Market volume remains low as investors await (and wait for) a series of economic data in the coming days that could change rate hike expectations in particular, after Powell's speech in Jackson Hole did not bring much new.
Stocks in Asia, particularly China, extended yesterday's gains and continue to provide a tailwind for markets in Europe and the US. While European markets are slightly higher, we see Wall Street unchanged/slightly negative pre-market. However, I expect today's labor market data to be more supportive of Wall Street, as there may be signs of a slight easing in the still very tight labor market.
August will be the worst month of the year even if stocks can continue to gain this week. It will also remain a difficult H2, with probably more signs of recession in Europe. Indicators such as sharply weakening manufacturing and industrial orders also point to an impending recession in the US. However, as the recession approaches, which will also contribute to a decline in inflation, the end of the tightening campaign is drawing closer – meaning losses could be contained, although I don't see a particularly strong performance for the rest of the third quarter.
We see a put overhang in the market, which gives the bulls an opportunity to push the markets higher, as further gains could lead to a short squeeze.
The main focus this week will be on the important economic data from the US. We hope to see a slight deterioration in conditions that the Fed is comfortable with, helping to keep inflation cooling. At the same time, the picture that a soft landing is still possible would be important to maintain the current cautiously positive sentiment.
In the UK, recent inflation data showed further signs of cooling – easing pressure on the Bank of England. The USD remains in overall demand, but I see diminishing upside potential – especially in the event that US economic data this week is not much better than expected.
Commodity prices may continue to rise after recent fears of a slump in Chinese demand receded. WTI is approaching the $81/barrel mark. Gold is still at the key $1,920 level but may rise as demand for bonds may increase amid signs of a pause in rate hikes (cooling bond yields) and as medium-term gains in equities are limited as most of the 2023 gains have already been made in the first half of the year.
👁 ROB'S MARKET OVERVIEW:
August 29, 2023
🇺🇸 US Markets ➡️/↕️/↗️ (we see sideways movement ahead of more economic data; We expect slight signs of cooling labor conditions which would keep the current slightly positive mood alive)
Cyclical Stocks ➡️/↗️
Tech/Growth Stocks ➡️/↕️
Financial Stocks ➡️/↗️
Defensive Stocks ➡️/↗️
Energy Stocks ➡️/↗️
Materials Stocks ➡️/↗️
💱 Forex
USD ↗️/➡️ (sideways; slightly lower in case labor market data shows signs of cooling)
AUD, CAD ➡️/↗️
EUR, CHF ➡️
JPY, GBP ➡️/↘️
⚒ Commodity Markets ↕️
Oil prices ➡️/↗️ (WTI to find support at $80.00 – remaining slightly bullish)
Natural Gas prices ↕️
Metal prices ↕️/↗️
Precious Metal prices ➡️ (may benefit slightly from potentially cooling labor market conditions – but overall still hovering near $1.920)
⚡️Cryptos ➡️ (confidence in cryptos remains negative after recent losses)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)
Yours, Robert
