General Market Analysis – 16/08/24

US Markets Surge After Strong Retail Sales – Nasdaq Up 2.3%

US markets surged yesterday as stronger-than-expected retail sales data lifted hopes of a soft landing for the economy, pushing back expectations of a 50-basis point rate cut by the Federal Reserve in September. The three major indices all rallied, with the Dow gaining 1.39%, the S&P 500 up 1.61%, and the Nasdaq closing 2.34% higher. US Treasury yields also rose, with the 2-year yield reaching levels not seen in two weeks, climbing 15.9 basis points to 4.106%. The benchmark 10-year yield increased by 10.6 basis points, trading back to 3.928%. Oil prices benefited from the positive news, with Brent crude up 1.6% to $81.04 per barrel and WTI rising 1.53% to $78.16 per barrel. Gold prices saw a volatile trading day but ultimately closed higher, finishing the New York session at $2,454 an ounce.

Soft Landing for the US on the Horizon

Recent US economic data suggests that the economy may be heading for the much-anticipated “soft landing,” with last night’s stronger-than-expected retail sales figures further supporting this outlook. Markets were anticipating a 0.4% month-on-month increase in the headline figure, but the actual 1% print far exceeded expectations. Just weeks ago, some market participants were calling for an emergency rate cut from the Fed, with a 50-basis point reduction expected at the September meeting. Now, 72% of the market anticipates a more moderate 25-basis point cut next month, with gradual reductions continuing into the new year. The dollar gained ground last night, though it remains within familiar ranges against most major currencies. If data continues to indicate a resilient US economy, traders expect the greenback to push into new ranges in the coming weeks.

Markets Aim to Close the Week on a Positive Note

Global financial markets are poised to end the week on a high note, following a strong performance on Wall Street yesterday. Asian markets are set to open on a positive footing, taking cues from the US, while traders in Australia will closely monitor RBA Governor Michele Bullock and RBNZ Governor Adrian Orr’s separate speeches during the morning session. The London open brings another significant UK data release, this time focusing on retail sales, before attention shifts to New York. With little on the economic calendar to disrupt yesterday’s positive momentum, investors will be watching for building permits data and preliminary reports from the University of Michigan to further bolster the good news narrative.

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