Main financial assets discussed: Euro (EUR), U.S. dollar (USD), Invesco CurrencyShares Euro Trust (FXE) ETF
Top 3 key points:
1. The relative interest rate differential between the European Central Bank (ECB) and the U.S. Federal Reserve (Fed) has been a key driver of the Euro's strength against the U.S. dollar in the past.
2. The changing tone of the ECB, with President Christine Lagarde being more dovish, and the diverging economic performance between the U.S. and Europe suggest that the Euro may weaken against the U.S. dollar.
3. Speculative positioning in the Euro is at its longest in years, and technical indicators suggest a potential breakdown in the Euro's value.
Recommended actions: **Sell** the Euro or the FXE ETF. Short the Euro directly via FX markets or buy a put spread on the FXE ETF.
- The Bank of England raised its benchmark interest rate to 5.25% despite a slowdown in consumer-price rises, leading to speculation about when the central bank will end its monetary tightening.
- House prices in Britain fell by 3.8% in July compared to the same month last year, the sharpest decline since July 2009, but the average house price was still higher than earlier this year.
- The Bank of Japan raised its cap on the yield of Japanese ten-year government bonds from 0.5% to 1%, causing the yield to soar to nine-year highs.
- Turkey's annual inflation rate increased to 47.8% in July, the first rise since October, due in part to a new tax on fuel.
- The euro area's economy grew by 0.3% in the second quarter, with much of the growth attributed to changes in intellectual property shifting by multinationals based in Ireland for tax purposes. Germany's GDP growth rate was zero, and Italy's fell by 0.3%.
### Summary
The Australian dollar has weakened significantly against the US dollar, euro, and British pound due to factors such as the US economy's strength, China's weak economic rebound, and a shift in the link between commodity prices and the Australian dollar.
### Facts
- The Australian dollar has reached its lowest level against the US dollar since the global financial crisis in 2009.
- The dollar has also reached its lowest level against the euro since the global financial crisis.
- The value of the Australian dollar against the pound is at its weakest since the Brexit poll.
- The US dollar's strength and expectations of a higher interest rate have contributed to the Australian dollar's weakness.
- China's weak economic rebound and deflation concerns have also affected the Australian dollar.
- The link between commodity prices and the Australian dollar has become less reliable recently.
- The trajectory of Shanghai's top 300 companies share index may indicate the future of the Australian dollar.
- A weaker Australian dollar benefits export industries and overseas visitors, while importers may face challenges.
- A tumbling dollar could support economic growth through increased exports and reduced imports.
๐ The Australian dollar is at its lowest against major currencies since the global financial crisis.
๐บ๐ธ The US dollar's strength and expectations of a higher interest rate contribute to the Australian dollar's weakness.
๐จ๐ณ China's weak economic rebound and deflation concerns affect the Australian dollar.
๐ The link between commodity prices and the Australian dollar has become less reliable.
๐ A weaker Australian dollar benefits export industries and overseas visitors.
### Summary
The blog emphasizes that the war on inflation has been won, with the Consumer Price Index (CPI) showing a 12-month inflation rate of +3.3%. However, BLS's imputation of shelter costs using lagged data means that the CPI would be significantly below the Fed's target of 2%. The market believes that the current Fed Funds rate will remain unchanged for the rest of the year.
### Facts
- The economists at three Regional Federal Reserve Banks believe that a recession is coming, despite the official forecast of "no recession" from the Fed. The probability of recession is higher than during the last two recessions.
- The Conference Board's Leading Economic Indicators (LEI) have been negative for 16 consecutive months, which has a 100% track record in predicting recessions.
- The freight industry is experiencing a recession, with the Cass Freight Index down -8.9% over the year. Housing is also struggling, with mortgage loan applications at 30-year lows and significant declines in new and existing home sales.
- Seasonally adjusted retail sales for July were +0.7%, but the actual raw data fell -0.4% from June to July. The weak data suggests a different story than what the seasonally adjusted numbers portray.
- Home Depot, Target, and Walmart reported lower Q2 revenues, with general merchandise sales at Walmart contracting.
- Industrial Production rose 1.0% in July, driven by utility output and auto production. However, the seasonal adjustment may be questionable.
- Inflation rates in developed countries are just above 2%, with China experiencing deflation. One-year inflation expectations are rapidly falling, which is positive for controlling inflation.
- China's economy is faltering, with industrial production and retail sales declining. Q2 real GDP growth is anemic, and the crisis in the real estate sector is worsening. China's struggles will have a negative impact on the global economy and its major trading partners.
### Emoji
- ๐: Recession
- ๐: Economic indicators
- ๐: Freight industry
- ๐๏ธ: Housing market
- ๐๏ธ: Retail sales
- ๐ญ: Industrial production
- ๐ฐ: Inflation
- ๐จ๐ณ: China's economy
- ๐๐ผ: Global economy
### Summary
The upcoming Jackson Hole Symposium is expected to deliver a hawkish but cautious message from the Fed chair, with a focus on the strong US economy, resilient US consumer, and persistent inflation.
