It's been a difficult week for markets (and investors) as investors struggle to find direction. Strong gains were followed by a sharp panic sell-off. In this week of limited economic data, market moves have been dominated by Nvidia price swings and rising expectations of more interest rate hikes. Investors are eagerly awaiting the speech of Federal Reserve Chairman Jerome Powell.
After yesterday's heavy losses, we see the markets in Europe and the US slightly up. Despite yesterday's sharp sell-off, markets are on track to end the week with a gain – the first after three weeks of losses in a difficult start to the third quarter.
Treasury yields have risen on expectations that the Fed will again signal a hawkish stance amid concerns that the strong U.S. economy and tight U.S. labor market are driving up consumer prices.
The main focus today will be on Powell's speech at 14:05 UTC+0, in which he will provide an outlook on whether interest rates should continue to rise and when to expect rate cuts. Signs of more hawkishness would push US Treasury yields significantly higher and bring the selloff back. Even Nvidia's stellar earnings report wasn't enough to combat the headwinds from expectations of higher or longer-term high interest rates.
Equities in Europe rose across the board, with European stocks also benefiting from a weak EUR and GBP. In China, Beijing further eased its mortgage policy to support the economy. The boost to equities was short-lived, however, as Chinese and Hong Kong stocks closed the day sharply lower (again).
Oil prices continued to move in the range we expected ($78.00 – $80.00) this week and are now approaching the upper end of that range. Gold prices were unable to rise further as higher yields put pressure back on, which also supported the USD. The EUR and GBP fell sharply yesterday after the markets first misjudged the very weak purchasing managers' indices in the Eurozone and the UK. EUR/USD and GBP/USD hit more than two-month lows today. The USD would get another boost if Powell hints at further tightening – but we do not expect it. In my opinion, it is more likely that Powell says that the Fed remains data dependent (i.e. continues to be in wait-and-see) also because global consumption is weakening.
👁 ROB'S MARKET OVERVIEW:
August 25, 2023
🇺🇸 US Markets ↕️/↗️ (highly depending on Powell's speech / Fed remaining in wait-and-see / no outlook for more hikes would support stocks significantly)
Cyclical Stocks ↕️/↗️
Tech/Growth Stocks ↕️/↗️
Financial Stocks ➡️
Defensive Stocks ➡️/↗️
Energy Stocks ↗️
Materials Stocks ➡️/↗️
USD ➡️/↗️ (will be strongly impacted by Powell's Speech – some weakness in USD if Fed remains in wait-and-see mode / overall USD remains supported)
USD, AUD, CAD ➡️/↗️
GBP, EUR, CHF ➡️
⚒ Commodity Markets ↕️
Oil prices ➡️/↗️ (WTI trying to push above $80 – more Fed hawkishness would weigh on oil prices)
Natural Gas prices ↕️/↗️
Metal prices ➡️/↘️
Precious Metal prices ➡️/↘️ (high(er) yields will lead to ongoing headwinds)
⚡️Cryptos ➡️ (confidence in cryptos remains negative after recent losses)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)