Articles

• US yields are lower to start the trading week
• PBOC sets USD/ CNY central rate at 7.1139 (vs. estimate at 7.1132)
• Japan’s Nikkei 225 index falls near -1.00% at the open
• E-mini S&P contract is little changed
• Crude oil trading marginally higher to start the trading week. Tests key hourly MA.
• It is a UK bank holiday today.
• Gaza talks end without an agreement.
• Major US earnings this week highlighted by Salesforce, Dell and the big one Nvidia
• Powell’s Path: Rate cuts and economic outlook after Jackson Hole Summit
• Weekly Market Outlook (26-30 August)

It has been a quiet start to the trading week as the market takes a breather from the Jackson Hole Summit and the Fed Chairs comments that solidified a cut in rates in the US in September.

The market has priced a near 35% chance of 50 basis points, but that view will not be clearer until September 6th after the US jobs report. The next Fed decision is not until September 18. There is still a long way to go with it just being August 25th.

As a result, the market is a bit stymied and is content to wait for the next shove in most of the major currency pair.

Looking at the trading ranges to start the week:

• EURUSD 16 pips (22-day average of 62 pips)
• GBPUSD 18 pips (22 day average 80 pips)
• USDCAD 17 pips (22 day average 67 pips)
• AUDUSD 16 pips (22-day average 61 pips)
• NZDUSD 13 pips (22-day average 68 pips)

The USDCHF which reached 26 pips was still only 35% of what is normal for a day at 76 pips. The USDJPY (and JPY crosses) moved relatively more withe the USDJPY range at 90 pips but the average over the last 22-days was 236 pips). For a technical look at both those pairs heading into the new trading week, CLICK HERE.

In other words, the activity was limited.

US yields did move lower by a couple basis points continuing the moves from last week (click here),

Crude oil prices are higher (helped by bombing in Isreal) by about $0.39 but remains between the 100 and 200-day MAs.

The S&P e-mini contract is down modestly (0.04%). The Japan Nikkei is lower by -1.09% as it reacts to higher rates in Japan and lower rates in the US.

Bitcoin is little changed at $64,079. The Friday closing level was at $64,085. zzzzzzzz.

Much of the same sleepy markets might be expected in the European session as it is a UK holiday.

This week, the biggest economic releases will be the US core PCE data on Friday and the weekly US initial claims and durable goods data (click here). There is some CPI data in Australian and preliminary data for Europe, but for Australia it is just a monthly report and in the EU, the data is preliminary flash data.

Of note will also be earnings from Nvidia on Wednesday after the close. Salesforce, Crowdstrike and Dell will also release and could attract interest (especially Nvidia).

Good fortune with your trading.

This article was written by Greg Michalowski at www.forexlive.com.

Currencies have traded in tight ranges as we get the new week underway without any meaningful fundamental catalysts behind today’s moves.

The JPY (white) is in the lead this morning. Some are attributing the JPY’s Asia-Pac strength to the difference in tone on Friday between Gov Ueda and Chair Powell. The is second strongest on the session so far.

The AUD and NZD (high betas) are the weakest on the session, with eyes of the AUD firmly set on this week’s inflation data where markets are expecting a decent deceleration in the Weighted CPI YY measure from 3.8% (prior) to 3.4%.

We have the German Ifo data coming up a bit later which provide some volatility for the EUR (doubtful though).

This article was written by Arno V Venter at www.forexlive.com.

It’s a fairly light start to the week with today’s economic calendar.

EU Session:

The main highlight for the EU session is the German Ifo data for August 2022.

Data out of the Eurozone has been surprising to the downside for quite some time now (looking at the surprise index below), which means another weak print shouldn’t be a huge surprise (especially following last week’s PMI data).

Having said that, with money markets fully pricing in cuts for just two of the remaining three ECB meetings, a big miss might nudge expectations closer towards three more cuts this year.

US Session:

Then over in the US session we have Durable Goods for July and the Dallas Mfg Index. After Powell’s Jackson Hole speech on Friday I doubt markets will be paying much attention to these, as labour data is now front of mind.