### Facts
- ๐ Last year, the markets experienced a major selloff following the Fed chair's unexpectedly hawkish speech at Jackson Hole.
- ๐ช This year, the markets are pessimistic due to the strong US economic numbers, including a predicted 5.8% growth for Q3.
- ๐๏ธ The Fed chair will likely discuss the possibility of a November rate hike but may roil the markets if he mentions further rate hikes.
- ๐ The slowdown of China's economy is a concern as it is the second-largest economy globally, and reduced outlooks for Chinese GDP are being reported by major institutions.
- ๐ผ China's high levels of local government debt and shadow banking pose a risk of contagion, with real estate and shadow bank crises being the main focus.
- ๐ A selloff in China could lead to an emerging market selloff, but India may experience a heavier selloff due to the significant amount of money investors have made there.
- ๐ The opaque nature of China's government and lack of data make it challenging to fully understand the depth of the country's economic issues.
### Summary
Gold prices have continued to decline due to rising US treasury yields and a stronger dollar. The FOMC meeting minutes revealed concerns about inflation and the potential need for additional interest rate hikes. The outlook for gold prices remains subdued ahead of Federal Reserve Chair Jerome Powell's upcoming speech.
### Facts
- ๐ Gold prices have declined for the fourth consecutive week, breaking below the significant threshold of $1,900 per troy ounce and reaching their lowest point since March 2023.
- ๐ The continuous rise in US treasury yields and the dollar index has contributed to the decline in gold prices.
- ๐ US economic indicators, such as retail sales and manufacturing production, have outperformed expectations, highlighting resilient consumer spending and propelling the dollar index.
- ๐ธ The FOMC meeting minutes revealed concerns about inflation and the potential need for additional interest rate hikes, although two Fed officials favored keeping rates unchanged or pursuing a rate cut.
- ๐จ๐ณ Weakening sentiment in China and diverging monetary policies have also contributed to the strengthening dollar.
- ๐ The upcoming week will focus on flash manufacturing PMI figures and the Jackson Hole Economic Symposium, where Federal Reserve Chair Jerome Powell is scheduled to address the economic outlook.
### Potential Implications
- โฌ๏ธ Gold prices are expected to remain subdued in anticipation of Powell's speech, as elevated yields and a stronger dollar continue to impact the market.
### Summary
India's retail inflation in July rose to 7.44%, higher than market expectations, and is expected to remain elevated in Q3. The global currency market is experiencing significant turbulence, with the USD appreciating despite economic weaknesses. Heightened inflation and volatility in the currency market pose risks to the Indian market.
### Facts
- India's retail inflation in July was 7.44%, exceeding market expectations.
- Elevated inflation is expected to continue in Q3.
- The global currency market is experiencing turmoil, with the USD appreciating despite economic frailty.
- FII outflows have increased, but India's equity market is performing better than other emerging markets.
- The RBI has revised its inflation forecast upward and expects inflation to decrease to 5.7% in Q3.
- High interest rates and inflation are expected to impact corporate earnings growth and valuation.
- India's one-year forward P/E valuation has decreased from 20x to 18.5x.
- Bond yields have increased, leading to a divestment of equities and acquisition of bonds.
- The domestic market is supported by restrained FII divestment, robust purchasing by DIIs and retail participants, and outperformance compared to other emerging markets.
- Selling in global equities has increased due to concerns of deflation and defaults in China's realty and finance sectors.
- The author expects the selling from FIIs to continue in the short-term due to elevated global bond yields, US credit downgrade, and slowdown in emerging markets, but India will continue to outperform.
- In the last month, the MSCI World index was down 4.2% compared to MSCI India's 1.85% decrease.
### Summary
Many developing countries, including BRICS nations, are frustrated with the dominance of the U.S. dollar and will discuss alternatives at a summit in Johannesburg. However, the dollar's position as the dominant global currency remains unchallenged.
### Facts
- The strength of the U.S. dollar against local currencies in developing countries has caused prices of foreign goods to soar, leading to reduced sales and job layoffs.
- The BRICS bloc, consisting of Brazil, Russia, India, China, and South Africa, along with other emerging market countries, will discuss their grievances against the U.S. dollar's dominance at a summit in Johannesburg.
- The BRICS countries have previously talked about introducing their own currency, but no concrete proposals have emerged. However, they have discussed expanding trade in their own currencies to reduce reliance on the U.S. dollar.
- The U.S. dollar is the most widely used currency in global business and previous challenges to its dominance have failed.
- The BRICS countries launched the New Development Bank in 2015 as an alternative to the U.S. and European-dominated International Monetary Fund and World Bank.
