📊 Market Report.
📈 The FOMC Minutes highlighted an emerging view risks to inflation/employment goals are now balanced despite high borrowing costs. Stunning optimism since last week has been fuelling the market on the premise that the Federal Reserve will ease interest rates. Clues from this week’s central bankers meeting will provide further clarity on these bullish sentiments.
🇯🇵 Japan’s trade balance falls. Japan’s exports have come in lower than expected, indicating that the strengthening of the yen in recent weeks has taken its toll. The recorded trade deficit is almost double expectations. BOJ faces challenges shifting from easy policy as cost of living squeezes households. Consumption recovery backed by wages will be key, but yen strengthening could eventually slow inflation and force BOJ to pause hikes in 2023.
📉 The BOJ surprised markets in July by raising rates to 0.25% after abandoning negative rates, signaling steady hikes. Markets stabilized after turmoil from the yen strengthening and stocks plunging after the July hike. While BoJ softened the message, markets discount the BOJ’s stance of gradual normalization has not changed. Growth is forecast at 0.6% for the current fiscal year and 1.1% for the next, while inflation will average 2.4% and 1.9% respectively.
🗓️ Next Friday, Ueda will answer questions from members of the lower house of parliament. The upper house will then meet again in the afternoon. The extraordinary meeting was convened by MPs who are demanding an explanation from the BOJ, during a time when the entire parliament is not in session.
🇪🇺 European data: Once again, the PMIs published in Europe show the same pattern. Manufacturing activity remains strongly depressed. Manufacturing PMIs in France and Germany are at 42.1 and below expectations. Services PMIs are above 50, in the case of Germany unfortunately still below expectations. In the case of France, with a services PMI at 55, this is possibly due to the effect of the Olympics on the French economy, which has stimulated services. The UK is again the economy in this region that surprises on the positive side, showing manufacturing and services PMIs above expectations and above the 50 range.
🛢️ The crude oil market is reaching an unusual and interesting situation. It seems that OPEC+ is facing an unforeseen scenario. Despite maintaining its production cuts, the club’s price is reaching unusually low levels. Crude oil supply is increasing in non cartel countries, such as the increase in exports from Canada to Asia mentioned in previous reports. This causes OPEC+ to lose not only control over the market, but also revenues in an accelerated and unexpected way. On the other hand, concerns about a faster than expected slowdown in the US economy, coupled with weak domestic consumption in China’s economy, are helping to see a drop in global oil demand.
🔍 Market View:
📊 The markets remain optimistic after the recovery. The SP500 is at 5,645 points, the Nasdaq 100 at 19,880 points. Even the lagging Russell 2000 also seems to be approaching 2,200 points.
💲 The dollar remains unusually weak awaiting Powell’s remarks, yesterday even losing 101 points on the DXY, which helped the EURUSD momentarily break above 1.1150.
📉 The volatility we mentioned in the previous report is present even before the Jackson Hole results. The US 2 year bond has moved more than 12% in the last two weeks, from returns near 3.6% to returns of more than 4.1%, and now stands at 3.95%.
📈 In Europe, the Dax40 is approaching resistance at 18.600 points, but the chart has been spectacularly bullish over the last week.
🪙 Gold remains in the vicinity of its new highs, trading at $2545 at the moment, taking advantage of the weak dollar. Bitcoin is also strong, struggling to pass the $62,000 resistance.
🌍 Geopolitics:
🇺🇦 Ukraine says it destroyed Russian pontoon bridges in Kursk region with US-made HIMARS, to defend its incursion. Germany expects Ukraine’s Kursk operation to be limited in space and time, and wasn’t consulted beforehand. The incursion has boosted Ukrainian troops’ morale after limited gains on its own soil since spring. Russia prioritizes capturing Donetsk but Ukraine says it’s not pulling forces from near Pokrovsk as reinforcements.
🇮🇱 The US peace plan with Israel and Gaza is hampered. US officials believe Netanyahu’s “maximalist statements” are hindering Gaza ceasefire talks, according to multiple reports. Blinken criticized Netanyahu’s comments on continuing IDF presence in Gaza as “not constructive” to a ceasefire deal. An unnamed Israeli negotiating team source accused Netanyahu of “sabotaging” talks by contradicting mediators’ agreements.