Also worth noting that today’s is a UK bank holiday and since it’s Monday as well expect potential thinner liquidity and lower volumes.

This article was written by Arno V Venter at www.forexlive.com.

Markets Buoyant After Dovish Powell – US Stocks Rise 1%

US stock markets rallied on Friday after Federal Reserve Chair Jerome Powell confirmed that the FOMC will begin cutting rates at its next meeting, speaking from Jackson Hole. The Dow gained 1.14%, the S&P 1.15%, and the Nasdaq surged 1.47% on the day. US Treasury yields dipped again, with the 2-year yield dropping 9.7 basis points to 3.913% and the 10-year yield falling 5.9 basis points to 3.803%. The dollar experienced its biggest drop of the year, reaching an annual low on the index and recording its fourth consecutive weekly decline. Meanwhile, oil and gold prices rallied, with Brent crude gaining 2.33% to $79.02 per barrel, WTI up 2.49% to $74.83 per barrel, and gold climbing 1.1% to close near $2,510. Traders anticipate further upside potential in Asia this morning, especially after increased conflict and tension in the Middle East.

Powell Signals Green Light for Easing

Investors received the confirmation they were hoping for from Fed Chair Jerome Powell, who, speaking from Jackson Hole on Friday, announced that the time is right to start cutting interest rates in the US. The key questions for both the Fed and the market now are how much and how fast, a dilemma that is likely to drive increased volatility across markets in the coming months. The market has been pricing in a nearly 100-basis point drop by year-end, suggesting at least one 50-basis point cut given the three remaining meetings. The twin focuses are on inflation and employment, with the aim of achieving a ‘soft landing’ for the US economy. With Powell confirming that the committee is closely following the data, this week’s PCE figures and next week’s NFP data release will be crucial in determining the size of the rate cut in September.

Quiet Start to the Week for Investors

It’s a quiet start to the week for investors, although more market movements are expected as the sessions progress. Haven assets have seen some gains this morning as Middle East tensions escalated over the weekend, pushing oil, gold, and the yen higher. The Asian session has little on the calendar, and in Europe, only the German Ifo Business Climate data is scheduled, with liquidity expected to be lower due to the London market being closed for a holiday. The New York session will focus on the US Durable Goods data release, but most expect that, barring any significant news events, we should see smoother and positive trading conditions following Friday’s strong performance on Wall Street.

The post General Market Analysis – 26/08/24 first appeared on IC Markets | Official Blog.

US yields are lower to start a trading week. Reviewing last week’s changes:

• 2-year yield fell -13.4 basis points to 3.920%
• 5-year yield fell -10.9 basis points to 3.650%
• 10-year yield fell -8.3 basis points to 3.801%
• 30-year yield fell -4 point basis points to 4.092%

The yields to start the trading week are showing:

• 2-year yield 3.889%, -3.1 basis points
• 5-year yield 3.628%, -2.2 basis points
• 10-year yield 3.788%, -1.3 basis points
• 30-year yield 4.086%, -0.6 basis points

The 2-10 year spread is down to -10.1 basis points. Recall that spread did reach into positive terrritorty briefly on August 5th, but moved back to -20 basis points at the start of last week.

The 2-30 year spread is at +19.7 basis points after reaching down to +5.1 basis points last week.

Lower US yields tend to be a negative for the USD (as long as the foreign rates are not falling sharply).

Lower yields are helpful to the US housing market, and in particular 1st time home buyers who have been priced out of the market due to higher rates and high prices. The US mortgage rates tend to be tied to the 10 year yield although the spread can vary.

The average rate on a 30-year mortgage has decreased to 6.46%, the lowest level in 15 months, providing some relief to homebuyers in a challenging housing market. This marks a slight drop from last week’s 6.49% and is significantly lower than the 7.23% rate seen a year ago. The current rate is the lowest since mid-May of the previous year, when it was 6.39%.

