Daily Market News by OnEquity

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Dollar Rebounds After Sharp Losses, Euro and Pound Lose Ground
The U.S. dollar gained ground on Tuesday, reversing some of its recent losses as some calm returned to currency markets.

Dollar Recovers After Heavy Losses​

In recent weeks, the dollar has been significantly affected by fears of a possible U.S. recession after a series of weak labor market data, which has triggered bets that the Federal Reserve will cut rates more than initially expected.

Right now, traders are estimating 110 basis points of easing in 2024 by the Fed, with about an 80% chance of a 50 basis point cut in September, after fully discounting a 50 basis point cut on Monday.

Fed policymakers on Monday pushed back against the notion that the weaker-than-expected July jobs data means the economy is in a recessionary free fall, but also noted that the Fed will have to cut rates if it wants to avoid such an outcome.

Austan Goolsbee, president of the Chicago Fed, said, “The employment numbers are weaker than expected, but they still don’t look like a recession. I think in making decisions you have to take into account where the economy is headed.”

Both the Euro and the Pound Lose Ground​

Turning to Europe, the dollar gained ground against the euro and sterling as the European Central Bank and the Bank of England have begun interest rate cuts aimed at stimulating their respective economies.

The EUR/USD lost about 0.4% to 1.0911, after touching a seven-month high of 1.100 on Monday, following news that retail sales fell by 0.3% in June in the eurozone, indicating that consumers are likely to remain cautious.

On the other hand, German industrial orders rose more than forecast in June, by 3.0% compared to the previous month, indicating a glimmer of hope for the European continent’s largest economy.

The GBP/USD lost about 0.5% to 1.2706, giving back some of its recent gains in the wake of the dollar’s strengthening.

The Bank of England cut interest rates last week, reducing the benchmark rate by a quarter point to 5%.

Yen Falls for First Time in August​

USD/JPY rose about 0.2% to 144.47, and the yen weakened for the first time in August, consolidating after volatile moves in recent days.

The yen had benefited from increased safe-haven demand in the face of the broader financial market slump. Bullish signals from the Bank of Japan, which raised interest rates and hinted at further hikes, also boosted the currency, as did the unwinding of carry trades.

USD/CNY rose 0.3% to 7.1504, with the yuan losing strength in anticipation of this week’s trade and inflation data.

AUD/USD was down 0.2% to 0.6480, with the Australian dollar retreating following comments from Reserve Bank of Australia Governor Michele Bullock that rate cuts are further away.

The Australian central bank left interest rates unchanged on Tuesday, as expected, while reiterating that it was not ruling out any measures to control inflation.

 

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U.S. Stock Markets Rise, with Strong Earnings Supporting Sentiment Shift
U.S. stock markets rose on Tuesday, showing signs of recovery from Monday’s decline, despite continuing concerns about an economic slowdown.

Recession Fears Lead to Heavy Losses​

Concerns about a significant slowdown in economic growth, following a string of poor data related to the purchasing managers’ index and the labor market, caused the DJIA, S&P 500, and Nasdaq to lose nearly 5%, 6%, and 8% respectively in three days, marking their worst three-day performance in more than two years.

Weak economic data fueled fears that the Fed would keep interest rates higher for longer and that any cut by the central bank right now would not be enough for the economy to achieve a soft landing.

That said, markets increased their estimates for a 50 basis point cut in September and were looking at at least 100 basis points in rate cuts this year, according to CME FedWatch.

2Q Earnings Follow​

Caterpillar (CAT) stocks rose 1% after the industry giant unveiled a slight quarterly profit increase, supported by resilient demand for its larger excavators and other construction equipment amid rising U.S. infrastructure spending.

Shares of Uber Technologies (UBER) rose more than 5% as the ride-hailing company beat estimates for both second-quarter revenue and core earnings on continued demand for its ride-sharing and food delivery services.

Super Micro Computer (SMCI) will also release its results after the bell, and is set to provide more clues about demand from the artificial intelligence industry.