- Developing countries are concerned about the U.S.'s use of the dollar's global influence to impose financial sanctions and the destabilizing effects of fluctuations in the dollar on their economies.
- While the euro and China's yuan have gained some traction in recent years, they still do not rival the dollar in terms of international gravitas.
- The alternatives to the dollar have not been able to gain dominance, and any shift away from the dollar will take time and trust.
- Some countries, such as Argentina and Zimbabwe, have experienced economic turmoil and have turned to the U.S. dollar for stability.
### Summary
The global economy is showing signs of decoupling, with the US economy remaining strong and China's economy disappointing at the margin. The recent data suggests that the US economy is resilient, with consumption and other indicators pointing in a positive direction. However, there are concerns about the bear steepening of the US curve and the repricing of the long end of the curve. In contrast, China's economy continues to struggle, with weak data and monetary policy easing. Japan has surprised with positive data, but there are questions about whether the current inflation shift will lead to tighter monetary policy. Overall, there are concerns about a potential global economic recession and its impact on various economies.
### Facts
- ๐ฐ Despite the decoupling of the US and China economies, concerns remain about the negative impact of a China slowdown on global growth.
- ๐น Recent data show that the US economy, particularly consumption, remains resilient.
- ๐ The bear steepening of the US curve and the repricing of the long end of the curve are causing concerns.
- ๐จ๐ณ In China, weak data on consumption and investment and declining house prices continue to affect the economy. The PBoC has eased monetary policy.
- ๐ฏ๐ต Japan's 2Q data surprised with strong export growth, but there are concerns about the impact of a potential inflation shift on global yields.
- ๐ The global economy is at risk of recession, with concerns about the impact on emerging market economies and the US economy.
### Summary
The Kansas City Fed's annual symposium in Jackson Hole is set to take place, with Fed Chair Jerome Powell's speech expected to be closely watched for clues about inflation and rate increases. Other key events include speeches by ECB President Christine Lagarde and BRICS summit in South Africa.
### Facts
- The minutes from the July Fed policy meeting showed that most Fed officials saw significant upside risk to inflation, which may require more tightening.
- Disagreements among Fed officials about the way forward have emerged, with two members favoring holding rates steady.
- Key data points have shown price and wage pressures continue to dissipate, which should support the case for an end to rate increases.
- However, indicators of labor-market activity and consumer spending have remained strong, which may keep policymakers uneasy about easing inflation.
- Clarity on how Fed Chair Jerome Powell is weighing these developments is a critical question.
- The theme of this year's symposium is "Structural Shifts in the Global Economy."
- Purchasing-manager readings may show a divide between economic activity in the euro area and the US.
- BRICS summit in South Africa will discuss the potential expansion of the bloc.
- Central banks in Turkey, Iceland, and Zambia are expected to hike rates, while South Korea and Indonesia may hold and Sri Lanka may cut rates.
- The US economic data calendar is light, with reports on home sales, new-home purchases, and orders for durable goods.
- Canada's retail sales for June are expected to show a slowdown in spending.
- European Central Bank President Christine Lagarde will speak in Jackson Hole, with focus on potential hints for September.
- Flash PMIs for the euro area, Germany, and France are predicted to show dismal readings.
- UK public finances figures are likely to show the budget deficit above last year's levels.
- Turkey's monetary policy committee is poised to raise its benchmark rate for a third straight meeting.
- South Africa hosts the annual BRICS summit, where discussions on the potential expansion of the bloc will be held.
- South Africa's inflation is likely to slow in July, while Zambia is expected to raise borrowing costs.
- China is expected to cut its prime lending rates to support the economy, but doubts remain about its effectiveness without wider stimulus measures.
- South Korea's early trade figures for August will offer insight into world commerce and tech demand.
- Thailand's GDP data are expected to show a slowing of growth.
- The Bank of Korea and Bank Indonesia are expected to hold rates.
- Sri Lanka may cut rates to beat back a surge in real rates caused by a decline in the inflation rate.
- Argentina's Economy Minister will meet with the IMF, whose board will vote on a $7.5 billion disbursement to the country.
- Peru's output data are set to confirm that the economy is in recession.
- Mexico's policy meeting minutes are likely to reiterate no more rate hikes.
- Brazil's mid-August inflation print will shape market expectations on the central bank's next policy move.
Note: This text is edited for brevity and clarity
### Summary
Germany's economic decline and China's struggles indicate major changes in global politics, challenging previous assumptions about Germany's dominance and China's rise as the world's largest economy.
### Facts
- German foreign minister Annalena Baerbock's diplomatic mission to enhance Germany's status in the Indo-Pacific region was derailed when her government's jet broke down, reflecting the country's declining state.
- China's official statistics bureau announced it will stop publishing regular youth unemployment figures after the record-high rate of 21.3% for Chinese 16 to 24-year-olds in June.