Additionally, rates for 15-year fixed-rate mortgages have also declined, with the average falling to 5.62% from 5.66% last week. This drop is encouraging for homeowners looking to refinance at a lower rate, as the average rate was 6.55% a year ago.The high mortgage rate reached 7.8% on October 25, 2023.

This article was written by Greg Michalowski at www.forexlive.com.

Global financial markets ended the week on a high note, as central bank updates from Jackson Hole propelled major US indices upward. The Dow, the S&P, and the Nasdaq all gained over 1% after Jerome Powell confirmed that the Federal Reserve’s easing cycle would begin next month.

This week’s macroeconomic data calendar is slightly busier, with key updates from the US and Eurozone, particularly on inflation. As the Jackson Hole symposium wraps up on Sunday, traders might see some market gaps on Monday morning. However, the overall impact seems to have been positive for risk sentiment.

Here’s our usual day-by-day breakdown of the major risk events this week:

It’s a quiet start to the week on the event calendar with little on the schedule for the first two trading sessions of the day. The New York session is also thin on data releases, but we do hear from Fed member Christopher Waller early in the session which could push rate cut expectations one way or the other.

There is the potential for some volatility in Asian markets on Tuesday with China due to announce any changes in the Loan Prime Rates and the RBA’s Monetary Policy Meeting Minutes being released. The European session see’s the SNB’s Thomas Jordan speaking in early in the day, but the highlight of the day comes in the New York session with the latest Canadian CPI data due out. Later in the session we hear from the Fed’s Bostic and Barr.

There is very little scheduled to move markets on Wednesday across all three trading sessions until we hit what will be the main focus for most traders at the end of the US Day when the FOMC’s latest meeting minutes are released.

Thursday sees a raft of Flash Manufacturing and Service PMI data releases due across the day with numbers due out from Australia, France, Germany, the UK and the US – although not as impactful as CPI data these number are closely watched as another piece of the inflation puzzle. The US session also has the usual weekly unemployment claims numbers due out as well.

The early focus in Asia will be on New Zealand with the latest Retail Sales numbers due out, however it is then a long wait for investors until we get to the US session and the start of the Jackson Hole Symposium, where we are due to hear from the Fed’s Jerome Powell and the Bank of England’s Andrew Bailey. Prior to the big central bank updates we also have the latest Canadian Retail Sales numbers due out.

The post The Week Ahead – Week Commencing 26 August 2024 first appeared on IC Markets | Official Blog.

The US e-mini S&P contract is trading above and below unchanged at 5652.75. The high-priced has reached 5659.25 of the low price has extended down to 5646.50

Last week, the major indices closed up for the second consecutive week.

• Dow rose 1.27% after rising 2.94% the week before,
• S&P index rose 1.45% after rising 3.93% the week before,
• Nasdaq index rose 1.4% after surging by 5.29% the week before.

The month of August will end on Friday this week. For the week, the major indices are on pace for a positive result.

• Dow industrail average is up 1.58%
• S&P is up 2.03%
• Nasdaq index is up 1.58%.

The Dow closed just below the all time high close at 41,198.09 at 41175.09

The S&P high closing level comes in at 5669.67. The index closed at 5634.60.

The Nasdaq is still a good ways below its all-time high close at 18647.45 letter closing on Friday at 17877.79

This article was written by Greg Michalowski at www.forexlive.com.

Crude oil is trading up around $0.26 or 0.36% that $75.16. The rise comes after increased tensions in the Middle East.

Technically, looking at the hourly chart the 200 hour moving average comes in at $75.20 (green line on the chart above). Getting and staying above that level would have traders targeting the 50% of the move down at $75.77. Key level for the buyers and the sellers to start the new trading week.

This article was written by Greg Michalowski at www.forexlive.com.

The UK markets will be closed in observance of the Summer Bank Holiday.

Partly Sunny skies will with highs of 23°C and lows of 14°C, with only a 6% chance of showers in and around London. It sounds like a perfect day to enjoy family and friends, have a few pints and something on the barbecue.

This article was written by Greg Michalowski at www.forexlive.com.

Gaza talks in Cairo end without an agreement.