Additionally, Palantir Technologies (PLTR) rose nearly 11% after the software services provider raised its annual revenue and profit forecast for the second time in 2024, while Lucid Group (LCID) rebounded more than 9% due to better-than-estimated second-quarter revenue and after the electric vehicle maker unveiled that its largest shareholder, Saudi Arabia’s Public Investment Fund (PIF), will invest about $1.5 billion in cash.

Media giants such as Walt Disney (DIS) and Warner Bros. Discovery (WBD) will release their results on Wednesday.

Oil Prices Continue to Fall​

Crude oil prices declined on Tuesday, continuing to fall in a volatile market after hitting eight-month lows on concerns about global demand.

Concerns about a possible escalation of the war between Israel and Hamas, especially after Iran vowed to retaliate for the assassination of a Hamas leader in Tehran, have supported oil markets.

However, confidence remains fragile due to fears that slowing economic growth will dampen demand, especially after disappointing U.S. labor market data raised concerns about a potential U.S. recession.

 

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U.S. Wholesale Inflation Moderated in July, Sign of Easing Price Pressures
U.S. wholesale price increases slowed in July, indicating that inflationary pressures are moderating as the Federal Reserve (Fed) moves closer to potentially cutting interest rates, expected early next month. The Labor Department reported Tuesday that its Producer Price Index (PPI), which tracks inflation before it reaches consumers, rose 0.1% from June to July and 2.2% from a year ago.

Excluding food and energy prices, which tend to fluctuate month to month, so-called core wholesale prices were unchanged from June and up 2.4% from July 2023. The increases were more moderate than expected and are roughly consistent with the Federal Reserve’s 2% inflation target. The Producer Price Index can provide an early signal of the direction consumer inflation will take.

Economists also follow it closely because some of its components, particularly health care and financial services, are included in the Personal Consumption Expenditures (PCE) index, the Fed’s preferred inflation gauge.

Upcoming Release of Consumer Prices​

The Labor Department will release the Consumer Price Index (CPI), the primary measure of inflation, on Wednesday. Forecasters estimate that consumer prices rose 0.2% from June to July, after falling 0.1% the previous month, and 3% from July 2023, according to a survey by data firm FactSet.

Inflation has decreased significantly since reaching a four-decade high in mid-2022. However, as Americans prepare to vote in the November presidential election, many remain dissatisfied with consumer prices, which are about 19% higher than before the inflationary spike began in the spring of 2021. Many have blamed President Joe Biden, although it remains unclear whether Vice President Kamala Harris, a presidential hopeful, will also face accountability.

The Federal Reserve May Soon Lower Interest Rates​

The Fed, in its fight against high inflation, raised its benchmark interest rate 11 times in 2022 and 2023, bringing it to its highest level in 23 years. Year-over-year consumer price inflation has fallen from 9.1% in June 2022 to 3% as of the latest report. The much weaker-than-expected July U.S. employment report reaffirmed the general expectation that Fed policymakers may begin cutting rates when they meet in mid-September to support the economy. The employment report indicated that the unemployment rate rose for the fourth straight month to 4.3%, still good by historical standards, but the highest level since October 2021.

Over time, a series of rate cuts by the Fed would likely lead to lower borrowing costs across the economy—for mortgages, auto loans, credit card loans, and commercial loans—and could also stimulate stock prices.

 

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Dollar Awaits CPI, Pound Falls
The U.S. dollar stabilized on Wednesday, benefiting from the previous night’s weakness ahead of the release of the July Consumer Price Index, while the British pound weakened following benign inflation data.

Dollar Slides on CPI Expectations​

The U.S. dollar retreated on Tuesday after the Producer Price Index (PPI) for July came in below expectations, prompting traders to shift their bets slightly towards a 50 basis point rate cut in September.

The PPI reading raised hopes that the Consumer Price Index (CPI) inflation reading, to be released later today (Wednesday), will also indicate that inflation remained subdued in July, giving the Federal Reserve more room to initiate rate cuts.