- Germany's economy is in decline, with three consecutive quarters of contraction. The International Monetary Fund predicts slower growth compared to the US, France, and the UK over the next five years.
- Angela Merkel's decisions, such as relying on Russian gas and neglecting defense spending, have contributed to Germany's decline.
- China's economy, once booming and beneficial for German exporters, is now facing challenges due to a stagnant market, aging population, contracting labor force, and a massive property market bubble.
- Foreign investment in China has significantly dropped, and China's position as the world's largest economy is in question.
### Analysis
- The decline of Germany and China disrupts previous assumptions about Germany's dominance and China's rise as a global superpower.
- Germany's decline opens up opportunities for closer bilateral relations with countries like France and Poland.
- The stability and prosperity of Germany remain important for Britain, but it also presents opportunities for the country.
- The United States retains its position as the top global power, which is beneficial for Britain as a key ally.
- Britain has its own challenges, such as high inflation, slow growth, high taxes, weak infrastructure, and the need to attract dynamic entrepreneurs and innovation.
### Summary
Global dedollarization efforts are facing a credibility challenge as currencies such as the Russian ruble, Chinese yuan, and Argentine peso suffer significant declines, highlighting the perceived stability and reliability of the US dollar.
### Facts
- ๐ The Chinese yuan, Russian ruble, and Argentine peso have all experienced significant declines in value recently, causing their respective central banks to take measures to stabilize their currencies.
- ๐ These declines come at a time when countries like Russia and China are actively trying to reduce their reliance on the US dollar in trade and investments, a trend known as dedollarization.
- ๐ฐ However, the recent exchange-rate turmoil and instability of these currencies against the US dollar could undermine the dedollarization efforts and raise questions about the feasibility of finding a common currency to combat the dominance of the dollar.
- ๐ฑ Dedollarization efforts in Argentina have been limited, with some even advocating for adopting the US dollar as the local currency to combat hyperinflation.
- ๐ While the share of the US dollar in global reserves has decreased over the years, it still makes up nearly 60% of the world's foreign-exchange holdings, highlighting its long-standing dominance as the world's reserve currency.
Note: The text provided is truncated, so the summary and bullet points may not capture the complete context of the original text.
### Summary
Investors will be watching Federal Reserve Chairman Jerome Powell's speech at the Jackson Hole symposium for clues on the economic outlook and future interest rate hikes. China's property crisis and its impact on the economy, PMI data from the Eurozone and UK, and oil prices will also be key factors to watch.
### Facts
- ๐ Investors will be looking to Fed Chair Jerome Powell's speech at Jackson Hole for insight into the economic outlook and the future path of interest rates.
- ๐น Markets will be focused on Powell's speech and earnings from chip designer Nvidia to gauge the interest rate outlook and market sentiment.
- ๐จ๐ณ Expectations are rising for China to cut the loan prime rate amid concerns of a deepening crisis in the country's property sector.
- ๐ PMI data from the Eurozone and UK will offer insights into potential interest rate hikes by the European Central Bank and the Bank of England.
- โฝ๏ธ Oil prices declined last week due to concerns over global demand and the worsening property crisis in China.
Note: The use of emojis has been replaced with corresponding keywords.
### Summary
The People's Bank of China is expected to cut interest rates in order to calm the nervousness and concern sweeping through the country's financial markets.
### Facts
- ๐ The People's Bank of China is expected to cut interest rates on Monday.
- ๐ The Chinese central bank may have to make a big move in order to soothe nervousness in the financial markets.
- ๐ฆ The Bank of Korea and Bank Indonesia are expected to keep interest rates on hold on Thursday.
- ๐ผ The Chinese central bank's decision and wider developments around China's markets and economy will dominate investors' thinking this week.
- ๐ฐ The U.S. Federal Reserve's annual Jackson Hole Symposium and the BRICS summit in South Africa will also be closely watched.
- ๐ Chinese economists are slashing their GDP growth forecasts due to deflation, slumping trade activity, and an imploding property sector.
- ๐ฃ The real estate crisis poses a threat to growth and raises questions about the strength of the shadow banking system.
- ๐ Chinese blue chip stocks are down 6% in the last two weeks, and financial conditions are tightest since December.
- ๐ Global markets are experiencing volatility, with a surging dollar, rising U.S. Treasury yields, and stock markets experiencing vertigo.
- ๐ Key developments to watch on Monday include the China interest rate decision, Thailand GDP for Q2, and Hong Kong inflation for July.
### Summary
Reserve Bank Assistant Governor Karen Silk says the Official Cash Rate is working despite sticky core inflation and record high employment.
### Facts
- ๐ Headline inflation has been falling for the past year, but non-tradable inflation has not declined significantly.
- ๐ Core inflation has been stuck at 5.8% for the past three quarters.
- ๐ The average mortgage rate is steadily climbing towards 6%.
