Jerome Powell’s speech at the Jackson Hole Symposium, which was expected with great interest by the markets, ultimately failed to restore the positive mood. Jerome Powell had a hawkish tone in his speech, stressing that the problem of high inflation remains and how the U.S. central bank might make new rate hikes to combat it. “It is the Fed’s job to bring inflation down to our 2% goal, and we will do so“, the Fed chief said. The speech was interpreted by markets as a strong indication that we should expect at least another Fed rate hike by the end of the year. The day before, however, some other senior Fed officials were more moderate in saying that enough had already been done to fight inflation. On Wednesday, markets held a mini rally mainly based on the results of the company Nvidia which showed impressive results and reignited investment community interest in technology and artificial intelligence and the growth it could deliver to the global economy. This positive sentiment was not maintained though and the day after, markets corrected impressively as well.
PMI indicators in Europe and the United States showed that there was economic pressure mainly in the manufacturing sector but below expectations was also the service sector and this came as a mini surprise. Towards the end of the week Christine Lagarde, head of the European Central Bank, was also very hawkish after saying interest rates would remain sufficiently high until inflation returns to 2%.
Most stock indices, despite having significant ups and downs during the week, managed to close on a positive note. Gold was also profitable, while oil prices had a mild correction. The rally for the U.S. dollar continued in an impressive way, thus completing six consecutive weeks of profits. The opposite picture has some other major currencies such as the euro and sterling. Regarding bond yields, there was a slight downturn with the U.S. 10-year bond yield closing the week at 4.23%. Bitcoin and most cryptocurrencies have not been able to benefit from the upward reaction of traditional markets and have continued their downtrend.
As the summer comes to its end, there are important announcements and results mainly in the USA. The United States announces GDP for the second quarter of the year on Wednesday while the jobs market – nonfarm payrolls are announced on Friday. The major inflation indicator of personal consumption expenditures is announced on Thursday for the United States. Markets are also looking forward to the results of China’s PMI manufacturing indicators as the country’s economy has been under pressure lately. Inflation announcements in the Eurozone, Australia, and Switzerland complete the cycle of major news for this week.
With bearish trends, the US SP500 index closed last week, at 4,406 points and a profit of 0.82%. SP500 and most of the stock indices had a big boost after the impressive results of Nvidia. For the 2nd quarter of 2023, Nvidia had earnings of $2.70 per share (adjusted), vs. $2.09 per share expected and the revenue was $13.51 billion vs. $11.22 billion expected. This performance was mostly based on the data center business, which includes the A100 and H100 Artificial Intelligence chips that are needed to build and run artificial intelligence applications like ChatGPT. After these results, there was an optimism among the investors that AI & technology could be drivers of economic growth. Unfortunately, it did not carry on and very soon SP500 turned negative again. On Friday, Jerome Powell at his speech at the Jackson Hole Symposium was interpreted as hawkish so markets estimated another interest rate hike. It was not a positive development for the stock indices because in such a case, the liquidity will be further reduced as a result of expensive money. During the last hours of the week though, there was a bullish reaction and SP500 managed to close the week with a positive sign. GDP on Wednesday, personal consumption expenditures on Thursday, and NFPs on Friday can potentially increase the volatility. Also, the manufacturing results in China will gather many investors’ eyes. We may try long positions this week
The German DAX40 index was slightly bullish last week, closing at 15,632 points, with a profit of 0.37%. DAX40 had a mild uptrend at the beginning of the week, affected by the global positive sentiment and Nvidia results, but on Thursday it had a significant correction. Markets were afraid of a hawkish speech from Jerome Powell on Friday in Jackson Hole Symposium and more or less, these fears were true. Jerome Powell spotted the hot inflation problem and he didn’t rule out further actions by the Fed. Germany had negative economic data to perform for one more week: GDP dropped by 0.2% in the 2nd quarter of 2023, and all PMI indicators were well below 50 (manufacturing PMI was below 40). Also, the business climate dropped in August and only the producer price index which fell by 6% on a yearly basis, was good news as it showed that the inflation is in a de-escalation phase. Germany & Eurozone CPI which will be announced in the current week will show more. Besides the German announcements, DAX40 is expected to be affected again by the US economic data that are of great importance this week. We prefer long positions.