Analysts have been bearish on the dollar in recent days and generally optimistic about anything that stabilizes confidence. A benign U.S. CPI reading could pave the way for more dollar trading until the underlying Personal Consumption Expenditures (PCE) data is released on August 30, followed by the September 6 employment numbers.

At the end of July, the Federal Reserve kept the official interest rate at 5.25% to 5.50%, as it has done for more than a year, although it indicated that it might cut rates in September if inflation continues to cool.

Pound Falls on UK Inflation Release​

In Europe, GBP/USD lost about 0.2% to 1.2837 after UK consumer price inflation rose less than expected in July, increasing the likelihood that the Bank of England (BoE) will cut interest rates again.

The annual rate of consumer price inflation was expected to rise to 2.2% after two months at the BoE’s 2% target, but it came in below the 2.3% estimate.

The Bank of England cut interest rates from 5.25%, its highest level in 16 years, earlier this month, and financial markets are now pricing in a 44% chance that the BoE will cut rates by a quarter point in September, down from 36% before the data release.

EUR/USD rose nearly 0.3% to 1.1019, reaching levels not seen earlier this year, after France’s EU-harmonized year-on-year inflation rose to 2.7% in July from 2.5% in June.

The European Central Bank began cutting interest rates in June, and most expect policymakers to agree to another reduction in September, although rising inflation could make this less likely.

New Zealand Dollar Loses Ground After Rate Cut​

In Oceania, NZD/USD fell nearly 1% to 0.6014 after the Reserve Bank of New Zealand (RBNZ) cut interest rates by 25 basis points, and Governor Adrian Orr reported that the bank had also considered a 50 basis point reduction.

The RBNZ highlighted progress made towards achieving its annual inflation target of between 1% and 3%, while noting market expectations that interest rates will fall by 100 basis points by mid-2025.

In Asia, USD/JPY was up nearly 0.2% to 147.15, showing signs of stability after strong overnight gains, although further strength in the yen was capped by improved risk appetite.

Second-quarter Gross Domestic Product (GDP) data from Japan will be released on Thursday, which is likely to influence the Bank of Japan’s rate-cutting plans.

USD/CNY lost about 0.1% to 7.1470, with industrial production data and retail sales figures due for release later this week.

 

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U.S. inflation rose less than expected in July; CPI rose by 2.9% annually

U.S. consumer prices increased in July at a slower-than-expected annual rate, raising the likelihood that the Federal Reserve will begin to cut interest rates at its next scheduled meeting in September.

The Labor Department’s consumer price index (CPI) rose about 2.9% last month, slowing slightly from 3.0% in June. Economists had estimated that the figure would most likely match June’s rate.

On a month-on-month basis, the reading rose to 0.2% after falling 0.1% the previous month, matching estimates.

Excluding more volatile items such as food and gasoline, the underlying figure rose by 3.2% in the twelve months to July, below estimates of 3.3%. On a monthly basis, underlying price growth increased by nearly 0.2% after rising by 0.1% in June.

This release followed the much cooler-than-expected July producer price index, which serves to confirm the very possibly benign inflation pressures that could give the Fed a chance to cut its interest rate from the 5.25%-5.50% range it has been at for more than a year.

Fed Chairman Jerome Powell has stressed that positive inflation data is vital for a rate cut in September.

In addition, the non-farm payrolls report earlier this month indicated that U.S. employment growth slowed more than expected in July, while the unemployment rate increased to 4.3%, which could increase fears that the labor market is deteriorating making the economy highly vulnerable to a recession.

 

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Dollar gains bearish momentum, pound reaches one-month highs
The U.S. dollar fell ahead of the release of the Federal Reserve’s July monetary policy meeting minutes and Chairman Jerome Powell’s upcoming speech in Jackson Hole near the end of the week.

Dollar downtrend begins to gain momentum​

The minutes, which will be released on Wednesday, and Jerome Powell’s speech on Friday are likely to be the main precursors of the week’s currency movements, with traders expecting a negative tone to emerge.

According to market analysts, the signals may be subtle, but the downward momentum may be starting to consolidate. Likewise, the DXY dollar index appears to be crossing the same levels seen at the beginning of August. This week’s events, such as the July FOMC minutes, revised payrolls and Fed speakers, could add to the dollar’s losses. Market investors most likely want to see how much further the dollar can fall next month.

