lows.

The steady strengthening of the US dollar is also not helping, especially emerging markets economies. And the fact that various commodity prices are rising, including oil and some agribusiness commodities / food products like wheat, is also not helping risk sentiment. And it certainly will not be positive for the next reading of core CPI in the US, set for this Wednesday. (The expectations FYI are 3.2% headline and 4.7% core for August YoY.) Even so, my bet is that the Fed sits tight at the next FOMC meeting week after next.


The next decision by the #ECB set for Thursday, and the decision regarding policy rates is slightly murkier with inflation remaining elevated (5.3% headline and core, #Eurostat estimates for August). However, I think slowing demand in the common currency bloc – especially in the currency’s largest economy Germany – will cause the #ECB to blink even though inflation remains problematic.


As far as other things this week, there was plenty of rather worthless press (in my opinion) about the ongoing #G20meeting. I increasingly wonder what the value is at all of these sorts of affiliations, especially when the best they can do is deliver a lame communiqué (as they are apparently working on, pending) concerning Russia’s invasion of Ukraine. It makes anything else they say hardly worth the paper it’s written on.


As far as the $5 billion IPO teed up for ARM and expected to be priced this week, the press is reporting it is five to six times over-subscribed already. It’s this simple – the direction of the stock post-issue will reveal the reality of the demand. Personally (and probably wrongly), I wouldn’t touch this with a 10-foot pole, one reason being Softbank is associated with it. Let’s see.

MARKETS THIS WEEK

  • Stocks were generally poor this week albeit modestly depending on the market. Only the FTSE 100 bucked the trend, eking out a small gain

  • US equities suffered too from a combination of continuing risk-off sentiment and higher bond yields

  • US Treasuries sold off this week, with yields rising most acutely at the policy-sensitive short end of the curve. The 2-10y yield curve became more inverted.

  • Corporate credit spreads widened perhaps driven by huge amount of new supply but perhaps a nod towards more challenging credit conditions ahead. Regardless, the fact is that corporate credit continues to hover around levels that are not likely sustainable.

  • Oil continues to head higher as OPEC+ extended its supply cuts, even though there are plenty of signs of economic headwinds. I suspect oil will undo itself at some point, especially as the cost start to impacts lower post-summer travel.

  • The US Dollar also continues to strengthen affecting both dollar-linked commodity prices and raising red flags for emerging markets stocks and bonds.


THE TABLES


The tables below provide detail across various global and US equity indices, the US Treasury market, corporate bonds and various other asset classes.


Global equities

US equities


US Treasuries


Corporate bonds (credit)



Safe haven and other assets


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