Powell offered a lift to US stock markets but there was some mid-day angst along with signs of sector rotation into pro-cyclical small caps.

Closing changes on the day:

• S&P 500 +1.2%
• Nasdaq Comp +1.5%
• DJIA +1.2%
• Russell 2000 +3.1%
• Toronto TSX Comp +1.1% (record high)

On the week:

• S&P 500 +1.4%
• Nasdaq Comp +1.4%
• DJIA +1.3%
• Russell 2000 +3.4%
• Toronto TSX Comp +4.1%

The S&P 500 is now just 0.6% away from the all-time high.

This article was written by Adam Button at www.forexlive.com.

Bitcoin has been lagging in the recovery from the broad market rout in the start of August, in part because of worries about the sale of Mt. Gox bitcoin. But it’s making up for lost time today, rallying nearly 5% and trading at a session high.

The daily chart has a nice look as it breaks out of two weeks of consolidation to the upside with not much standing in the way of $68,000.

This article was written by Adam Button at www.forexlive.com.

The great stock market turnaround in August was impressive in many ways but when I take a step back, there was one big question being asked and answered: Is the Fed behind the curve?

Within that question is a set of assumptions about the US economy and if you look at the economic data, there was cause for concern. The ISM services index in June fell to the lowest since 2020, global commodity prices have been falling and US unemployment has been rising.

A big boost for US stocks came on strong retail sales data but when I survey the picture of US data over the past two months, there’s no clear trend. What was clear though was corporate America.

Scotia here highlights how rarely ‚recession‘ was mentioned on earnings calls:

„So far we aren’t experiencing a weaker consumer
overall,“ said Walmart’s CEO. That was backed up by Target and many others.

For sure, there were some pockets of weakness like McDonald’s an anything housing-related but those are looking like outliers. McDonald’s has been getting pushback on pricing (and did say there was a strong response to $5 meals) and housing is very rate-sensitive.

What emerges is a picture of a consumer that’s picky about pricing but not in a recessionary mindset, at least not yet.

On earnings overall, it was a positive picture, according to Scotia:

The U.S. Q2 reporting season is essentially over
with 95% of companies having reported. S&P 500 Q2 EPS is coming in at US$59.86, which is better
than the US$58.64 expected at the start of the reporting season. See Exhibit 3. The beat propelled
the earnings growth rate up to 11% y/y vs. expectations of 9% when the reporting season started.
At the company level, the median earnings beat was 4.4%, which is only slightly below the last two-
year average of 4.6%, but above the five-year pre-pandemic average of 3.8%. Harder to manipulate,
the top line also exceeded expectations, rising +5.7% y/y, the best reading since the final quarter of
2022, as 60% of companies topped Wall Street forecasts. Lastly, the percentage of sectors reporting
a y/y earnings decline was stable at 27% (three reported an EPS decline), but well below levels
registered in 2022 when more than half of sectors suffered earnings contraction.

On top of that:

• Wall Street hasn’t trimmed earnings more than usual going forward
• Revenue forecasts today are slighly above June levels for both 2024 and 2025
• Few one-time charges, impairments or no-cash expenses, which points to earnings quality

Scotia sums it up nicely: „If a steep US macro downturn has indeed started, it’s not yet showing up in
earnings numbers (actual or expected).“

This article was written by Adam Button at www.forexlive.com.

Headlines:

• Preview: What to expect from Powell at Jackson Hole
• From angst to relief for US equities?
• GBP/USD lingers near the 2023 high as buyers hope for a breakout to end the week
• France August business confidence 97 vs 94 prior
• BOJ governor Ueda reaffirms closely watching market moves with high sense of urgency
• BOJ governor Ueda: Markets remain unstable, moves have been volatile
• BOJ governor Ueda plays down any differing policy stance with deputy governor Uchida
• Japan finance minister says FX intervention in July was effective
• ECB’s Kazāks: No reason now not to follow through on projection for rate cuts

Markets:

• AUD leads, USD and CHF lag on the day
• European equities higher; S&P 500 futures up 0.5%
• US 10-year yields down 1.4 bps to 3.848%
• Gold up 0.6% to $2,498.53
• WTI crude up 1.3% to $73.96
• Bitcoin up 0.2% to $60,781

It was a quieter session with little in terms of market news flowing through. All eyes are on Fed chair Powell’s appearance later in Jackson Hole and that is captivating the attention of market players for now.