The Fed has kept its benchmark overnight rate between 5.25% and 5.50% since the previous July, just after it had risen 525 basis points since 2022.

Traders have fully discounted a 25 basis point rate cut by the Fed in September, with a 24.5% chance of a move of almost 50 basis points.

Pound hits one-month highs​

Turning to Europe, GBP/USD rose nearly 02% to ,2963, reaching a one-month high, as the pound benefits from a weaker dollar.

According to market analysts, GBP/USD looks set to revalidate its high for the year at 1.3045, as broad dollar weakness dominated global currency markets. A dovish stance from the Bank of England could contain the pound’s gains. Not to forget, the Bank’s Governor, Andrew Bailey, will have the opportunity to speak at Jackson Hole on Friday this week.

Possibly what analysts may be underestimating, however, is the demand for sterling coming from M&A activity. In this 2024, the UK is the hub region for deals worth close to $200 billion.

EUR/USD rose as much as 0.1%, or 1.1037, approaching the more than seven-month high reached the previous week.

Yen rises​

In Asia, the USD/JPY lost 1% to 146.05 on the back of a broad-based weakening of the dollar and the likelihood of further political divergence between the U.S. and Japan.

Bank of Japan Governor Kazuo Ueda is scheduled to address Parliament on Friday, where he is expected to speak on the central bank’s decision last month to raise interest rates.

The USD/CNY lost about 0.3% to 7.1408, and the yuan headed for its biggest gain in two weeks, taking advantage of a broad-based sell-off in the dollar as investors bet on a US Fed rate cut.

 

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U.S. Stock Markets Flat, Jackson Hole and Fed Minutes in Focus
U.S. stocks traded flat on Monday, consolidating after last week’s gains as investors awaited further signals regarding the Federal Reserve’s monetary policy outlook.

Wall Street’s major indices recorded their best week so far in 2024, as recent positive data eased fears of a possible recession.

The S&P 500 index gained nearly 3.9%, posting its best week since 2023. The tech-heavy Nasdaq Composite added 5.2%, while the blue-chip Dow Jones Industrial Average rose 2.9%.

Recessionary Prospects Decline​

The previous week’s rally came after a turbulent start to the month following the disappointing July nonfarm payrolls reading.

However, July’s ISM non-manufacturing index rebounded, with its employment component entering the expansionary zone for the first time since November last year, according to economists.

In addition, July retail sales exceeded estimates, indicating a marked growth in real consumption, and initial jobless claims have fallen over the past two weeks.

Goldman Sachs has revised its one-year US economic recession forecast to 20% from 25%, citing the latest economic data that indicate no signs of a slowdown.

The increase was midway between the long-term average recession probability of 15% – based on the historical occurrence of one recession every seven years – and the 35% estimate during the banking turmoil in early 2023.

Investors will focus this week on the minutes of the Fed’s latest meeting, due out on Wednesday, ahead of Fed Chairman Jerome Powell’s speech at Jackson Hole next Friday.

Earnings Season Continues​

Earnings season continues this week, with results due on Monday from Palo Alto Networks (PANW) and Estée Lauder (EL).

Bank of America’s most recent survey of fund managers indicated a decline in the proportion of investors overweight equities, from 51% to 31%.

The survey also highlighted that 40% of investment managers are pushing for CEOs to improve their companies’ balance sheets. Despite the current AI boom, the desire to increase capital expenditure has fallen to 24%, the lowest level since November 2023.

Crude Oil Prices On The Lookout For Gaza Ceasefire Talks​

Crude oil prices fell on Monday due to concerns over weaker demand in top oil importer China, while ceasefire talks in the Middle East remain in focus.

Attention is now focused on Gaza ceasefire talks, which will continue this week in Cairo after a two-day meeting in Doha the week before.

U.S. Secretary of State Antony Blinken on Monday called Washington’s latest diplomatic effort to reach a Gaza ceasefire agreement “perhaps the best and last chance” and urged all sides to reach an agreement that would get them over the finish line.

