5 Things You Need to Know to Start Your Day

Good morning. Soft Chinese economic data, bank downgrades from a ratings company and optimism on stocks. Here’s what’s moving markets. — Sam [View in browser]( [Bloomberg]( Good morning. Soft Chinese economic data, bank downgrades from a ratings company and optimism on stocks. Here’s what’s moving markets. — [Sam Unsted]( China disappoints The long-awaited recovery in China is still not materializing, the latest trade-data disappointment for the country’s economy showed. July exports [fell by the most since February 2020](, while imports also slid by more than economists had expected. The weakness in imports undermines the hope that domestic demand will lead the bounce for China’s economy, which is taking a hit from a slump in the housing market and softening consumption growth. Bank downgrades After Fitch grabbed headlines last week, another ratings company is coming to the fore in the shape of Moody’s. It has [cut its credit ratings on 10 mid-size and small US lenders]( and said it could downgrade some larger ones too as part of a sweeping report on the state of the sector. It raised concerns on higher funding costs, potential regulatory capital weaknesses and risks for the industry from a high exposure to a struggling commercial real estate market. Stocks optimism Strategists at Citigroup think that an “orderly” pullback for US stocks last week [has reduced the risk of a chaotic selloff]( and instead has set the stage for the S&P 500 to deliver more gains. Bullish positioning for S&P 500 futures declined last week, reducing some of the short-term risks that had been worrying investors, Citi’s Chris Montagu said. That comes after the likes of Michael Wilson at Morgan Stanley, among the most bearish voices on Wall Street, warned that the high government spending which has underpinned economic growth [is unsustainable](. Futures lower Equity futures are pointing lower, reversing some of the gains seen on Monday and tracking declines in Europe after a mixed session in Asia. The dollar is a little stronger and Treasury yields are rising. Commodities prices are under pressure again following that disappointing data from China, with oil and copper taking the brunt of it. Coming Up… Philadelphia Fed President Patrick Harker will speak later, with wholesale inventories and trade data to come. Package delivery group UPS’s earnings will top the bill. How many vacation days do you take? Do you leave your desk for more than a week at a time? Do you check your work email while on vacation? Share your thoughts about the paid time off in the [latest MLIV Pulse survey.]( What We’ve Been Reading This is what’s caught our eye over the past 24 hours. - Apple is testing its [highest-end next-gen laptop chips](. - The [hottest trade in oil]( is gathering momentum. - A surprise [bank windfall tax]( in Italy. - Threats to a leader in the [AI hype cycle](. - Argentina’s elections and a [116% inflation rate](. - [Mandatory study sessions]( on Xi Jinping’s thinking. - [Burnout is back](, in a big way. And finally, here's what Joe’s interested in this morning The next Fed meeting is on September 20th. And presumably anything can happen before then, but increasingly markets appear to be expecting a pause. Per the WIRP function on Bloomberg, the current odds of a hike are just 14%. [On the prediction market site Kalshi](, the odds of the Fed Funds target rate going higher are less than 20%. Yesterday there were two interesting nuggets that contribute to a more benign inflation story. Augustus Kmetz, Schuyler Louie, and John Mondragon of the SF Fed [published a note]( suggesting that shelter could see significant disinflation or deflation in the months ahead. [They write](: "Our baseline forecast suggests that year-over-year shelter inflation will continue to slow through late 2024 and may even turn negative by mid-2024. This would represent a sharp turnaround in shelter inflation, with important implications for the behavior of overall inflation. The deflationary component of this forecast would be the most severe contraction in shelter inflation since the Global Financial Crisis of 2007-09." The model incorporates data from Zillow, Apartment List, Case-Shiller, and CoreLogic, and it looks like this. The whole thing is [worth reading]( and there are all kinds of caveats and scenarios where the downturn is not that severe. Still, the fact that it's flagging such a notable, potential drop is encouraging. Meanwhile we got the [latest used car data from Manheim](, and it showed another 1.6% sequential drop. Neither of these two datapoints is definitive overall. And there are still upward impulses, perhaps coming from energy and the labor market. Still, the lines seem to be going in the direction the Fed wants to see. Follow Bloomberg's Joe Weisenthal on Twitter [@TheStalwart]( Like Bloomberg's Five Things? [Subscribe for unlimited access]( to trusted, data-based journalism in 120 countries around the world and gain expert analysis from exclusive daily newsletters, The Bloomberg Open and The Bloomberg Close. Follow Us Like getting this newsletter? [Subscribe to Bloomberg.com]( for unlimited access to trusted, data-driven journalism and subscriber-only insights. Before it’s here, it’s on the Bloomberg Terminal. Find out more about how the Terminal delivers information and analysis that financial professionals can’t find anywhere else. [Learn more](. 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