Equities and Federal Reserve
US equity markets presented a mixed close on Tuesday, with eyes on an upcoming wave of retailer earnings and Federal Reserve Chair Jerome Powell’s anticipated speech at the Jackson Hole, Wyoming symposium starting this Friday. The market largely expects at least one more hike to the Federal Open Market Committee’s (FOMC) benchmark lending rate by year-end. Powell’s address is predicted to emphasize inflation’s remaining ‘significant’ upside risks, advocating for continued restrictive policy. Following a June pause, the FOMC reinstated its tightening campaign last month, raising the benchmark lending rate by 25 basis points.
The Nasdaq Composite led gains, up 1.6% at 13,497.6, followed by the S&P 500, rising 0.7% to 4,399.8. The Dow Jones Industrial Average, however, fell 0.1% to 34,463.7.
Currency Market Dynamics
Monday saw the Dollar retreat from a five-week winning streak, closing slightly lower against its major peers. Speculators are watching the upcoming Jackson Hole symposium, anticipating sustained higher rates. The Dollar Index was last at 103.290, down from Friday’s 2-month peak of 103.68. Notable currency movements included EUR/USD up 0.21% at 1.0896, GBP/USD at 1.2762, up 0.21%, and USD/JPY, up 0.55% to 146.21—with intervention considered at around 150.
Commodities: Gold and Oil
Gold prices marked a second consecutive session of gains on Monday despite climbing treasury yields and a weakening Dollar. COMEX Gold for December delivery settled at $1,923.00/oz, up $6.50. However, rising bond yields pose a threat to gold, as heightened interest rates escalate the metal’s carrying costs. The focus on potential further rate hikes and high opportunity/funding cost for holding gold might deter asset managers.
In contrast, West Texas Intermediate (WTI) crude oil closed lower on Monday at $80.72/bbl for September delivery, a $0.53 drop. October Brent crude was down $0.26 at $84.54/bbl. This came after China’s central bank cut its one-year lending rate by 10 basis points, igniting concerns over China’s economic health. While Saudi production cuts continue to limit supply, the weak Chinese economy—burdened by an overbuilt real estate sector—may cut global oil demand.
Major cryptocurrencies were flat, stabilizing after significant liquidations last week. Bitcoin (BTC) witnessed speculative accumulation as the asset’s price is considered discounted relative to fundamentals. Though more open interest leans on the short side, the market’s sideways move in thin liquidity indicates a betting trend on Bitcoin’s price movement.
The week ahead promises to be eventful, with market participants keenly focusing on retailer earnings, Chairman Powell’s speech, and the interplay between global currencies, commodities, and cryptocurrencies. Both short-term movements and long-term economic implications will likely be shaped by these factors, offering insightful indicators for traders and policymakers alike.