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US Markets Rally After Fed Minutes – Nasdaq Up 0.6%

US stock markets rallied once again in yesterday’s trading session, as the release of the Federal Reserve’s meeting minutes, coupled with a significantly weaker revised jobs data update, reinforced expectations of a rate cut by the FOMC in September. The Nasdaq led the charge, closing 0.57% higher, followed by the S&P, which gained 0.42%, while the Dow edged up by 0.14%. US Treasury yields continued their decline, reaching fresh two-week lows. The 2-year yield dropped by 7.2 basis points to 3.928%, while the benchmark 10-year yield fell by 2.6 basis points to close at 3.791%. Oil prices continued their downward trend, with Brent losing 1.49% to settle at $76.05, and WTI declining by 1.69% to $71.93 per barrel. Gold prices remained elevated near recent all-time highs, closing the New York session up by 0.1% at $2,516 an ounce.

Odds of a Fed Rate Cut Rise – 50 Basis Points Now at 37%

The likelihood of a more substantial rate cut by the Federal Reserve in September increased sharply overnight, following a revised jobs report that highlighted a weaker labour market than previously estimated. The Bureau of Labor’s latest update, covering April 2023 to March 2024, revealed a 0.5% reduction in jobs, equating to 818,000 fewer jobs than originally calculated. The FOMC minutes further indicated that some members were already inclined to cut rates last month, with the vast majority expected to endorse an easing in September. The critical question now is whether the cut will be 25 or 50 basis points, with the odds for the latter rising from 25% to 37% after the latest updates. The market has been trending in this direction over the past week, and investors will be closely watching Jerome Powell’s remarks at Jackson Hole on Friday to see if the momentum continues.

Busiest Calendar Day for Traders, but All Eyes on Wyoming

Today marks the busiest day on the macroeconomic calendar this week, though most investors are already looking ahead to Jerome Powell’s anticipated comments at Jackson Hole, Wyoming, on Friday, which are expected to confirm the Fed’s upcoming moves. A series of Flash Services and Manufacturing PMI data releases are due across various jurisdictions, including Australia, France, Germany, the Eurozone, the UK, and the US. However, traders expect any impact to be minimal unless the figures deviate significantly from expectations. In addition to the US data, the latest weekly unemployment claims and Existing Home Sales figures are set to be released, though most expect market movements to be driven primarily by yesterday’s US updates and the forthcoming central bank announcements from Wyoming.

The post General Market Analysis – 22/08/24 first appeared on IC Markets | Official Blog.

Its been light on news and data, and yen movement, in Japan so far today.

USD/JPY had wild swings again on Wednesday, but its calm here this morning in a subdued range.

Stay tuned!

This article was written by Eamonn Sheridan at www.forexlive.com.

Preliminary Judo Bank S&P Australian Manufacturing PMI 48.7

• prior 47.5

Services 52.2

• prior 50.4

Composite 51.4

• prior 49.9

The Australian Flash PMI shows improved activity, rising costs in August

• Composite output index up, services sector jumps, manufacturing still weak
• Economy expanding in Q3, labour demand rising
• Service sector input prices hit highest level since March 2023
• Final prices index dipped, suggesting difficulty in passing on costs
• Inflation risks persist despite weak economic growth
• New fiscal stimulus and less restrictive monetary policy raise concerns
• RBA may need to hike further before easing cycle can begin

The bottom line comment, IMO, from the analysis in the report is this:

• Market pricing for RBA rate cuts “perplexing” given current conditions

AUD/USD up a few tics:

This article was written by Eamonn Sheridan at www.forexlive.com.

TD is wary of gold, saying that their data on macro positioning data in gold appears to be flashing warning signs.

• model suggests gold positioning is statistically consistent with 370bps of Fed rate cuts, a fairly extreme level
• Commodity trading advisors (CTAs) are “max long” gold, and positioning in Shanghai has reverted to record highs
• dearth of visible shorts in the market is also a concern
• positioning cues suggest the market may be overly positioned for bullish gold narratives at the moment

TD says that fundamental factors for gold remain strong, but also say that narratives often end up chasing prices rather than driving them:

• risk is of washout in gold positioning, potentially triggered by key events like the Jackson Hole symposium or the next nonfarm payrolls report
• downside risks appear to be growing, even if the timing of any potential correction is uncertain
• the data implies the gold market may be vulnerable to a sharp pullback from current levels if positioning needs to be unwound

Its been a freight train higher:

This article was written by Eamonn Sheridan at www.forexlive.com.

This is the data, ICYMI:

• Non-farm payrolls benchmark revisions -818K

Bloomberg (gated) with the info:

• At least three banks managed to obtain key payroll numbers Wednesday while the rest of Wall Street was kept waiting for a half-hour by a government delay
• After the Bureau of Labor Statistics failed to post its revisions to the monthly payroll figures at 10 a.m. New York time, Mizuho Financial Group Inc. and BNP Paribas SA both called the department and got the number directly. So did Nomura Holdings Inc.’s economic research team, according to a person familiar with the situation.

Good for them.

I’ve pointed out 10am NY time on the screenshot below. Plenty of time to buy the dip that followed for the spike after that.

This
chart is from our charting app, which is free and can
be found at this link

This article was written by Eamonn Sheridan at www.forexlive.com.