The urgency to reach a ceasefire agreement has grown amid fears of an escalation of hostilities across the region, an upsurge that could impact on supplies to the oil-rich area.

 

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Market Highlights for the Week: Powell, Dems, PM
The future path of U.S. interest rates may become clearer this week when Federal Reserve Chairman Jerome Powell delivers his speech at the central bank’s annual retreat in Jackson Hole. Before then, the Democratic National Convention will begin, global PMI data will shed light on economic strength and energy markets are likely to remain volatile amid heightened geopolitical tensions. Here’s a look at what will happen in the markets this week.

Powell at Jackson Hole​

On Friday at 10:00 a.m. ET (14:00 GMT), Federal Reserve Chairman Jerome Powell will deliver the keynote address at the central bank’s annual economic symposium in Jackson Hole, Wyoming.

Markets will be watching closely for indications of the pace and timing of rate cuts in the months ahead. Expectations of a soft landing for the economy are buoying U.S. stock markets again, as recent positive data have eased worries about the likelihood of a recession, after concerns over the pace of growth triggered a brutal sell-off earlier this month.

Most market participants believe the Fed will cut rates at its next meeting in September, with the biggest debate centering on the size of the cut: a quarter or half a percentage point.

US data​

The Fed will release the minutes from its July meeting on Wednesday. Last month, the Fed kept the door open to a rate cut in September, with Powell acknowledging progress on inflation. Also on Wednesday, the Bureau of Labor Statistics will release a preliminary forecast of the benchmark revision to the March 2024 nonfarm payrolls levels.

On Thursday, the weekly report on initial jobless claims will be released. Several Fed officials are also scheduled to make appearances throughout the week, including Fed Governor Christopher Waller, Atlanta Fed President Raphael Bostic, and Fed Vice Chairman for Supervision Michael Barr.

The Democratic Convention​

The U.S. presidential contest heats up as Democrats try to boost the candidacy of Vice President Kamala Harris at the party’s convention in Chicago, which begins on Monday. During the four-day event, prominent Democratic Party figures are expected to give speeches aimed at solidifying support for Harris.

Harris, who entered the race after President Joe Biden’s decision to drop out of the campaign, has energized the Democratic base and has closed the gap on Republican candidate Donald Trump in certain opinion polls. Harris has even outperformed Trump in several betting markets ahead of the November 5 election.

As the race heats up, investors are eager to know what Harris’s policy positions are. The candidate has emphasized her commitment to preserving the Fed’s independence, a position that clashes head-on with the views of her Republican rival, former President Trump.

PMI data​

Purchasing managers’ indices (PMIs) provide a real-time snapshot of economic activity and, with most of them released on Thursday, will provide important insights into global growth prospects. The July PMIs point to an economic slowdown coupled with persistent inflation, highlighting the dilemma facing central banks.

U.S. manufacturing activity slowed, and German figures were unexpectedly gloomy, pointing to a contraction in the eurozone’s largest economy.

However, manufacturing input prices in advanced economies hit 18-month highs.

Inflation will determine the pace and intensity of future rate cuts. A reiteration of the disappointing July PMI data could mean that monetary easing will come more slowly than markets would like.

Energy markets​

Global energy markets have been volatile amid a combination of risk factors, with no immediate relief in sight. Growing concerns about the escalating conflict in the Middle East have pushed international crude oil prices above $80 per barrel, reflecting fears of potential supply disruptions in the region. At the same time, uncertainty about oil demand, especially in China, is preventing oil prices from rising further.

Wholesale gas prices in Europe have also experienced notable fluctuations, exacerbated by the possible disruption of Russian gas supplies via Ukraine. Ongoing conflicts near the Russian city of Sudzha, a key transit point for gas flowing to Ukraine, have raised fears of a possible disruption of gas deliveries before a five-year deal with Gazprom expires.