Aiios is out saying:

“Gaza talks will continue in the coming days through working groups to address issues and remaining details”

Meanwhile on Sunday, the rockets were flying in Israel. Israel launched a preemptive airstrike on Hezbollah in southern Lebanon, reportedly using 100 jet fighters to hit 40 locations. This action according to sources, came after Israel detected Hezbollah preparing to launch a large-scale missile and rocket attack on northern and central Israel with the intended target being Mossad, the Isreali spy agency.

This article was written by Greg Michalowski at www.forexlive.com.

The Jackson Hole Summit has concluded and was highlighted by the speech from Fed Chair Powell on Friday where he explicitly the way for a rate cut in rate in September. The cut will be the first change in policy since July 2023 when the Fed raised rates by 25 basis points to a high target of 5.50% and will be the first cut in rates since March 2020 when the Fed took the rate to the Covid cycle low at 0.25%.

The Fed started to raise rates 2-years later in March of 2022 with a hike of 25 basis points to 0.50%. Eleven separate policy changes from the low took the target to 5.5% over the next 16 months (reached in July 2023).

The September 18th meeting is all but done, but the question still remains on whether it will be 50 basis points or 25 basis points.So in review, what were some of the key quotes and implications of the quotes from Chair Powell’s speech:

Policy Outlook:

• “The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”
• Implication: The Fed is ready to adjust its policy stance, including potential rate cuts, but the specifics will depend on future economic data and the overall risk landscape.

On inflation Powell said:

• “Inflation is now much closer to our objective, with prices having risen 2.5 percent over the past 12 months. After a pause earlier this year, progress toward our 2 percent objective has resumed.”
• Implication: The Fed has made significant progress in bringing inflation down towards its 2% target, demonstrating the effectiveness of its restrictive monetary policy. It is time to take the foot off the brake.

On the labor market, Powell said:

• “Today, the labor market has cooled considerably from its formerly overheated state… All told, labor market conditions are now less tight than just before the pandemic in 2019—a year when inflation ran below 2 percent….”We will do everything we can to support a strong labor market as we make further progress toward price stability.””
• Implication: The labor market is less tight than it was before the pandemic, and it is no longer a significant source of inflationary pressure, indicating a successful balancing act by the Fed. The labor market is more balanced and with it the damand for higher wages has abated.

On the Balance of Risks between inflation and the jobs market:

• “The upside risks to inflation have diminished. And the downside risks to employment have increased. As we highlighted in our last FOMC statement, we are attentive to the risks to both sides of our dual mandate.”
• Implication: The Fed is now more closely monitoring both inflation and employment risks, acknowledging that while inflationary pressures have eased, the labor market now faces greater downside risks. Unemployment can beget unemployment. The Fed doew not want to tip the jobs market where company after company announce plan job cuts..

On the Fed’s disinflation success:

• “The 4-1/2 percentage point decline in inflation from its peak two years ago has occurred in a context of low unemployment—a welcome and historically unusual result.”
• Implication: The Fed has managed to reduce inflation significantly without triggering a sharp rise in unemployment, a rare and positive outcome attributed to well-anchored inflation expectations.

On the future Considerations:

• “Our Statement on Longer-Run Goals and Monetary Policy Strategy emphasizes our commitment to reviewing our principles and making appropriate adjustments through a thorough public review every five years.”
• Implication: The Fed remains committed to continuously reviewing and potentially adjusting its policy framework, showing openness to new ideas and a focus on learning from the unique challenges posed by the pandemic.

In addition to the Fed Chair, other Fed officials commented on Thursday and Friday ahead of the Chairs remarks:

• On Thursday, Fed’s Patrick Harker kickstarted Fed policy from Jackson Hole, by highlighing that while the job market is softening, it is doing so from a very high level, and recent job market revisions were not unexpected. He emphasized the importance of balancing risks between inflation and other economic factors, moving away from an exclusive focus on inflation. Harker expressed a preference for a gradual and methodical approach to cutting rates, noting that businesses are more concerned with a predictable and steady path toward neutral rates than with the exact size of the cuts. He acknowledged that the current monetary policy is well-positioned and not overly restrictive. Harker also pointed out that the end of the easing cycle might leave the Fed funds rate around 3%, which could help alleviate pressure on the housing sector. He expects unemployment to rise to just below 5% and continues to monitor the commercial real estate sectors closely. Overall, Harker is ready to begin the process of rate cuts, favoring a cautious and deliberate approach.