The British FTSE100 index moved upward last week, closing at 7,339 points, rising about 1.05%. FTSE100 outperformed most of the major indices worldwide. On Wednesday, the PMIs in the UK had a very poor performance, failing to meet expectations and so the markets assessed that the Bank of England would not be so aggressive with the interest rate hikes. Since the inflation in the UK is around 7%, more interest rate hikes are expected but, as markets assess, not to a degree that would cause a heavy recession. Another reason for the FTSE100 outperformance was the UK bond yields that dropped significantly last week (from 4.73% to 4.44%). It is important enough as most of the bond yields in the US & Europe kept on rising. Ben Broadbent (Deputy Governor for Monetary Policy at the Bank of England) testified to the UK Parliament and he said that the monetary policy in the UK will be lighter than it was initially estimated in order not to cause a heavy growth slowing. It certainly helped the FTSE100 to recover further at the beginning of the current week. The support close to 7,220 points seems hard enough to be broken out and we’re keen to try long positions for one more week.
The previous week was bullish for gold, with the next month’s futures closing at $1,942 and profits of more than 1.26%. Since bond yields stopped the heavy uptrend rally, gold which is a main competitor in the ecosystem of low-risk assets, could take advantage and recover. It was a bullish reaction after three bearish weeks, even the US dollar kept on rising. Also, the investing sentiment turned negative, as the expectations of the global economy are not positive and many analysts speak of a possible recession in many regions. Several interest rate hikes in most of the major central banks may not end without consequences. It was confirmed by Jerome Powell’s speech on Friday at the Jackson Hole Symposium, as he was interpreted by the markets as hawkish. The negative economic data that China has released lately is another factor that contributes to the negative investing sentiment. China will release new data on the manufacturing area this week and along with US announcements (GDP, PCE, NFPs) may cause increased volatility for gold. We will stick to the recent downtrend and we’ll prefer short positions this week.
Last week was bearish for oil with the next month’s futures closing at $80.02, with losses close to 1%. The week was divided into two parts. In the first three days, we saw strong corrective trends mostly based on fears regarding China’s economy. China is the number one oil consumer in the world and the growth slowing that has lately, reflected in GDP, industrial production, retail sales, and other aspects, has caused many concerns. Also, central banks that most likely have more actions to provide to fight the high inflation are factors that worsen the investing sentiment even more. The last two days of the week were bullish enough and the oil managed to recover from its weekly lows of $77.60 and to close above the milestone price of $80. The improvement in market sentiment, especially after Nvidia results and rumors that Saudi Arabia could extend its production cuts further helped in this direction. The range of the oil prices during the last weeks is between $78.50 and $84.90 and by assessing that there’s more potential to the upside, we may try long positions this week.
EURUSD (Euro – US Dollar)
Last week was bearish for EURUSD as it opened at 1.0866 and closed at 1.0792. The exchange rate completed six consecutive declining weeks with big overall losses for the euro against the dollar after being well above 1.12 in mid-July. Most investors and analysts had expected the cycle of rising interest rates in the United States to be closed after inflation fell sharply to 3%. But a slight pick-up in inflation, recent increases in energy prices, and statements from Fed officials suggest at least one more rate hike should be expected by the end of the year. That belief has boosted the dollar significantly. Another reason for the strengthening of the dollar is the positive macroeconomic results that the United States has been performing lately. In contrast, negative sentiment has hit higher-risk currencies such as the euro. The negative picture of economic data from the Eurozone also further weakens Europe’s shared currency. This week is very interesting in relation to the announcements in the United States (GDP, unemployment, personal consumption expenditures) as well as the announcements of inflation in the Eurozone and Germany. We may try buy positions this week.
GBPUSD (Great Britain Pound – US Dollar)
Bearish was the last week for GBPUSD, which opened at 1.2725 and closed at 1.2576. The U.S. dollar continued its upward rally for another week and most currencies were somehow subdued by its strength. The atmosphere for even more drastic moves by the Fed strengthened last Friday after Jerome Powell’s speech at the Jackson Hole Symposium. The result of that talk was an even stronger dollar since the scenario of at least one more rate hike by the Fed is now quite likely. In the UK, the economy seems to remain under pressure as all PMI indicators were below 50 and manufacturing was reported at 42.5, a particularly low price. Ben Broadbent’s testimony to the UK Parliament was also important, as he said that a quantitative tightening of £ 100 billion could cause a problem with the liquidity of the economy, proposing a tightening of £ 80 billion. The week that has just begun does not contain particularly important announcements for the UK, but it is a very important week for the United States as we have seen above. Sell positions is our selection for the current week.
