Rate-Cut Expectations Rise: U.S. Treasuries and Gold Rally, Oil Posts First Monthly Decline in Four

Market Overview

Friday marked the final trading day of August, with a selloff in technology stocks dragging down all three major U.S. equity indices. However, for the month as a whole, stocks managed to close higher, supported by rising expectations of rate cuts. The Nasdaq logged a second consecutive weekly decline, yet still achieved a five-month winning streak on a monthly basis.

Remarks from Federal Reserve officials pointing to the prospect of a September rate cut further solidified market expectations. The two-year Treasury yield, highly sensitive to interest rate shifts, dropped to a near four-month low, plunging more than 30 basis points over August. Following the release of U.S. PCE inflation data, the U.S. dollar index initially rose to a daily high before reversing lower, finishing near a three-week low.

In commodities, performance diverged. Gold extended its winning streak to four sessions, climbing more than 1% to settle at an all-time high, fueled by dollar weakness and easing expectations. Crude oil, however, came under pressure. U.S. crude fell over 6% in August, marking its first monthly decline in four months.

Hot Topics Ahead

● U.S. Core PCE for July Matches Expectations

Consumer spending in July posted the biggest increase in four months, underscoring resilient demand despite stubborn inflation. Data released Friday by the Bureau of Economic Analysis showed that the July PCE Price Index rose 2.6% year-over-year, in line with expectations and unchanged from the prior reading. On a monthly basis, PCE rose 0.2%, matching forecasts but down from June‘s 0.3%. This week’s Nonfarm Payrolls release will provide further insights into labor market conditions.

● Bullish Oil Sentiment Falls to 18-Year Low

The U.S. EIA monthly report revealed that crude oil output rose to a record 13.58 million barrels per day in June, about 150,000 bpd higher than preliminary estimates. Meanwhile, CFTC data showed that speculative net long positions in WTI crude dropped to the lowest level in nearly 18 years. As of Friday, U.S. crude prices hovered near $64 per barrel.

Key Events to Watch

16:00 GMT+8: Eurozone August Final Manufacturing PMI

17:00 GMT+8: Eurozone July Unemployment Rate