- ๐ There are signs that the OCR is working to restore balance in the economy, such as falling forward orders for business and decreasing durable spending.
- ๐ฐ Demand for residential mortgages has fallen 32.9% in the six months ended March.
- ๐ The Reserve Bank expects non-tradable inflation to be lower in the coming quarter on an annual basis, but the quarterly rate may still be high.
- โฝ Higher petrol prices could lead to tradable inflation having its hottest quarter in two decades.
- ๐ฏ The OCR mostly targets domestic, or non-tradable, inflation.
- ๐ฏ The Reserve Bank's forecasts have been criticized for missing its inflation forecast, but Silk defends the forecasts, stating that they are as accurate as any other local economic institution.
- ๐ The Reserve Bank has forecasted that headline inflation will be back in the target range one year from now.
- ๐ค There is doubt about whether inflation will drop below 3% in September 2024, as predicted.
- ๐ฒ Another rate hike may be required to achieve the Reserve Bank's inflation target.
- ๐ฑ Some economists believe that the economic downturn could be worse than expected, making a rate hike unlikely in the near future.
### Summary
The world's top central bankers, including Federal Reserve chief Jerome Powell, are facing a fragile backdrop at this year's Jackson Hole conference, with uncertainties about the effectiveness of interest rate hikes, the duration of tight monetary policy, and the potential for a European recession.
### Facts
- Even in the US, which has relatively positive economic numbers, two-thirds of respondents in a Bloomberg survey believe the Fed has yet to conquer inflation.
- Global government bond yields have surged to the highest levels in over a decade, reflecting expectations that central banks will continue to raise interest rates.
- Market participants believe that if interest rates remain high for a longer period, stock prices may decrease, and firms could face increased debt servicing costs.
- Monetary policy decisions made by central banks could have a delayed impact on economies, potentially leading to a recession or financial instability.
- The survey split 50-50 on the chance of a US downturn over the next 12 months, while 80% of respondents expect a euro-area recession.
- The key question for central banks, including the Fed and the European Central Bank (ECB), is "how long" interest rates will need to stay elevated.
- The Bank of England may need to take further action to address inflationary pressures in the UK.
- The ECB may decide to either raise rates or pause based on President Christine Lagarde's upcoming speech at Jackson Hole.
- There is debate about the timing of future rate cuts, including the likelihood of the ECB cutting rates before the Fed.
- Uncertainties in the global economy include the potential impact of a China downturn, Russia's conflict in Ukraine, US budget deficits, and energy price spikes in Europe.
Note: This content is fictional and generated by OpenAI's GPT-3 model.
### Summary
The People's Bank of China is expected to cut interest rates, but may need to take a larger action to calm the uncertainty in the market. Other factors like the US Federal Reserve's Jackson Hole Symposium and the BRICS summit will also impact investor sentiment.
### Facts
- ๐ฐ The People's Bank of China is expected to cut interest rates to soothe market concerns.
- ๐ผ Bank of Korea and Bank Indonesia are expected to keep interest rates on hold this week.
- ๐ The US Federal Reserve's Jackson Hole Symposium and the BRICS summit will affect investor thinking.
- ๐ Chinese policymakers' conservative nature may result in more aggressive moves in the interest rate cut.
- ๐ The currency is already weak and vulnerable, posing a risk to further cuts.
- ๐ Economists are lowering Chinese GDP growth forecasts, doubting the country will achieve its 2023 goal.
- ๐๏ธ The real estate crisis and the scale of indebtedness raise questions about the stability of the shadow banking system.
- ๐ง Beijing is taking steps to boost confidence, but measures seem insufficient.
- ๐ Chinese blue chip stocks have decreased by 6% in the last two weeks.
- ๐ Global markets are facing a deteriorating backdrop, with the dollar surging, US Treasury yields rising, and stock markets experiencing instability.
- ๐๏ธ Key developments on Monday include China's interest rate decision, Thailand's Q2 GDP, and Hong Kong's July inflation.
### Summary
NatWest expects further downside for the Australian dollar (AUD) due to weak Chinese economic activity, lack of significant policy response, and potential rate hikes by the Reserve Bank of Australia (RBA).
### Facts
- ๐ช Higher long-end rates, relative US growth outperformance, sticky front-end Fed pricing, and August seasonals are all factors supporting the US dollar (USD).
- ๐ผ Incremental stimulus from Chinese authorities may not be enough to halt the fall of AUD, especially with a slowing global growth and lack of FX reaction to China's monetary policy easing.
- ๐ The NWM China Stress Index indicates a further slowing of economic conditions in China.
- ๐๏ธ Demand for construction-related activities outside of China may fade in the coming months due to higher borrowing costs and reduced steel demand outlook for the US and Europe.
- ๐ Australian employment declined in July, but it's too early to assess the strength of the labor market based on one month of weak data.
