Mohicans markets：Follow Fed Officials' Views on Inflation

17:00 The euro zone economic sentiment index for August was announced, expected to be 97.7, lower than the previous value of 99.

20:00 2024 FOMC vote committee, Richmond Fed President Barkin delivered a speech. Barkin has said a few days ago that the Fed must curb inflation, even if it leads to a recession. At the same time, Barkin also supported the Fed to raise interest rates “early”.

22:00 US August Conference Board Consumer Confidence Index announced, expected to be 97.5, the previous value was 95.

23:00 New York Fed President Williams delivered a speech. After raising interest rates by 75 basis points in July. Williams said the Fed still needs to “quickly” adjust the federal funds rate to a more normal level, and that a rate level of 3%-3.5% at the end of the year seems to be the right choice.

Global Views - List of Major Markets

On Monday August 29, spot gold once fell below $1,720 to a one-month low, then recovered most of the lost ground in the day, and finally closed down 0.03% at $1,736.83 per ounce. Spot silver fluctuated in a narrow range and finally closed down 0.75% at $18.76 per ounce.

The U.S. dollar index fell after hitting a 20-year high, falling below the 109 mark, and finally closed down 0.046% at 108.8. The 10-year U.S. Treasury yield rose above 3.10% to a two-month high and closed at 3.114%. The 2-year U.S. Treasury yield, which is more sensitive to the Fed's movements, climbed to a 15-year high of 3.49%. The 2-10-year U.S. Treasury yield curve remains inverted.

In terms of crude oil, WTI crude oil continued to expand its gains in the U.S. market. It broke the US$97 mark at one point, rose more than 4% within the day, and finally closed up 4.26% at US$96.92 per barrel.Brent crude ended up 4.32% higher at $105.05 a barrel.

The three major U.S. stock indexes opened lower and moved lower. The Dow closed down 0.57%, the Nasdaq closed down 1.02%, and the S&P 500 closed down 0.67%. Pinduoduo rose by more than 14% after its performance, and its Q2 net profit was 8.896 billion yuan, a year-on-year increase of 268%, which greatly exceeded market expectations.

European stocks closed down across the board, with Germany's DAX down 0.61%, France's CAC down 0.83% and Italy's FTSE down 0.24%.

Precious Metals

In early trading on Tuesday August 30, Beijing time, the price of gold turned from losses to gains on Monday, as the dollar‘s rally lost momentum. Earlier in the session, the price of gold hit a one-month low, affected by the Federal Reserve’s hint on Friday that it will continue to raise interest rates sharply. 

Powell said Friday in his opening remarks for a central bank seminar in Jackson Hole, Wyoming, that the Fed will raise borrowing costs to levels needed to limit growth,and will stay at that level “for some time” to push inflation back down. Currently, market participants generally expect the Fed to raise rates by 75 basis points at its September meeting.

Analysts at Goldman Sachs slashed their growth forecasts for the U.K. economy and expect a recession to begin later this year as soaring inflation hits households disposable income, which in turn hits consumption.

Crude Oil

The U.S. oil traded near $96.75 per barrel on Tuesday August 30, Beijing time. Oil prices surged more than 4% on Monday, extending last weeks rally. As the possibility of OPEC+ production cuts and the conflict in Libya helped offset the impact of a strong dollar and a gloomy outlook for U.S. economic growth.

Negative factors affecting oil prices

【Prospect of OPEC production cuts drives oil prices higher

【Crude stocks in U.S. emergency reserves fall to lowest since December 1984】

【The IAEA report says Iran has stepped up efforts to enrich uranium at an underground plant】

Positive factors affecting oil prices

【IEA chief says Russian oil production exceeded expectations but pressure is building Member states could release more reserves】

【The U.S. stocks close lower on lingering worries about Feds aggressive rate hike】

【Ukraines energy ministry forecasts 40% reduction in winter gas consumption compared to last year】

On the whole, crude oil inventories in the U.S. emergency reserves fell to a near 40-year low, with a supply shortage boosting oil prices; as well as possible OPEC+ production cuts and the Libyan conflict, oil prices are strong on the long side and may approach the 100 mark in the short term.

Foreign Exchange

In the early trading session on Tuesday, August 30,Beijing time, the U.S. dollar index edged lower and is currently trading around 108.78. Helped by a hawkish speech by Federal Reserve Chairman Jerome Powell, the dollar index hit a new 20-year high on Monday. But gains were limited, falling from the highs at the end of the session, as the Euro was boosted by expectations of a rate hike by the European Central Bank.

The dollar index touched 109.48 early in the session on Monday, which is the highest since September 2002. It then retreated and finally closed down .05% at 108.78. The Euro closed up 0.31% against the dollar on Monday at 0.9995, which was still below parity. The dollar hit a near month-and-a-half high of 138.99 against the yen on Monday, and it eventually closed up 0.87% at 138.69. The difference in natural gas prices between Europe and Japan could help the yen, as rising natural gas prices will further damage Europes balance of payments. The pound touched an intraday low of 1.1648 against the dollar in two-and-a-half years on Monday, and it finally closed down 0.26% at 1.1706.

Goldman Sachs expects the U.K. economy to fall into recession later this year, with a potentially large contraction amid soaring energy costs. Goldman Sachs said in a research note on Monday that it expects the U.K. gross domestic product to fall about 1% by mid-2023. Economic output is likely to shrink by 0.6 %next year, which is diametrically opposed to Goldmans previous estimate of 1.1 %growth.

JP Morgan expects the pound to continue to fall by the end of the third quarter, and then a very slow recovery will be in 2023.

Institutional Currency Viewpoint 

1. Commerzbank: the ECB needs to support the euro through actions rather than words

2. Financial website Fxstreet: retail sales data is optimistic, Australia and the United States rally is difficult to sustain

3. Bank of America: the Fed may narrow the range of interest rate hikes to 50 basis points  

4. Danske Bank prospective ECB interest rate resolution: will raise rates by 75 basis points, the deposit rate eventually rose to 1.5%

5. BIS Oxford Economics: Australias retail sales surge in July, but not help prevent the Australian Federal Reserve to raise interest rates sharply

Statement | Disclaimer

Disclaimer: The information contained in this material is for general advice only. It does not take into account your investment goals, financial situation or special needs. We have made every effort to ensure the accuracy of the information as of the date of publication. MHMarkets makes no warranties or representations about this material. The examples in this material are for illustration only. To the extent permitted by law, MHMarkets and its employees shall not be liable for any loss or damage arising in any way, including negligence, from any information provided or omitted from this material. The features of MHMarkets products, including applicable fees and charges, are outlined in the product disclosure statements available on the MHMarkets website. Derivatives can be risky and losses can exceed your initial payment. MHMarkets recommends that you seek independent advice.

Mohicans Markets, (Abbreviation: MHMarkets or MHM, Chinese name: Maihui), Australian Financial Services License No. 001296777.