What happened last week.
(A forex, index, and commodity market review)
Welcome back to our analysis of the past week and events that will shape this week’s markets. The Jackson Hole Symposium concluded with Jay Powell, the Chair of the Federal Reserve, saying that the time had come to start cutting rates. Andrew Bailey, Governor at the bank of England, was less optimistic about further rate cuts saying it’s “too early to declare victory over inflation” in the UK.
Markets have recovered from their early August holiday swoon and will soon fund out if that July Non-Farm employment report was an outlier or not.
Weekly change (amount change and percentage change on the week)
FTSE +721 +0.85%
DAX +319 +1.71%
DOW +363 +0.88%
S&P +9 +0.15%
NASDQ -160 -0.81%
NIKKEI +695 +1.81%
Hang Seng +128 +0.72%
Last week, US markets consolidated the gains over the previous two weeks in a week that was dominated by the release of Nvidia’s 2nd quarter earnings – attention that is usually reserved for interest rate decisions and employment data. However, the market quite rightly was very focussed on the chip makers earnings, as its shares are responsible for a quarter of the S&P500’s gains this year, having rallied 160%, valuing the firm close to $3 trln.
The results came in better than expected as revenues doubled to $30 Bln, more than the consensus of $28.7 Bln whilst its earnings per share were 68 cents compared with 65 cents consensus.
So, you might be forgiven for wondering why the share price fell on the news; by Friday night’s close the chip maker’s stock was 5% lower than before its results. The hype that surrounds Nvidia is difficult to shake off as the firm is the main barometer on the health of the boom in AI. The problem for4 the firm is that many of its newest shareholders are used to blockbuster, blow-out reports, that just did not happen this time. Analysts might cite the outlook for the 3rd quarter which was less than the Nvidia followers were hoping for. Despite the small hiccup in the share price, Nvidia remains one of the megacaps, with a valuation just shy of $3 trln.
Away from Nvidia’s earnings, Fed watchers were pleased with the core PCE reading, the preferred measure of inflation used by the Federal Reserve, released last Friday, which was as expected at +0.2% with an annual rate of 2.6%, which was below consensus of 2.7%. This release was one of the last stumbling blocks that could have stymied the Fed but the numbers were supportive of that first cut in rates at the upcoming FOMC on 18th September.
UK markets rallied further last week, following better than expected release of the S&P Global Flash PMI data, which jumped to 53.4 from 52.8 in July. The UK growth data continues to defy many predictions as growth continues apace without impacting inflation…..yet. The downside is that the probability of a rate cut in September has reduced in reaction to these numbers and comments from Andrew bailey whilst at the Jackson Hole Symposium. However, the decision remains in the balance, with some comments from MPC members suggesting the Bank of England are becoming less concerned about the persistent service sector inflation numbers.
EURUSD -1.43 -1.28%
GBPUSD -0.85 -0.64%
USDJPY +1.80 +1.25%
The US Dollar continued to recover some of the ground it lost since the start of July. The FED is on track to cuts rates this month and likely to follow with the probability of a further 0.75% in cuts by year end, is largely . Currency traders have taken out bearish bets in anticipation which had driven the US Dollar to its lowest level in over a year. However, the question is, if the US is likely to engineer a soft landing, what about the prospects for the Eurozone and the UK, where growth has been weaker. The outlook for relative i8nterest rate cuts in both economies prompted this wave of profit taking in US dollar shorts, with sterling benefitting the most as traders reduced bets on the likelihood of a rate cut by the BoE on 19th September.
Gold -8 -0.32%
UK OIL -1.36 -1.74%
US OIL -1.49 -2.00%
Gold held steady this week in the face of a rebound in the US Dollar, which hit its best level in over a week. Oil markets have had a volatile two weeks with news of a shutdown in Libyan oil exports pushing markets higher, supported by the increased risks of an escalation in the Hamas / Israel war as both Iran and Israel ramp up the belligerent rhetoric. Ther US however, for now, has managed to de-escalate the heightened state although expectations of a ceasefire remains quite low.
Data and events in the coming week
(What traders need to look out for in the week ahead)
Another important week for US markets, with the release of US Non-Farm employment data. The final key release before the much-anticipated interest rate announcement on 18th September.
Monday
US Labor Day. Federal Holiday with all markets closed in observance. This can reduce liquidity in other international markets, especially in the afternoon.
Tuesday
US ISM Manufacturing PMI. Last month’s data was lower than consensus and the lowest print since December 2023. The energy and inflation shock hit the manufacturing sector hard in the developed world. Few economies with large manufacturing bases have seen expansion in this sector. Expect 47.5 after August’s 46.8. USD sensitive.
Wednesday
UK Monetary Policy hearings. Andrew Bailey and other MPC members present the BoE’s outlook on growth and inflation to the Treasury Select Committee in Parliament. GBP and UK assets sensitive to any hints about a cut on the 19th of September MPC rate announcement.
Canada Interest Rtae announcement from the BoC. Almost certain cut in rates by 0.25% to 4.25%. The surprise would be if the bank don’t cut, following lower GDP data and slowdown in the jobs market. Possibility of a 0.5% cut. CAD and Canadian assets very sensitive.
Thursday
US ADP Non-Farm employment data. 136K new jobs. Market may be more sensitive to this data following last Month’s poor Bureau of Labour Statistics report.
Us ISM Services PMI. Data continues to imply a gradual slow down in the service sector as the US economy plays out the soft landing that economists and analysts are anticipating. 50.9 expected after 51.4 in August. US Dollar sensitive.
Friday
US Non-farm employment change. 164K new jobs following August’s shock of just 114K new jobs, which prompted some to speculate that the US was entering a recession. One number doesn’t spell a recession, but the markets will be keen to see the data match or beat consensus. A weaker number would see the US Dollar fall as traders would likely price in a 0.5% cut later this month. Unemployment rate expected at 4.2% with 0.3% average hourly earnings. USD, US & global assets sensitive.