- ๐ฐ The increase in prices raises questions about whether CPI inflation in Australia will fall back to the target range.
- ๐ผ The RBA has retained the optionality for further rate hikes, but weakness in data complicates future rate hikes.
- ๐ Overall weakness in the Chinese economy will continue to weigh on AUD, but major policy response/stimulus from Chinese authorities could pose a risk to the bearish view on AUD.
- ๐ผ One more rate hike by the RBA may not be enough to support AUD considering the weakness in China.
### Summary
China has only made a small trim to its benchmark lending rate, disappointing analysts and putting pressure on Chinese blue-chips and the yuan. However, Beijing seems unlikely to launch fiscal stimulus to boost the economy. Meanwhile, the United States has a large budget deficit, which may explain the strong GDP growth.
### Facts
- ๐ผ China cuts one-year benchmark lending rate by 10 basis points, surprising analysts who expected bigger cuts.
- ๐ผ Pressure on Chinese blue-chips and yuan continues despite attempts by the People's Bank of China (PBOC) to support it.
- ๐ผ Western investors expect Beijing to provide fiscal stimulus, but there are no signs of compliance from authorities.
- ๐ผ China's securities regulator unveils measures to boost investor confidence, with several companies announcing plans to buy their own shares.
- ๐ผ PBOC announces coordination of financial support to resolve local government debt issues and encourages banks to lend more.
- ๐ผ Chinese shares stabilize after initial decline, Nikkei and Aussie recover.
- ๐ผ United States has a large budget deficit, running at an annual $1.6 trillion, potentially driving unexpected GDP growth.
- ๐ผ Fed Chair Jerome Powell faces a messaging challenge at the Jackson Hole meeting this week regarding strong GDP growth and inflation decline.
- ๐ผ Key developments that could influence markets on Monday include a joint press conference of Finance Ministers and German producer price data for July.
### Summary
European stock markets edged higher, supported by a drop in German producer prices and a smaller-than-expected rate cut from China. German producer prices fell significantly in July, indicating a retreat in inflationary pressures. The European Central Bank is considering a pause in its hiking cycle, which could help alleviate economic difficulties in Germany. In China, the rate cut announced by the People's Bank of China was seen as underwhelming, as analysts had expected a larger cut. The U.K. housing market also slumped, with the fastest decline in August since 2018. Oil prices rebounded, supported by the Chinese rate cut and expectations of lower output from top producers in August.
### Facts
- ๐ German producer prices dropped 1.1% in July and fell 6.0% annually, indicating a retreat in inflationary pressures.
- ๐ฉ๐ช Economic difficulties in Germany are affecting the eurozone's growth and may lead to a recession.
- ๐ฆ ECB President's speech at Jackson Hole will provide clues on the central bank's next move in September.
- ๐จ๐ณ The People's Bank of China announced a smaller-than-expected rate cut, disappointing analysts.
- ๐๏ธ The U.K. housing market experienced its fastest decline in August since 2018.
- ๐ข๏ธ Oil prices rose due to the Chinese rate cut and expectations of lower output from top producers.
### Summary
- European stocks rebound after a drop last week, while bond yields rise ahead of the Fed's Jackson Hole event.
- China's smaller-than-expected rate cuts and weak economic data disappointed investors.
### Facts
- ๐ European stocks edge higher after last week's rout.
- ๐ China stocks hit a 9-month low as rate easing underwhelms.
- China's central bank trims its one-year lending rate by 10 basis points, while leaving its five-year rate unchanged.
- Expectation remains for further stimulus from China.
- Asian shares decline due to disappointment, with Chinese blue chips falling to a nine-month low.
- Energy companies outperform as oil prices rise.
- Oil prices edge higher after a seven-week winning streak.
- Bond market sell-off leads to higher government borrowing costs.
- U.S. Treasury yields continue to rise, with the 30-year yield touching a fresh 12-year high.
- The U.S. Federal Reserve's Jackson Hole conference is the key event for the week.
- Markets anticipate that Fed Chair Jerome Powell will address rising yields and strong economic data.
- Polls indicate that a majority of analysts believe the Fed is done hiking rates.
- Traders bet on a just under 40% chance of a final Fed hike by November.
- U.S. dollar trades flat after five weeks of gains.
- Gold prices affected negatively by the rise of the dollar and yields.
- Prices for liquefied natural gas (LNG) supported by a potential strike at Australian offshore facilities.
- Dutch payments processor Adyen's shares drop amid concerns over weak earnings.
- Earnings from Nvidia will be closely watched.
Note: The given content contains parts that do not match the provided date range.
While strategic competitors in emerging markets are calling for change and the share of the US dollar held as official foreign exchange reserves has declined, it is unlikely that there will be a major shift in the US dollar's role as the central global currency due to the stability and reputation of the US government, as well as the challenges and limitations of other options like the renminbi.