USDJPY (US Dollar – Japanese Yen)
USDJPY moved upward last week, opening at 145.28 and closing at 146.44. The U.S. dollar continues to strengthen, while bond yields remain high, helping the upward trend that the USDJPY has developed in recent weeks. On the other hand, the continued very loose monetary policy by the Bank of Japan combined with negative interest rates are factors that sustain the weakening of the Japanese currency. Tokyo’s Consumer Price Index, announced on Friday at 2.9%, showed that despite loose monetary policy inflation continued to remain low. In a speech on Saturday, Bank of Japan Chief Ueda said: “We think that underlying inflation is still a bit below our target. This is why we are sticking with our current monetary easing framework“, affirming the intention to continue the present policy. In addition to the important announcements on the economy of the United States seen above, important community announcements on the economy of Japan in relation to unemployment and industrial production. We may try buy positions this week.
EURJPY (Euro – Japanese Yen)
Neutral was last week for EURJPY which opened and closed around 158. There was a balance as both the European currency and the Japanese yen showed weaknesses in the past week. The euro continues to be under pressure due to the negative investor sentiment that has dominated markets lately and the negative macroeconomic results announced by the Eurozone. On the other hand, Japan’s currency is under pressure mainly due to the continued loose monetary policy exercised by the country’s central bank. We prefer buy positions for one more week.
EURGBP (Euro – Great Britain Pound)
Last week was bullish for the EURGBP, as it opened at 0.8533 and closed at 0.8578. Sterling and the euro weakened last week after investors opted for lower-risk currencies. Thus continues the sideways trend towards the pair that has been going on for about two and a half months and does not let the EURGBP get above 0.87 or below 0.85. Especially the 0.85 is a very strong support since it is the lowest price of the last year. We may try buy positions this week.
USDCAD (US Dollar – Canadian Dollar)
Bullish was the last week for USDCAD, which opened at 1.3542 and closed at 1.3604. The uptrend for the USDCAD has been strong in recent weeks as the US dollar has been experiencing a period of significant strengthening. Over the past week, oil price pressures have caused the Canadian dollar to fall even further. A slight glimpse of a strengthening of the Canadian currency was seen on Wednesday after the announcement of a rebound in retail sales but the upside for the exchange rate quickly came back. Volatility in the current week may pick up a lot due to news and announcements from the United States and Canada’s GDP announcement on Friday. We prefer sell positions this week.
USDCHF (US Dollar – Swiss Franc)
The USDCHF had an upward course last week as the opening price was at 0.8808 and the closing price was at 0.8844. The rise in the exchange rate continued, a rise based mainly on the strength of the U.S. dollar seen for several weeks. The fact is that the perception among markets that the Fed will continue with at least one more rate hike through the end of the year has helped the dollar a lot. On the other hand, the rise of the USDCHF is not the same in intensity compared to other currency pairs that contain the US dollar and this is because the Swiss franc continues to gather the share of investors seeking safe-haven investments. Let’s not forget that the economic sentiment has gone into negative territory and investors are looking for safe-haven investments. As per the results of the Swiss economy, we saw a deterioration in the country’s trade balance for July, but central banks and economic sentiment dominate investor choices. We may try buy positions this week.
AUDUSD (Australian Dollar – US Dollar)
Neutral was the last week for AUDUSD, which opened and closed around 0.64. The Australian dollar was able to resist the big strengthening of the US currency and so the exchange rate managed to close without falling. The Australian dollar is a currency that depends heavily on commodity prices and so the rise in gold and copper prices has favored it. Of course, the downward trend for the exchange rate has not changed since the state of China’s economy remains under pressure and Australia has not been showing a positive picture lately. Most notably all PMI indicators announced for Australia last week were below expected and below 50. Announcements of the United States economy and manufacturing in China will play a big part for AUDUSD, without of course underestimating Australian retail sales and inflation announcements also announced within the week. Buy positions is our selection for the current week.
Last week, Bitcoin was mildly bearish and closed at $26,090 with losses of 0.40%. After the big drop that had taken place one week before with losses of more than 10%, the last week was calmer but it could not be a recovery week as well. The impressive results of Nvidia on Wednesday had caused a temporary recovery for Bitcoin, up to $26,800 but it was not something sustainable and the downtrend prevailed again. Investors still await the SEC decisions on the Bitcoin ETF applications and the continuous delay has caused nervousness. There are implied conflicts between the SEC and many crypto companies like CoinBase and Binance that also create concerns. As Reuters mentions “Binance is facing legal and regulatory challenges” and “U.S. regulators sued the crypto exchange and its CEO Changpeng Zhao in June for allegedly operating a web of deception”. The latest decision of Mastercard to end the payment partnership with Binance in several countries was another negative factor for the crypto investing community. We prefer short positions for one more week.
The information in this report is of a general nature only. It is not a piece of personal financial advice. It does not take into account your objectives, financial situation, and personal needs.
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