Weekly market recap

Your weekly global financial market newsletter

Although the financial markets are taking Jerome Powell's comments from his Friday speech at the Jackson Hole Economic Policy Symposium as a clear signal to cut rates, Powell himself lived up to his reputation that a clear prediction from him is virtually never forthcoming.
Powell said that “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.”
Powell de facto confirmed that he expects the scenario of the so-called soft landing of the US economy, i.e. taming inflation without the arrival of a recession, to come true. “We will do everything we can to support a strong labour market as we make further progress toward price stability,” he said.
The market believes that the first rate cut will come in September, which Powell has now neither refuted nor confirmed. He reiterated that the Fed will make decisions based on data from the economy, meaning that decisions on adjusting monetary policy at individual meetings remain open.
Investors, however, interpreted this to mean that rates would definitely be cut in September and, moreover, bets that rates could be cut not just by 25 basis points as usual but even by 50 basis points had risen quite significantly.

Indices

US equities continued their price gains from the previous week, although market activity was below average during the week. While Thursday’s PMI data and initial jobless claims led to a sell-off and a correction in the markets, Friday’s speech by Fed chief Jerome Powell in Jackson Hole reignited optimism among investors and brought the major indices close to their all-time highs.

European stock markets are also riding a wave of optimism, which gives them the possibility of rate cuts by central banks, both the Fed and the ECB. The pan-European STOXX Europe 600 ended 1.31% higher, Germany’s DAX rose 1.70%, France’s CAC 40 Index gained 1.71%, and the UK’s FTSE 100 Index advanced 0.20%.

US30

+1.27%

US100

+1.09%

US500

+1.45%

GER30

+1.70%

Commodities

The gold price continued to rise last week as investors’ expectations of a rate cut by the US Fed were not affected by any significant macro data. As a result, the price of the yellow metal climbed above the level of $2,530 per troy ounce on Tuesday. Then on Thursday, although the price fell below the level of $2,480 due to profit-taking and the strengthening of the dollar after the release of the US unemployment claims data, which exceeded expectations, but it was only a short-term correction. Friday’s speech by Fed chief Jerome Powell gave investors virtual certainty that the US central bank is ready to cut rates. Thus, assets that do not yield are becoming more attractive to investors.

The price of natural gas, on the other hand, fell back down to $2.0 per MMBtu, after the Energy Information Administration (EIA) reported a larger-than-expected storage increase. In the week ending August 16, U.S. energy companies added 35 billion cubic feet of natural gas to storage, beating market expectations for a 27 billion cubic foot increase. This puts storage capacity 12.6% above the five-year average, which may lead to lower production and further price declines in the future.

Gold

+0.07%

Silver

+2.73%

BRENT

-0.83%

NATGAS

-4.76%

Forex

The New Zealand dollar presented the strongest growth of all majors currencies last week. It has been rising against the US dollar since late July, when the NZDUSD exchange rate bounced off the support level of 0.586. The NZD has strengthened by more than 6.3% against the USD in that time, and Friday’s significant appreciation, with the USD losing ground against all major currencies, took the NZDUSD to its highest level since mid-January this year. Meanwhile, the Reserve Bank of New Zealand began easing its monetary policy earlier this month and signalled further reductions.

After two weeks of declines, the Japanese yen also fared well last week, recovering to early August levels around 144 yen per dollar. Core inflation in Japan accelerated for the third consecutive month in July to 2.7%, while headline inflation remained unchanged at 2.8% for the third consecutive month. These data support the hawkish shift by the Bank of Japan, whose Governor Kazuo Ueda said in his testimony to the parliament that the central bank could adjust monetary policy if the economic outlook is accurate.

EUR/USD

+1.45%

USD/JPY

-2.21%

GBP/USD

+2.05%

USD/CAD

-1.24%

Macro

The main driver of market events last week was the US Fed and its chief, Jerome Powell. Investors were first attracted by Wednesday’s Meeting Minutes, which showed that a large majority of policymakers expected a rate cut at the September meeting, while some were already in favour of a rate adjustment at the July meeting. Then, despite Thursday’s less dovish comments by some Fed officials, Friday’s speech by Jerome Powell gave investors confidence that a rate cut would indeed occur at the September meeting.

Thursday’s preliminary PMI data for August from S&P Global pointed to a continued decline in the manufacturing sector, while activity in the service sector continued to grow solidly. After four months of declines, there was a slight increase in existing home sales as well as new home sales, while building permits saw a decline, but it was lower than expected.

Final Eurozone inflation data on Tuesday confirmed the preliminary numbers. Preliminary PMI data from S&P Global then pointed to declines in the manufacturing sector in the EU and Germany, but continued expansion in the services sector, which was helped in particular by the Summer Olympics in Paris for the EU. The figures for the UK point to expansion in both the manufacturing and services sectors, taking the composite index to its highest level since April.

What to watch out for this week

On Monday, we will see statistics on durable goods orders in the US, which are expected to grow by 4% after a sharp decline in June.
On Tuesday, Germany will first publish the GfK consumer confidence index and the final GDP report for the second quarter. In the US, the Conference Board's consumer confidence index and the Richmond Fed's industrial activity index will be released.
After a data-poor Wednesday, Germany will add inflation statistics and the US will add a refined second-quarter GDP report, the regular weekly report on new and continuing jobless claims, wholesale inventories statistics or residential pending sales data.
On Friday, inflation and unemployment data for the euro area will be released first, and the United States will add the final August University of Michigan consumer confidence index, personal income and spending statistics in the afternoon, and, most notably, the Personal Consumption Expenditures (PCE) price index, the Federal Reserve's preferred inflation yardstick.

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