 

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Bitcoin Accumulation Initiatives in US Politics
At the recent Bitcoin2024 event, two U.S. political figures proposed significant initiatives regarding the accumulation of Bitcoin (BTC) as a reserve asset by the U.S. government. Robert F. Kennedy Jr., an independent presidential hopeful, stated that if elected, his administration plans to stockpile four million Bitcoin as a strategic reserve asset. Simultaneously, Senator Cynthia Lummis unveiled a bill that would prompt the government to purchase one million BTC, which is about 5% of the total Bitcoin supply, over a five-year period.

Raoul Pal, a former Goldman Sachs executive and renowned macroeconomics expert, expressed his concerns during a conversation with Anthony Scaramucci, founder of Skybridge Capital. Pal highlighted the potential conflicts and risks of the U.S. government becoming one of the largest holders of Bitcoin. While a new buyer of such magnitude could initially boost Bitcoin’s price, Pal expressed fears of possible market manipulations.

Consequences of Government Involvement in Bitcoin​

Pal argues that while the cryptocurrency market could benefit from additional demand, the prospect of the U.S. government positioning itself as a major buyer of Bitcoin is concerning. In his view, Bitcoin was conceived to minimize the government’s role in controlling money, and such a government takeover would run counter to the fundamental principles of decentralization and financial autonomy that cryptocurrency promotes.

Possible Consequences of Government Manipulation​

The expert warned that if the government manages the Bitcoin market, it could, for example, sell large amounts to influence the price or buy more to keep prices high, similar to how it manages interest rates in the conventional economy. This ability to influence could undermine the independence that Bitcoin aims to offer in the financial world.

The debate raises a major dilemma: while the accumulation of Bitcoin by the U.S. government could further validate the cryptocurrency as a legitimate investment asset, it could also lead to control and manipulation, contrary to the ideals of free markets and autonomy that characterize Bitcoin. These concerns highlight the delicate trade-off between the official adoption of cryptocurrencies and the preservation of their decentralized spirit.

 

[OnEquity]

Dollar declines on rate cut expectations; euro near yearly highs
The U.S. dollar declined on Tuesday, approaching seven-month lows, amid expectations that the Federal Reserve will cut interest rates in September.

Dollar weakens on optimism ahead of Fed rate cut​

The U.S. dollar has fallen by approximately more than 2% over the past month, on par with U.S. Treasury yields, amid growing optimism that the Federal Reserve will cut interest rates next month.

Fed Chairman Jerome Powell will have the opportunity to speak at the Jackson Hole symposium this Friday and traders are looking for more signals as to when and by how much the central bank will cut rates.

The Federal Reserve has held its benchmark overnight rate at the current 5.25%-5.50% range since last July, and traders have been compellingly discounting a 25 basis point rate cut in September, with a 24.5% probability of a 50 basis point move.

EUR/USD hits its highest level so far this year​

Turning to Europe, EUR/USD traded flat at 1.1086, with dollar weakness driving the euro to record and touch its highest level so far this year.

The euro is up about 2% this month and is on track for its best monthly performance since November.

Europe’s consumer price index remained little changed in July, rising 2.6% on a yearly basis, which serves to confirm that inflation pressures remain subdued.

GBP/USD was up 0.2% at 1.3009, reaching its highest level in a month, due to weakness in the dollar.

Market traders are currently divided on the likelihood of the Bank of England lowering rates again in a month’s time, after a tight rate cut campaign earlier this month.

The yen is unchanged ahead of Ueda’s speech.​

In Asia, USD/JPY fell to 146.35, close to last session’s near two-week high, but well off the seven-month low of 141.67 reached at the beginning of August.

Market investors’ attention will be focused on Bank of Japan Governor Kazuo Ueda when he testifies in front of Parliament next Friday. Ueda is expected to speak on the bank’s decision last month to raise rates and attention will focus on whether he maintains his recent hawkish tone.

USD/CNY traded flat at 7.1395, with slight support from the People’s Bank of China maintaining its benchmark lending rate preference as expected.

The August hold was due to the People’s Bank of China unexpectedly cutting the benchmark lending rate in July in an attempt to stimulate economic development.