Mohicans markets：Focus on the Australian Fed’s resolution and the U.S. PMI data in August

At 17:00, BOE Governor Bailey and three members of the Monetary Policy Committee will face questions from MPs on the outlook for inflation and interest rates. TD Securities says this is their last chance to give a hint, as markets are hesitant to decide whether the BOE will raise rates by 50 bps or 75 bps in September.

At 22:00, the Bank of Canada announces its interest rate resolution. Wells Fargo expects the Bank of Canada to raise rates by 75 basis points and will slow the pace of rate hikes after September, only raising the policy rate to 3.75% by the end of the fourth quarter.

At 22:00, Cleveland Fed President Mester gives a speech. Mester recently preferred to raise the federal funds rate above 4% in early 2023, and does not think the Fed will cut rates next year.

At 23:55, the Federal Reserve Vice Chairman Leonard Brenner speaks. Investors can pay attention to Brainard‘s speech contains U.S. inflation, economic outlook and the Fed’s interest rate hike expectations. 

The following day at 0:00, EIA will release its monthly short-term energy outlook report. Last month‘s report slightly lowered this year’s U.S. oil price expectations and raised the price expectations for Brenner, while lowering the price expectations for both U.S. and Brenner next year.

The following day at 0:35, the Federal Reserve Vice Chairman Brainard will speak on the U.S. economic outlook. Investors can pay attention to Brainards assessment of whether the U.S. economy can avoid a “hard landing” in the current tightening cycle, as well as her outlook on inflation.

The following day at 1:00, Apple holds its fall launch event.

The following day at 2:00, the Federal Reserve releases its Brown Book on economic conditions. The previous Brownbook showed that contacts in five regions expressed concern about the increased risk of recession, with all regions experiencing significant price increases. The outlook for future economic growth in the reporting regions was mostly negative. Contacts noted that demand is expected to weaken further over the next 6 to 12 months.

The following day at 4:30, the U.S. API crude oil inventories for the week ending September 2 were released. The previous value recorded an increase of 593,000 barrels, which was somewhat bearish for crude oil.

Global Views - List of Major Markets

In early Asian trade on Wednesday, September 7, the dollar index was trading near 110.22; the dollar climbed on Tuesday and once again set a new two-decade high of 110.57 during the session, with the U.S. non-manufacturing activity index rising slightly to 56.9 last month from 56.7 in July, the second consecutive monthly rise after three months of declines, reinforcing the view that the U.S. is not in recession. The euro and the exchange-rate-sensitive yen fell further against the dollar; gold prices retreated from a one-week high reached earlier in the session; crude oil fell more than 2% as the prospect of more interest rate hikes and new crown sealing measures that would weaken fuel demand reignited market concerns, reversing two days of gains from OPEC+s first production cut target since 2020.

Precious Metals

Gold prices retreated from a one-week high touched earlier in the session on Tuesday, driven by expectations that major central banks will tighten monetary policy aggressively as the dollar and U.S. bond yields climbed. The focus this week will be on Thursday's European Central Bank meeting, where the central bank is expected to raise interest rates by 75 basis points.

The Federal funds rate futures currently put the probability of a 75 basis point rate hike at the Fed's Sept. 20-21 policy meeting at 73 percent. Daniel Ghali, commodities strategist at TD Securities, said, “There are not several forces that are keeping the market under pressure, all of which are related to the outlook for global monetary policy in the year ahead.”

The dollar jumped to a 20-year high after data showed the U.S. service sector rebounded for a second straight month in August on order growth and strong employment, while supply bottlenecks and price pressures eased. Indicator U.S. Treasury yields rose to the highest since June on expectations that the Federal Reserve will continue to raise interest rates. Higher U.S. bond yields raised the opportunity cost of holding non-sin rate gold. 

Crude Oil

Oil prices fell on Tuesday as worries revived at the prospect of more interest rate hikes and coronavirus lockdowns denting fuel demand, reversing a two-day rally that saw OPEC+ cut its output target for the first time since 2020.

U.S. crude has been trading unsettled since Sunday due to the Labor Day holiday. U.S. crude prices are down more than 2 percent from Monday's usual settlement time, according to Refinitiv Eikon data.

“With OPEC+ news in the market now, the focus has temporarily shifted to concerns about the economy and inflation, two of which are the global spread of the coronavirus and Thursday's ECB rate decision,” said Tamas Varga of oil broker PVM.

The dollar rose about 0.6% on better-than-expected U.S. services data, also weighing on oil prices. Data on services activity fueled expectations that the Federal Reserve will continue to raise interest rates, which could trigger a recession and lower fuel demand.The EU foreign policy chief said on Monday that he had no hope of a quick resumption of the Iran nuclear deal.

OPEC+ decided on Monday to cut its October output target by 100,000 bpd. Oil prices rose on Friday ahead of the meeting, which also rose after the results were released.

Weekly inventory reports from the American Petroleum Institute (API) and Energy Information Administration (EIA) will be released on Wednesday and Thursday, a day later than usual, due to the Labor Day holiday.

Foreign Exchange

The dollar climbed on Tuesday after a report on the U.S. services sector in August reinforced the view that the United States was not in a recession, with the euro and the currency-sensitive yen tumbling further against the dollar.

The U.S. dollar index rose 0.547% after the Institute for Supply Management (ISM) said its index of non-manufacturing activity edged up to 56.9 last month from 56.7 in July, the second straight month of gains after three months of declines.

Economists polled by Reuters had forecast the non-manufacturing index would fall to 54.9. Last week's ISM manufacturing survey showed U.S. manufacturing activity rose steadily in August compared with other major economies.

Institutional Currency Viewpoint

1. Wall Street's 'big bear': more pessimistic about U.S. corporate earnings prospects

2. Truss's energy response plan will cost about $200 billion

3. Janus Henderson U.S. Venture Fund: OPEC+ production cuts make oil demand the focus of the market

4. Italy promulgated new energy-saving regulations to shorten the heating time in winter and reduce the heating temperature

5. Chris Williamson, chief business economist at S&P Global Market Intelligence, commented on the final value of the US Markit services PMI in August

6. Anthony Nieves, Chairman of the ISM Non-Manufacturing Business Survey Committee

7. Barclays: Truss's energy bill freeze plan may mean UK inflation has peaked

8. Institutional analysis: The neutral interest rate pursued by the Fed for a long time is elusive and volatile

9. North Macedonia proposes a 300 million euro plan to overcome the energy crisis this winter

10. France's largest aluminium smelter cuts output by 22% to deal with soaring electricity costs

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