✅ Daily Market Analysis - MONDAY AUGUST 28, 2023

Key events:

UK - Bank Holiday
Australia - Retail Sales (MoM) (Jul)

US stock benchmarks have been struggling to establish a clear trajectory, oscillating between significant gains on one day and noticeable losses on the following day. As the week came to a close, the S&P 500 recorded a modest increase of 0.8%, marking its first upward movement in the last four weeks. In contrast, the Dow Jones Industrial Average faced a decline of 0.4%. On the flip side, the Nasdaq exhibited remarkable resilience, surging by 2.3%. Despite these notable advances, the Nasdaq, which prominently features technology stocks, encountered difficulties in maintaining its upward momentum, even in the wake of Nvidia's impressive financial results.

NASDAQ indices daily chart

SPX indices daily chart

The focal point of the week centered on Federal Reserve Chair Powell's address at the Jackson Hole summit. While Powell refrained from introducing novel perspectives, he underscored the central bank's unwavering dedication to achieving the 2% inflation target and maintained a prudent approach. He acknowledged the moderation in price surges amid tightened financial conditions and gradual alleviation of supply constraints.

It's undeniable that consumer price inflation has markedly subsided from its peak of 9.1% the previous year to just slightly above 3%. Nevertheless, Powell exercised caution by emphasizing that reaching the 2% objective "still remains a considerable journey ahead, despite the more favorable recent figures."

US inflation rate

Therefore, the Federal Reserve is adopting a cautious approach towards future adjustments in interest rates as it navigates the intricate final phase of its battle against inflation. Powell alluded to the possibility that the Fed might prioritize stability during the September 19-20 meeting, given that the complete repercussions of prior rate hikes are yet to fully manifest. In essence, Powell's speech yielded few, if any, surprises.

While the policy discussion has shifted somewhat from an intense focus on inflation, the overarching sentiment aligns with the current projection of no rate hike in September, and there seems to be a consensus that more stringent monetary measures are presently unnecessary. Nevertheless, given the emphasis on economic growth, any unforeseen positive outcomes in upcoming significant data releases like the Non-Farm Payrolls report, JOLTS, and ISM manufacturing indices could heighten expectations of a September rate hike.

As the prospect of an extended period of elevated interest rates looms, Treasury yields experienced a significant upsurge. The 2-year Treasury yield briefly climbed, reaching levels close to the cyclical peak of 5.12%.

2-year Treasury yield

Consequently, the ascent of Treasury yields momentarily exerted pressure on the technology sector. This outcome stems from the fact that sectors like technology, known for their elevated valuations, tend to lose some of their allure in the wake of increasing yields. This effect played a role in causing both Alphabet (NASDAQ: GOOGL) and Meta (NASDAQ: META) to undergo temporary declines.

Meta Platforms stock daily chart

Alphabet stock daily chart

Gold prices saw a marginal dip on Friday, influenced by a prevailing preference for the dollar ahead of additional information about US monetary policy expected from the Jackson Hole Symposium. Despite this decline, gold's stance was supported by indications of a slowing economic growth, enabling the precious metal to retain its position above critical levels.

The week represented a favorable shift for gold, breaking a streak of four weeks of losses and recovering from the five-month lows observed earlier in August. Even with the Friday setback, spot prices managed to maintain stability, hovering around the significant milestone of $1,900 per ounce.

XAU/USD daily chart

However, the trajectory ahead for this precious metal remained uncertain due to the looming specter of potentially elevated US interest rates. The dollar continued to fortify its position, reaching its highest point in over two months on Friday, while Treasury yields advanced, inching closer to levels not witnessed in several decades.

In the European realm, the stock market witnessed modest gains in anticipation of ECB President Lagarde's address at the Jackson Hole symposium on Friday. This occasion marked her debut participation in the event since assuming the role of ECB chief in 2019. In her speech, Lagarde reiterated the Bank's unwavering commitment to sustaining interest rates at appropriately stringent levels for as long as necessary to ensure a swift resurgence of inflation to the targeted 2% threshold. She also underscored that the Bank's forthcoming decisions will be steered by three pivotal criteria: the outlook for inflation, the underlying dynamics of inflation, and the effectiveness of monetary policy transmission. The upcoming monetary policy meeting slated for September 14 implies that the ECB is tilting towards a more prudent approach, though this determination is likely to be subject to thorough deliberation.

In light of these developments, the forthcoming inflation report for the Euro area carries profound significance.