In the US, the market ended up positively for the first week of August, even though things started on a somewhat weak note. The cautious start to the week coincided with a relatively weak ISM Manufacturing Index for July, a sizable drop in oil prices on demand concerns, and saber-rattling by China in front of an expected visit to Taiwan by House Speaker Pelosi.
The latter visit happened on Tuesday, but China's initial response wasn't deemed proportional to the bluster it was expressing in front of the visit. China ultimately announced that it would hold live-fire military exercises near Taiwan. On Friday, China announced that it will be sanctioning Ms. Pelosi and her family, and cutting back on cooperation with the U.S. on certain matters like climate change initiatives. The Dow fell 0.13% week-on-week, the S&P 500 rose 0.36%, and the Nasdaq rose 2.15%; among them, the Nasdaq and the S&P 500 rose for three consecutive weeks.
The lack of a more consequential response was a catalyst for a broad-based rally on Wednesday, which also featured strong leadership from the mega-cap stocks and another sizable drop in oil prices even though OPEC+ said it was going to raise output in September by 100,000 barrels per day versus July and August when it increased its production quota by 600,000 barrels per day. The dropping oil price did help people relief from the concern of increasing CPI.
In the economic side, Real GDP fell 0.9% in 2Q which mark the second consecutive quarterly decline reflecting the weakness in wide range of sectors. The slowdowns come in inventory rebuilding, residential and non-residential construction and capital spending. This was marginally offset by gains in consumer spending and trade; however, with higher inflation eating in Americans’ purchasing power, higher mortgage rates slowing down the housing market and a higher USD hurting exports, economics growth should remain sluggish. In contrast to conventional definition of recession, the market participant want to further exam other part of economic engine such employment, industrial production, household income and spending. Since the job market are remain strong with non- farm payroll growth of 375K/month while the unemployment rate held at 3.6%., this suggest that economic is not really entering into recession yet. Thus, it is crucial to keep an close eye on the labour market in 2H 2022 to see for any sign of weakness to the economy that may suggest a recession.
While two consecutive quarters of negative GDP growth may lead some to jump to the term “recession”, we are not there yet according to the definition used by the National Bureau of Economic Research (NBER), the de facto scorekeepers of U.S. recessions. NBER’s definition is much broader, encompassing declines in employment, industrial production, household income and trade. Take employment as the prime example here. In 2Q, we saw average nonfarm payroll growth of 375K/month while the unemployment rate held at 3.6%. This strong of a labor market seems to contradict NBER’s definition. However, it will be important to monitor the labor market in 2H22 to look for any signs of deterioration and the possible start of a recession.
While the gloomy GDP print will reinforce pessimism concerning the health of the U.S. economy, it does present a slight silver lining. The growth slowdown in 1H22 shows that the Fed’s aggressive hiking cycle is delivering on its intended consequences – higher rates are slowing demand and growth, which should help alleviate some inflationary pressure in 2H22.
Popular Chinese concept stocks were mixed on Friday. The Nasdaq China Golden Dragon Index closed down 1.83%, up 1.47% for the week, Alibaba fell 5%, Futu Holdings, Fog Core Technology, JD.com, and Zhihu fell more than 2%. AMTD Digital continued to drop by nearly 10% and closed at US$721.23. It has fallen for 3 consecutive trading days. It has dropped by more than 70% from the new listing high of US$2,555.3 set during the intraday last Tuesday (August 2).
In terms of A-shares, after the decline previously , the A-share market fluctuated and flattened this week. In the end, the Shanghai Composite Index fell by 0.81% on a weekly basis, the Shenzhen Component Index rose by 0.02% on a weekly basis, and the ChiNext Index rose by 0.49% on a weekly basis. The market activity has increased compared with the previous period, and the average daily turnover last week increased to more than 900 billion yuan; northbound funds changed from the previous net inflow to the net outflow, with a small net outflow of 1.233 billion yuan throughout the week. In the industry, electronics, computers, and communications led the gains, while construction, home appliances and real estate led the declines.
In Hk market, the Hang Seng Index rose 0.23% week-on-week, the HSCEI rose 0.33% week-on-week, and the Hang Seng Technology Index rose 1.95% week-on-week. The net purchase transaction amounted to RMB 2,063.882 billion. In terms of sectors, consumer discretionary, healthcare and information technology led the gains; energy, utilities and real estate and construction led the declines.
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