Stocks supported on earnings and stimulus breakthrough, US data, RBNZ, German politics, Hungary hikes, bitcoin softens

US stocks made fresh record highs after record results from Best Buy painted a very strong outlook for the US consumer and after reports a breakthrough was made on Capitol Hill over the budget and infrastructure spending.  Politico reported this deal will break the budget impasse and allow House democrats to move forward with a 3.5 trillion dollar framework vote.  Given the slim edge Democrats have in both the House and Senate, Wall Street was confident compromise would be made to secure infrastructure spending and to advance the budget.  Much of the infrastructure spending has already been priced in.

Best Buy

Best Buy shares rallied almost 10% after delivering record second quarter results.  It looks like the consumer is embracing work-from-home (WFH) and upgrading their tech gear.  The software and electronic store boosted its forecast for the rest of the year as consumer spending looks like it will remain strong.  Best Buy’s strong results will make it hard for Wall Street analysts to maintain hold and sell ratings with the stock.  Most analysts are between buy and hold camps, with only a few having hold ratings.

New Homes

New home sales rose 708,000 in July, better than the consensus estimate of 697,000, and upwardly revised prior reading of 701,000.  Today’s housing data confirms that the housing market is steadying.  Inventories are rising as the average price of a new home increased to USD 390,500, an increase of 18% from last year.

The Richmond Fed’s August Manufacturing survey showed activity in the region has slowed down to the weakest levels since last summer.  The headline reading came in at 9, a big miss of the analysts’ forecast of 24.  Inventory levels are still depressed but have started to improve slightly.

FX

NZ dollar jumps on RBNZ clarification

The kiwi surged overnight after RBNZ Gov Hawkesby stated they delayed a rate hike over communication challenges and not risks.  The New Zealand central bank considered raising the cash rate by 50 basis points, which confirms market expectations that the October 6^th rate review is a live meeting.

Hungary

The Hungarian forint rallied against the euro after the central bank delivered an expected rate increase and signaled more will come until inflation stabilizes.  The Monetary Council also announced the gradual tapering of its bond-buying program with a planned reduction of weekly purchases from 60 billion forint to 50 billion.  Hungary Deputy Governor noted that a CPI could spike in October or November before falling, which makes this rate hike a little less hawkish.

Germany

Germany’s federal election is a big question mark.  The latest Forsa poll showed the centre-left Social Democrats (SPD) have taken the lead over German Chancellor Merkel’s conservative party.  This is the first time in 15 years that the conservatives trailed SPD and may have some people start to price in a victory for Olaf Scholz.  Scholz has pro-European convictions and will draw hardlines against Poland and Hungary.  An SPD victory might not necessarily mean chaos for the euro.

Bitcoin

Bitcoin continues to drift lower as some parts of Wall Street prefer getting their crypto exposure with Robinhood and coinbase shares.  Adding to today’s selling pressure are concerns that stablecoins could force the government to act swiftly over regulation.  Digital currency company Circle, the second largest stablecoin, is switching its reserves to just cash and Treasury bonds.  Tether, the largest stable coin, also resumed printing more coins, so that may add to the pressure to build up their reserves.

It seems the biggest short-term risk for cryptos is if stablecoins are dealt a massive regulatory blow, this will drag down the whole cryptoverse.

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