Sheesh. There are 74 days until the US presidential election. Maybe its just me, but that seems a long, long time where anything could happen.

Anyway, Goldman Sachs economists have tipped US Vice President Harris to win. They say the most likely outcome is Harris Prez, with a divided government.

GS cite her current lead of around 1.5% in national polling averages. Also that she holds a slight lead in the pivotal state of Pennsylvania.

–

Anyway, over to the comments. By all means cheer for your team, but any objective comments, particularly on picking a winner with 10+ weeks of the campaign to go, are also welcome.

This article was written by Eamonn Sheridan at www.forexlive.com.

• Non-farm payrolls benchmark revisions -818K
• FOMC Minutes: Vast majority said it would likely be appropriate to cut at next meeting
• EIA weekly crude oil inventories -4649K vs -2672K expected
• RFK Jr. to ‘address to the nation’ as talk of dropping out circulates (Update: He’s done)
• Target shares soar as the US consumer remains strong
• ECB’s Panetta says he hopes the central bank cuts rates in September
• Canada July producer price index 0.0% m/m vs -0.3% expected
• US sells 20-year bonds at 4.160% vs 4.161% WI

Markets:

• Gold down $2 to $2511
• US 10-year yields down 2 bps to 3.79%
• WTI crude down $1.26 to $71.92
• S&P 500 up 0.4%
• GBP leads, USD lags

Dollar weakness was the theme once again and this time it had some backing as the BLS revised down non-farm payrolls by 818K jobs for the year ending in March. There are good arguments that’s overstated but Goldman pegs the real loss at nearly half that, which is still a softer labour market and reason for the Fed to cut.

The FOMC added to that thinking as they highlighted a nearly-unanimous view on lowering rates. That sent the dollar to the lows of the day (and the year on a few fronts) Before a 25-pip rebound late on oversold conditions.

In terms of extremes, the euro cracked the December 2023 peak and the pound came within 50 pips of the 2023 high. USD/JPY got down to 144.50, which would have been the lowest close of the year save for a quick rebound to 145.18.

USD/CAD hit a four-month low that turned in part due to a possible Canadian rail strike tomorrow and growing calls for the BOC to be more aggressive.

AUD/USD still hasn’t finished recouping the July losses but it’s now close despite the rout in iron ore.

Overall, it’s tough to square up all the moves — strong stocks and bonds with a weak dollar — but it paints a picture of an early-cycle economy, at least outside of the five-day rout in oil. But maybe we’re overthinking an August market and this is all repositioning ahead of Powell.

This article was written by Adam Button at www.forexlive.com.

Flash PMIs from Australia and Japan due today. These are unlikely to move major FX much upon release. Yen crosses will be moving regardless, volatility is breeding more volatility in JPY.

This snapshot from the ForexLive economic data calendar, access it here.

The times in the left-most column are GMT.

The numbers in the right-most column are the ‘prior’ (previous month/quarter as the case may be) result. The number in the column next to that, where there is a number, is the consensus median expected.

This article was written by Eamonn Sheridan at www.forexlive.com.

Good morning, afternoon and evening all. Any charts, technical analysis, trade ideas, thoughts, views, ForexLive traders would like to share and discuss with fellow ForexLive traders, please do so:

This article was written by Eamonn Sheridan at www.forexlive.com.

The small setback in US equities yesterday was met with a fresh wave of buying today, leading to the ninth day of gains in ten.

• S&P 500 +0.4%
• Nasdaq Comp +0.6%
• DJIA +0.1%
• Russell 2000 +1.2%
• Toronto TSX Comp +0.3%

This article was written by Adam Button at www.forexlive.com.

Canadian rail transport could be halted as soon as tomorrow.

There are two rail lines crossing Canada — CN and CP — and they handle virtually all freight in the country. Never before have both been in line to strike at the same time but talks have been ongoing since 2023 and now the companies say they will lock out workers tomorrow. That has been followed by a strike vote by the union.

The Minister of Labour met with both parties in an effort to bridge a deal. He also has powers to order binding arbitration, something CN has pushed for. The government could also introduce back-to-work legislation.

A shutdown will cripple Canadian transport but also have effects in the US, with networks integrated and raw materials often flowing south.

The move isn’t entirely unexpected but if actions continue for more than a week, they could start to bite. Moreover, the disruptions from this would reverberate through economic data for months; skewing the signals.

This article was written by Adam Button at www.forexlive.com.

Maybe it’s just leverage.

Treasury yields fell on the rout in global equities at the start of the month but they’ve since stayed down even with equities sizzling. Some of that is surely a picture of inflation that’s placid but that’s still tough to square.

Maybe the simple answer is the best one: People are in leveraged longs in a bet that Fed funds will fall.

It’s not a great trade on the face of it but you can borrow at 5% right now and buy 10s paying 3.78%. That’s cashflow negative but look out to December 2024 and Fed funds are trading at 3.56%, with more easing priced beyond.

Now this might not just be a Treasury trade but in the whole bond complex, with many issues well-above the cost of borrowing and the whole stack moving with it as part of the massive amounts of leverage and synthetic leverage in fixed income.

In short, it’s just the market saying that it’s confident in inflation and confident the Fed will get to 3% or lower.

This article was written by Adam Button at www.forexlive.com.