• On Friday, Fed’s Raphael Bostic gave some pushback as he expressed the need to see more data. Nevertheless, he expressed optimism about the progress on inflation, noting that it has come down much faster than he anticipated. He added that the quicker-than-expected improvement suggests that the Fed might be nearing a point where it is appropriate to begin cutting rates. However, Bostic emphasized the importance of carefully monitoring upcoming labor market data before making any definitive decisions. He stressed the need for a “calm, orderly return to normalization” in monetary policy, highlighting that while recent economic data has been positive, patience is still necessary. Bostic also acknowledged that markets are eager for the Fed to conclude its tightening cycle, but he reiterated that future actions will be guided by incoming data, with potential outcomes ranging from no rate cut to a 50 basis point reduction. He also estimated the long-run Fed rate at around 3%, indicating a cautiously optimistic outlook for the economy.

• Chicago Fed President Austan Goolsbee emphasized the importance of carefully balancing the Federal Reserve’s dual mandate, particularly with regard to employment. He highlighted that while inflation is on a path toward the 2% target, the Fed’s current monetary policy is the tightest it has been in this cycle, even though rate hikes ceased last July. Goolsbee noted that the job market has shown signs of cooling, but stressed the uncertainty around determining the precise level of a neutral interest rate. He also pointed out that the Fed’s forecasts indicate widespread support for rate cuts, with most committee members expecting multiple reductions over 2024 and 2025. However, the speed and size of these cuts will depend on incoming economic data. Goolsbee underscored that the overall trajectory of rate cuts is more critical than the magnitude of individual cuts, and while there are concerns about consumer strength, recent spending data has been robust.

ECB’s Rehn also gave some comments on the side at Jackson Hole saying the ECB was likely on the path for more cuts saying:

• That European growth outlook appears weaker compared to the U.S. Rehn highlighted that the ongoing disinflationary process, which began in autumn 2022, continues and is supporting the case for a potential rate cut in September. Despite the overall downtrend in inflation, strong inflation in the services sector remains a concern. Rehn emphasized that the ECB already has sufficient data to inform its September decision but remains open to all options, including a 50 basis point cut, stressing the importance of being data-dependent and not committing to any specific action prematurely.

Other news over the weekend from a geopolitical slant:

• In Geopolitical news on Sunday, Israel launched a preemptive airstrike on Hezbollah in southern Lebanon, reportedly using 100 jet fighters to hit 40 locations. This action according to sources, came after Israel detected Hezbollah preparing to launch a large-scale missile and rocket attack on northern and central Israel with the intended target being Mossad, the Isreali spy agency.

The week ahead:

The economic calendar is relatively light this week with:

Monday

• German IFO business climate 86.0 versus 87.0 last month. Current conditions 86.5 estimate versus 87.1 last month. Expectations 86.5 versus 86.9 last month (4 AM ET)
• US durable goods orders for July. Estimate 5.0% versus -6.7% last month. Durable goods ex transportation one is a 0.1% versus 0.4% last month. Nondefense capital goods ex air 0.0% versus 0.9% last month (8:30 AM ET)
• Dallas Fed manufacturing business index for August . Last month -17.5 (10:30 AM ET)

Tuesday:

• US consumer confidence 10 AM ET

Wednesday:

Australia CPI year on year estimate 3.4% versus 3.8% last month (will be released on Tuesday in the US at 9:30 PM ET)

Thursday:

• Preliminary German CPI job .0% versus 0.3% expected (8 AM ET)
• Preliminary US GDP for Q3. 2.8% versus 2.8% advanced (8:30 AM ET)
• US initial jobless claims estimate 234K versus 232K last week 8:30 AM ET)

Friday:

• EU CPI flash estimate YoY 2.2% versus 2.6% last month (5 AM ET)
• Canada GDP MOM estimate 0.1% versus 0.2% last month (8:30 AM ET)
• US Core PCE MoM est 0.2% versus 0.2% last month

Also this week, US company earnings will be highlighted by Nvidia on Wednesday after the close. Crowdstrike and Salesforce will also announce after the close.