The dollar is somewhat sluggish again today, after having recovered a little in trading yesterday. On the week itself, it remains vulnerable to further declines across the board.

USD/JPY was an active pair in Asia amid remarks from BOJ governor Ueda in a parliamentary hearing. But the pair stuck around 145.60-10 in European morning trade, now down just 0.1% at 146.05.

Besides that, the dollar is leaning on the softer side against the higher beta currencies. GBP/USD is up 0.3% to 1.3125 and eyeing its 2023 high while AUD/USD is up 0.4% to 0.6730 on the day.

That comes as equities are in a more cheerful mood, after getting checked back a little in trading yesterday. S&P 500 futures are up 0.5% as investors are turning angst to relief ahead of Powell’s remarks later.

If you’ll be in Sydney next week, do drop by and give a hello as Eamonn and myself will be at the Finance Magnates Pacific Summit from 27 to 29 August. The attendance is free and I’ll be presenting on how one can approach trading just as you would picking up a sport. Have a great weekend, everyone!

This article was written by Justin Low at www.forexlive.com.

It’s been fairly one way traffic for equities since Asia trading. S&P 500 futures were lightly changed earlier in the day but are now up by roughly 0.5% ahead of US trading. Wall Street opened higher yesterday but surrendered gains during the session to close modestly lower. It can be argued that there was some pre-Powell angst perhaps but that looks to be clearing up now.

So, what exactly can we expect from the Fed chair later?

I won’t expect him to rock the boat amid fears of stirring up another volatility bout in markets. As such, it is likely that Powell should just reaffirm that they are looking to cut rates next month. But whether it be 25 bps or 50 bps, that is something that he won’t pre-commit to surely.

In other words, Powell will try to play it safe. The question is, will markets sense some relief for that? Or are they going to kick and scream again to force a 50 bps move? The current pricing shows that the odds of a 50 bps rate cut are priced at ~26%. So, there is some backpedaling to do there if the Fed doesn’t deliver.

That being said, there was no issue for risk trades when we went back from six rate cuts at the end of last year to just one by May. So, what’s a quarter pricing extra of 25 bps eh?

This article was written by Justin Low at www.forexlive.com.

The pound has quietly been an outperformer among the major currencies in trading this year. Amid a more resilient economy and stickier inflation, the BOE has seen their rate cut plans pushed back. And that has helped to underpin the currency as most other major central banks are on track to cut rates further.

The latest to fall in that domino is the dollar, having endured a rather punishing last two weeks. In turn, GBP/USD has made significant progress in a push from 1.2800 to now above 1.3100.

And as we look to close out the week, buyers are taking aim at the 2023 high of 1.3142 currently.

Another notable development in August is that we are seeing price push above its 100-month moving average of 1.2926. GBP/USD has had a long history of struggle against its key monthly moving averages, stretching all the way back to 2008. And so, a firm break here could very well open up scope for a stronger upside push alongside the other technical levels highlighted above.

At the end of the day, it all comes down to the divergence between the BOE and Fed. And of course how quickly things will narrow once inflation pressures in the UK begins to come under control.

But with the dollar stumbling across multiple charts, it’s tough to argue against a softer backdrop for the US currency – at least for now.

All eyes will be on Fed chair Powell next to see if he will deliver another blow to the greenback before the weekend.

This article was written by Justin Low at www.forexlive.com.

As the dollar bounced back a little, gold fell by 1% and more importantly back under the $2,500 mark. Price is still keeping above the previous triple top pattern around $2,480 but buyers will be hoping to clinch a more convincing push above the figure level to solidify the breakout status.

Instead, price action focus now turns towards the near-term chart as seen above.