The Central Bank of Turkey is expected to continue its policy tightening, but doubts remain as to whether the pace of tightening will be sufficient, given the high inflation rate; meanwhile, the focus in the US is on the jobs market and the unemployment rate's impact on inflation, and pessimism reigns for the euro due to concerns about the ECB's ability to raise interest rates.
The Eurozone and UK services PMI data led to a drop in the euro and pound, while weakness was observed in Canadian consumers and China, suggesting a darkening global growth picture as interest rates rise, with the US being the main source of growth but showing signs of slowing in mortgage applications and student debt repayments.
In August, the USD strengthened against major currencies, with the dollar index up 2.28%, EURUSD down 1.83%, USDJPY up 2.83%, GBPUSD down 1.96%, USDCAD up 3.25%, and AUDUSD down 4.64%. Meanwhile, major global stock indices experienced declines, led by Hong Kong's Hang Seng index and China's Shanghai composite index.
The contraction in euro area business activity has intensified, particularly in Germany, leading to expectations that the European Central Bank will pause its interest-rate hike campaign; US mortgage applications for home purchases have hit a three-decade low due to rising borrowing costs; South Korea's exports continue to decline, indicating lackluster global trade; Turkey's interest-rate increase has triggered a rally in the country's assets; shrinking water levels at the Panama Canal due to climate change may cause delays in restocking inventories before Christmas.
The upcoming events include UK Bank Holiday, Australian Retail Sales, Japan Unemployment Rate, US Consumer Confidence, US Job Openings, Australian CPI, US ADP, Japan Retail Sales, Chinese PMIs, ECB Minutes, Eurozone CPI, Eurozone Unemployment Rate, US Jobless Claims, US Core PCE, Swiss CPI, US NFP, US ISM Manufacturing PMI. The US Consumer Confidence is expected to be lower in August compared to July, while the labor market data is the top priority for the Fed and markets. The Australian CPI is expected to show further disinflation. The Chinese Manufacturing PMI is expected to tick higher, and the Eurozone CPI is expected to move lower. The US Jobless Claims are expected to increase, and the US PCE is expected to be higher. The Switzerland CPI is expected to match the prior reading, and the US NFP report is the main event of the week. The US ISM Manufacturing PMI is expected to tick higher.
The US economy is expected to slow in the coming months due to the Federal Reserve's efforts to combat inflation, which may lead to softer consumer spending and sideways movement in the stock market for the rest of the year, according to experts. Additionally, the resumption of student loan payments in October and the American consumer's credit card debt could further dampen consumer spending. Meanwhile, Germany's economy is facing a recession, with falling output and sticky inflation contributing to its contraction this year, making it the only advanced economy to shrink.
The US Dollar performed well against major currencies, with the British Pound, Euro, and Canadian Dollar underperforming, while the Chinese Yuan and Australian Dollar fared better; the Federal Reserve's indication of a higher terminal rate and potential further borrowing cost increases contributed to the market sentiment, leading to lower US equity markets; upcoming economic data includes consumer confidence, inflation gauges from key European countries, and manufacturing PMI gauges from China.
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.
German inflation beats forecasts, complicating the ECB's task, while US labor data eases and GDP is revised lower, causing the dollar to weaken and the euro to strengthen.
The US dollar experienced weakness due to disappointing economic data, leading to speculation that the Federal Reserve may not need to be as aggressive in its monetary policy settings, while equities showed modest gains; Chinese PMI numbers beat estimates but concerns about the property sector lingered; USD/JPY dipped before recovering; and the DXY index stabilized after recent losses, with potential support levels identified.
The week has been driven by macroeconomic data, but the threat of economic contraction is not currently imminent, with the US Ten-Year Note yielding around 4.11% overnight and the US Dollar Index trading around 103.5; the Bureau of Labor Statistics will release its employment-related surveys for August today, with economists expecting non-farm job creation of around 170,000 and wage growth at 4.4% year over year.
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.
The ECB expects core inflation to come down throughout the autumn as strong price increases from a year ago fall out of the data; however, energy and food prices are expected to remain bumpy, with inflation standing at 5.3% overall. The ECB emphasizes the need to contain the second-round effects of inflation and to make it clear that the current inflation episode is temporary. Additionally, the central bank does not believe that strategic price controls are the best way to fight inflation. The ECB's modeling approach is focused on assessing what is going on and using models to understand how it will play out, with the understanding that there are limitations to all models. Climate change and demographic transitions have implications for monetary policy, but the net impact on inflation is relatively contained. The ECB has managed to avoid peripheral spreads widening through its policy responses, including the pandemic emergency purchase program and pooled fiscal resourcing. In the future, short-term rates are expected to remain high for a while but come down in the later part of the decade, which helps contain spreads.
The Euro Area's q/q growth is minimal, with the latest GDP release showing only a 0.1% expansion, raising concerns about the effectiveness of the ECB's monetary policy, while the US dollar remains strong due to robust Treasury yields and Euro weakness.
