CNBC Daily Open: ‘Chaos is likely to continue’ in September

Traders work on the floor of the New York Stock Exchange (NYSE) on August 29, 2023 in New York City.

Brendan McDiarmid | Reuters

This report is from today’s CNBC Daily Open, our new international markets newsletter. The CNBC Daily Open provides investors with everything they need to know, no matter where they are. Like what you see?You can subscribe here.

Some things go up, some things go down.
U.S. stocks were mixed on Wednesday, with the Dow Jones Industrial Average down 0.2%, the S&P 500 little changed and the Nasdaq Composite up 0.22%. The 10-year US Treasury yield is at its highest level since 2007. Asia-Pacific markets fell on Thursday as Japan’s Nikkei Stock Average led the decline in the region. Meanwhile, the Singapore Exchange has launched its first structured certificate in a bid to make a comeback.

pour oil on the flame
Crude oil prices rose to their highest in nearly a year during Asian trading hours. West Texas Intermediate crude oil futures rose about 1% to $94.61, while Brent crude oil futures added 0.86% to $97.38. The main reason for the price hike was reports that crude oil inventories in Cushing, Oklahoma, had fallen to near their lowest operating levels.

Exchange suspends Evergrande
China Evergrande Group’s shares were suspended on Thursday. The move came after Bloomberg reported that Evergrande’s chairman had been placed under police surveillance. Evergrande on Wednesday reported an attributable loss of 33 billion yuan ($4.15 billion) for the six months to June. Total net losses for 2021 and 2022 reached $82 billion.

Meta doubles the Metaverse
Meta has announced the latest version of its virtual reality headset, the Quest 3. Priced at $499, it’s $200 more expensive than the Quest 2. This headset includes a feature called “pass-through” that allows users to instantly see the outside world. At the company’s event, Meta also announced new artificial intelligence software and digital assistants modeled after celebrities.

[PRO] real yield, real loss
It’s not just U.S. bond yields that have been spiking recently. Real yields, after accounting for inflation, are also at their highest in decades. According to Morgan Stanley, this poses challenges for global stocks with “long-term exposure.”

The story hasn’t changed in September: high yields and oil prices are pushing stocks down. But the twist in the equation – the possibility of a US government shutdown – becomes increasingly inevitable, making it really difficult to have confidence that stocks will rise.

Let’s look at each factor in turn.

Yesterday, the US 10-year Treasury yield exceeded 4.6%, and the 2-year Treasury yield rose to 5.137%. If yields continue their upward trend, rising borrowing costs are likely to trigger new fears of a recession.

Rising U.S. bond yields aren’t the only thing weighing on the economy. Oil prices are rising again. Oil is an input cost for so many elements of the economy, from the obvious like gasoline for cars to the unexpected like food and grocery prices, that businesses and consumers have a hard time spending. may be reduced.

Finally, the government shutdown means delays in releasing economic data, hurting the Federal Reserve, which has repeatedly said it is “data-dependent.” With interest rates at their highest levels in more than 20 years, even the most careful adjustments will have a huge impact on the economy. Even though the Fed is not at fault in any way, it will not gain the trust of the market by acting blindly.

And closures risk further downgrades by rating agencies. In fact, John Chambers, former chairman of the S&P Ratings Committee, believes that the United States is fiscally weaker today than it was in 2011, when S&P Global Ratings downgraded the country’s long-term credit rating from AAA to AA+. He said that

September is already over, but as BTIG’s Jonathan Krinsky says, things are “likely to remain chaotic.”

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