The drop under $2,500 sees gold move back to test its 200-hour moving average (blue line) and buyers are holding for now. Keep above that and buyers will still be in it with a shout as we look to close out the week. But break below and sellers will start to resume near-term control for the first time since the start of August.

Fed chair Powell’s appearance is the key risk event to watch in the day ahead. That will matter for both dollar and bond market sentiment.

As such, gold will have to work with the reaction to that to wrap things up this week. For now, price action is sitting in a more neutral spot in the near-term. That considering we are seeing price trade back in between its 100 (red line) and 200-hour moving averages. And also with the $2,500 level in focus too.

This article was written by Justin Low at www.forexlive.com.

• Eurostoxx +0.2%
• Germany DAX +0.2%
• France CAC 40 +0.3%
• UK FTSE +0.3%
• Spain IBEX +0.6%
• Italy FTSE MIB +0.6%

S&P 500 futures are up 0.4% as risk sentiment holds steadier to start the session. All eyes are on Fed chair Powell’s appearance later today to set the mood before the weekend. It is anticipated that he will confirm expectations of a rate cut in September. I wouldn’t expect him to be too explicit about it though. But we’ll see.

This article was written by Justin Low at www.forexlive.com.

Headlines:

• Cable eyes the 2023 high with dollar in the doldrums
• ECB accounts: Next meeting widely seen as good time to evaluate policy restrictiveness
• France August flash services PMI 55.0 vs 50.3 expected
• Germany August flash manufacturing PMI 42.1 vs 43.5 expected
• Eurozone August flash services PMI 53.3 vs 51.9 expected
• Eurozone wages slow down in Q2 after running hot in the previous quarter
• UK August flash services PMI 53.3 vs 52.8 expected
• UK August CBI trends total orders -22 vs -25 expected
• BOJ reportedly considering to add wage-related items to quarterly Tankan survey

Markets:

• GBP leads, JPY lags on the day
• European equities higher; S&P 500 futures up 0.2%
• US 10-year yields up 6 bps to 3.835%
• Gold down 0.4% to $2,500.54
• WTI crude up 0.4% to $72.25
• Bitcoin flat at $61,301

The focus finally turns back to the economic calendar today and we got a round of PMI data from the euro area and UK to work through.

The French numbers were a beat on the services side but it is likely a one-off, owing much to a demand boost from the Paris Olympics. The German numbers were bad and that tempered with the euro a little on the release. But as markets are already pricing in a rate cut by the ECB for next month, the reaction has been rather minimal overall.

EUR/USD caught a brief algo spike from 1.1150 to 1.1165 before turning lower to 1.1128, then now trading just 0.1% lower at around 1.1135.

The dollar had been weaker throughout the week but is finding a bit of a footing today. That comes as bond yields are also bouncing back, erasing the drop from yesterday. And that is underpinning USD/JPY, with the pair now up 0.5% to around 146.00. The less dovish comments from the Fed’s Schmid here is also helping somewhat.

Besides that, GBP/USD is still marching forward and helped by a stronger UK PMI data. The pair is up just above 1.3100 as it looks to the 2023 high next at 1.3142.

In other markets, equities remain steady after regaining some composure yesterday. S&P 500 futures are up 0.2% with European indices also sitting modestly higher so far on the day.

All eyes now turn towards more US data to come, before moving on to Jackson Hole and Fed chair Powell’s appearance ahead of the weekend tomorrow.

This article was written by Justin Low at www.forexlive.com.

• Quite strongly believe that we have to sustainably get inflation back to 2%
• There is still work to do on that
• We’ve seen some cooling in labour market conditions but it is still generally pretty strong
• On the NFP revision, „it doesn’t change a lot“ to the outlook
• Rates are not overly restrictive
• There is room to consider where we go from here

It’s not exactly the type of softer language that markets would like to be hearing from the Fed. The narrative that traders want right now is that ‚labour market is bad, we want rate cuts now‘. So, this doesn’t quite fit with that. USD/JPY is now up just above 146.00 with 10-year Treasury yields at the highs for the day at 3.835% – up by 6 bps.

This article was written by Justin Low at www.forexlive.com.