The South African rand strengthens against the US dollar as risk appetite returns to global markets due to falling US Treasury yields on the first day of the BRICS summit, although the summit is unlikely to provide significant or sustainable momentum until the bloc adopts implementable policies.
Volatility and rising interest rates have caused a pullback in U.S. equity markets, particularly impacting the technology sector, but investors should not panic as pullbacks are normal in a bull market and present buying opportunities. China's deteriorating economic conditions and weak seasonal trends have also contributed to the selling pressure. However, support is expected to be found in the 4,200 to 4,300 range in the S&P 500, and the Federal Reserve's likely end to the rate-hiking cycle and improved earnings should provide fundamental support for investors to buy the dip.
The market anticipates a 100 basis point interest rate cut by the Federal Reserve in 2024, with US 10-year yields falling and Fed funds futures indicating a lower path ahead of the Jackson Hole symposium, as US services PMI disappoints and US retailer Foot Locker warns on the consumer.
The BRICS summit is aiming to reduce reliance on the U.S. Dollar, as the coalition confirms new members including UAE, Egypt, Ethiopia, Saudi Arabia, and Argentina, and discusses the possibility of a new payment system and currency backed by gold.
Investors are turning their attention to altcoins like $ROE from Borroe, which harnesses AI and blockchain technology, offers a range of features, and has a deflationary token with potential for capital appreciation. Meanwhile, Ripple's $XRP and Filecoin's $FIL are gaining momentum, and Ethereum's price volatility may be mitigated by the potential approval of Ether futures ETFs by the US SEC.
US Treasuries are attracting investors despite the possibility of interest rate hikes, as the potential income from high yields outweighs the potential losses from rate increases.
A potential relief rally in the stock market is expected to start the week, but the upside is limited due to uncertainties about interest rates and the recent volatility, according to a Wall Street technician. The S&P 500 and Nasdaq Composite have experienced pullbacks, but a relief rally may be possible in the near term. However, the long-term trend remains uncertain, and the risk of a downturn in the financial system is elevated.
The US dollar experienced a major technical reversal due to a weaker JOLTs report, leading to a drop in US interest rates, while market positioning played a role in the price action; the focus now shifts to personal consumption figures and US jobs data, with the euro and sterling firm but most other G10 currencies softer, and emerging market currencies mixed. In Asia, most large bourses advanced, but Europe's Stoxx 600 fell after rallying in previous sessions, while US index futures traded softer; European bonds are selling up, gold is consolidating, and oil prices are firm. Australia's CPI slowed more than expected, China is expected to release the August PMI, and Japan reports July retail sales. The US dollar has seen no follow-through selling against the yen, yuan, or Australian dollar, while the euro and sterling staged impressive price action. The JOLTS report saw the dollar and US rates reverse lower, and today the US reports advanced merchandise trade figures for July, with the Canadian dollar as the worst performing G10 currency yesterday.
Hedge funds' increased use of leveraged trades in the Treasury market is raising concerns among economists at the Federal Reserve Board, who highlight the need for continued monitoring due to the potential financial stability vulnerability of these trades.
Treasury yields are on the move and investors should pay attention to where they might be headed next.
Asian stocks, particularly China shares, have continued to rally amid speculation that Beijing's small policy measures could result in significant stimulus, with expectations of a relaxation of property buyer restrictions; Japanese shares have also seen positive performance after data revealed record recurring profits in Q2, resulting in the Topix reaching a 33-year high; U.S. futures imply a high probability of no interest rate hike this month and suggest the tightening cycle may be over, while Treasuries sold off on Friday, leading to concerns over the budget deficit and potential difficulties in absorbing new debt.
The US Dollar is expected to trade sideways at the start of the week, with no major drivers or data points to monitor until markets open on Tuesday. The focus for the week will be on Wednesday's release of the Services PMI survey and several central bank speeches leading up to the next Federal Reserve meeting on September 20. Additionally, the article provides information on central banks and their role in monetary policy and interest rates.
JP Morgan predicts that the U.S. dollar is at risk of losing its global reserve status as BRICS countries increase their use of local currencies for trade settlement, although the chances of this happening in the near future are slim.
The United States Federal Reserve's financial woes and potential implications for cryptocurrency are discussed on the latest episode of "Macro Markets," highlighting challenges posed by inflation and the consequences of loose monetary policies during the pandemic.
The US dollar's strength in the foreign exchange market, along with discussions of de-dollarization, highlights the divergence between the US and other major economies. The Dollar Index is on an eight-week rally, reaching a record high in international payments, while the euro's share has declined to a record low. In the week ahead, the US CPI and the ECB meeting are expected to be major events, with the US showing signs of inflation and weaker demand, and the euro facing challenges amid stagnation and inflation. China's CPI and PPI have shown some improvement, but the focus will be on yuan loans and real sector data. The eurozone's focus will be on the possibility of a rate hike by the ECB and the release of July industrial production figures. Japan's household consumption continues to fall, and the country may experience a contraction in Q3. The UK will release employment data and GDP details, while Canada will see data on existing home sales and the CPI. Australia will release its August employment data, and Mexico's peso positions may continue to adjust due to the winding down of the currency forward hedging facility.
The US Dollar performed strongly against major currencies, with the Euro experiencing its 8th consecutive weekly loss and the Chinese Yuan performing poorly, while global market sentiment was negative and stock markets weakened. In the coming week, market focus will be on the US inflation report, UK employment and GDP data, Australian employment data, and the ECB rate decision.
Bitcoin's weak performance and its potential "double top" structure raise concerns of more downside, with predictions of new local lows; however, there are indications that Bitcoin may experience a major shakeout before rebounding to "fair value" and the 200-week EMA near $25,600 may offer some optimism; debate ensues over the possibility of Bitcoin filling the $20,000 CME futures gap; liquidity levels on BTC/USD markets continue to increase, adding to bearish predictions; ahead of the Federal Reserve meeting, the United States Consumer Price Index (CPI) data release on September 14 brings potential volatility to the market and may impact crypto market expectations.
Treasury Secretary Janet Yellen and Goldman Sachs may be optimistic about a "soft landing" scenario for the US economy, but the author remains skeptical due to factors such as a deeply inverted yield curve, declining Leading Economic Indicators, challenges faced by the consumer, global growth concerns, and the lagging impact of the Fed's monetary policy, leading them to maintain a conservative portfolio allocation.
European markets are pessimistic ahead of central bank meetings, energy prices raise the risk of secondary inflation, and the US dollar is gaining strength, which may negatively impact precious metals and cryptocurrencies.
Foreign holdings of U.S. Treasuries increased for a second consecutive month in July, reaching $7.655 trillion, despite uncertain interest rates and mixed economic data, with China's holdings dropping to the lowest level since 2009, potentially due to pressure to defend its weakening currency.