This article was written by Greg Michalowski at www.forexlive.com.

UPCOMING
EVENTS:

• Monday: PBoC MLF, German IFO, US Durable Goods Orders.
• Tuesday: US Consumer Confidence.
• Wednesday: Australia Monthly CPI, Nvidia Earnings.
• Thursday: US Q2 GDP 2nd Estimate, US Jobless
  Claims.
• Friday: Tokyo CPI, Japan Retail Sales, Eurozone Flash
  CPI and Unemployment Rate, Canada GDP, US PCE.

Tuesday

The US Consumer
Confidence is expected at 100.1 vs. 100.3 prior. The last report saw the present situation index, which is generally a
leading indicator for the unemployment rate, falling to a three-year
low.

Dana M. Peterson,
Chief Economist at The Conference Board said: “Confidence increased in July,
but not enough to break free of the narrow range that has prevailed over the
past two years. Compared to last month, consumers were somewhat less
pessimistic about the future.”

“Expectations for
future income improved slightly, but consumers remained generally negative
about business and employment conditions ahead. Meanwhile, consumers were a
bit less positive about current labour and business conditions.”

“Potentially,
smaller monthly job additions are weighing on consumers’ assessment of current
job availability: while still quite strong, consumers’ assessment of the
current labour market situation declined to its lowest level since March 2021”.

Wednesday

The Australian
Monthly CPI Y/Y is expected at 3.4% vs. 3.8% prior. The RBA continues to
maintain a hawkish stance, while the market keeps on expecting at least one
rate cut by the end of the year.

Thursday

The US Jobless
Claims continues to be one of the most important releases to follow every week
as it’s a timelier indicator on the state of the labour market.

Initial Claims
remain inside the 200K-260K range created since 2022, while Continuing Claims
have been on a sustained rise showing that layoffs are not accelerating and
remain at low levels while hiring is more subdued.

This week Initial
Claims are expected at 234K vs. 232K prior, while Continuing Claims are seen at
1870K vs. 1863K prior.

Friday

The Tokyo Core CPI
Y/Y is expected at 2.2% vs. 2.2% prior. As a reminder, the economic indicators
the BoJ is focused on include wages, inflation, services prices and GDP gap.
The Tokyo CPI is seen as a leading indicator for National CPI, so it’s generally
more important for the market than the National figure.

Moreover, Governor
Ueda kept the door open for rate hikes as he said that the recent market moves
wouldn’t change their stance if the price outlook was to be achieved and added
that Japan’s short-term interest rate was still very low, so if the economy
were to be in good shape, BoJ would move rates up to levels deemed neutral to
the economy.

The Eurozone CPI
Y/Y is expected at 2.2% vs. 2.6% prior, while the Core CPI Y/Y is seen at 2.8%
vs. 2.9% prior. This report won’t change anything for the ECB as the central
bank is going to cut rates by 25 bps in September.

The US PCE Y/Y is
expected at 2.5% vs. 2.5% prior, while the M/M figure is seen at 0.2% vs. 0.1%
prior. The Core PCE Y/Y is expected at 2.7% vs. 2.6% prior, while the M/M
reading is seen at 0.2% vs. 0.2% prior. Forecasters can reliably estimate the
PCE once the CPI and PPI are out, so the market already knows what to expect.

This report won’t
change anything for the Fed as they will cut rates in September no matter what.
The Fed is now focused on the labour market and the next NFP report is going to
decide whether the FOMC will cut by 25 or 50 bps at the upcoming decision
on the 18th of September.

This article was written by Giuseppe Dellamotta at www.forexlive.com.