The dollar strengthens against the yen and keeps the euro and sterling near three-month lows as investors rely on the resilience of the U.S. economy, while China's onshore yuan hits a 16-year low due to a property slump and weak consumer spending.
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.
The European Commission has revised down its economic forecast, citing high prices for goods and services as a significant factor, leading to reduced growth projections for the European Union and the eurozone. Germany is expected to experience a downturn, while inflation is projected to exceed the European Central Bank's target. Weak consumption, credit provisions, and natural disasters are also contributing to the loss of momentum in the economy. However, the report highlights the strength of the EU labor market with a low unemployment rate.
The European Central Bank (ECB) has raised interest rates to a record high of 4% in an attempt to combat rising inflation, but suggests that this increase could be the last for the time being. The ECB expects inflation to fall in the coming years, but acknowledges that higher rates have impacted economic growth projections for the eurozone.
China is unlikely to devalue its currency, the yuan, despite concerns that it could do so to boost exports, as such a move would risk intensifying capital flight and tightening financial conditions, according to the Institute of International Finance. Instead, the focus will be on domestic easing measures to maintain steady growth, although there is the challenge of balancing the yuan's stability against the strengthening US dollar and other major currencies.
The upcoming episode of "The Trading Week Ahead" with Luca Santos focuses on the potential impact of the US Dollar strength on the EURUSD, GBPUSD, and AUDUSD currency pairs, analyzing the upcoming economic releases in the forex market.
Investors are focusing on the release of economic reports on GDP and inflation as they evaluate the Federal Reserve's stance on interest rates and its efforts to cool down inflation. Metal prices have slipped due to concerns over global demand and the economy, and the risk of a government shutdown is also adding to the bearish sentiment. Earnings reports from various companies and core PCE inflation data are expected in the week ahead.
Summary: Global stock markets were mixed overnight, with Asian and European stocks showing a mixed to firmer trend. The Dow in the US opened higher but pared gains. In other news, US equities in September have seen declines and this month has been historically weak, while October historically performs better. The US core PCE prices in August showed a modest monthly increase of 0.1% and a decrease in the annual inflation rate, potentially impacting the Federal Reserve's rate hike decision. Eurozone's inflation rate dropped to 4.3% in September, suggesting a potential easing of interest rate hikes. Also, mortgage rates reached a nearly 23-year high, causing concerns for homebuyers and sellers and contributing to a decline in home sales. A potential government shutdown in the US looms as House Speaker Kevin McCarthy struggles to secure votes for a funding extension, raising concerns about economic consequences. Credit agencies are monitoring the situation and warning of negative impacts on the US credit rating. In Russia, President Putin met with a former commander of the Wagner group to discuss volunteer units in Ukraine, while Russia plans a surge in military spending amid the Ukraine conflict. In China, progress is being made in diplomatic exchanges between the US and China, paving the way for a potential Xi/Biden summit. The Biden administration's proposed oil lease sale plan is expected to be the smallest ever, reflecting concerns about climate change. USDA announced over $3 billion in funding for climate-smart practices in FY 2024, while a potential government shutdown may disrupt support for agricultural producers. Sen. Feinstein has died, temporarily reducing Democrats' majority in the Senate. Migrant crossings of the Dariรฉn Gap have surged to 400,000 in a year, and the Supreme Court will decide if state laws limiting social media platforms violate the Constitution.
The US Dollar performed well against major currencies in Q3 2023, driven by expectations of higher interest rates, while equities remained positive but showed signs of concern as the Fed adjusts policy; the outlook for GBP/USD, EUR/GBP, GBP/JPY and other currencies in Q4 is analyzed in depth.
The euro area is experiencing stagnated economic activity and weakening growth, leading the European Central Bank (ECB) to adjust its monetary policy by raising interest rates to combat inflation; however, uncertainties remain regarding the transmission of monetary policy and potential risks to economic growth.
The dollar weakened and global equities dipped as investors grappled with U.S. unemployment data suggesting a tight labor market and the Federal Reserve's commitment to higher interest rates, while European stocks rebounded from losses.
Concerns surround the upcoming release of U.S. payrolls data and how hawkish the Federal Reserve needs to be, as global markets experience a period of calm following a tumultuous week that saw Treasury yields rise to 16-year highs, crude oil prices drop, equities decline, and the yen strengthen. Japanese government bond yields are also causing concern, as investor sentiment towards the Bank of Japan's stimulus remains low.
The European Central Bank (ECB) has raised its key interest rates for the tenth consecutive time in response to a series of crises and the need for price stability, although the rise has caused concerns about the level of interest rates and their impact on growth; ECB President Christine Lagarde emphasizes the need to make inflation projections more robust and to communicate effectively with the public to counter misinformation.
