✅ Daily Market Analysis - WEDNESDAY AUGUST 23, 2023
Key events:
USA - Building Permits
USA - S&P Global US Services PMI (Aug)
USA - New Home Sales (Jul)
USA - Crude Oil Inventories
On Tuesday, global stock markets aimed for a rebound, yet this resurgence encountered a setback as benchmark Treasury yields surged to levels not witnessed in almost 16 years. Apprehensions regarding the prolonged existence of elevated interest rates contributed to the robust performance of the safe-haven dollar, which remained in proximity to its highest point in a span of 10 weeks.
In the midst of US afternoon trading, the MSCI All Country stock index surrendered its earlier advances and settled without any significant change. This distancing from the 2-1/2 month low it had experienced on the preceding Friday underscored the ongoing market volatility.
Among the prominent US indices, the S&P 500 saw a decrease of 0.23%, while the Dow Jones Industrial Average faced a decline of 0.46%. In contrast, the Nasdaq Composite Index managed a modest gain of 0.1%, displaying a degree of resilience amidst the broader market fluctuations.
NASDAQ indices daily chart
DJI indices daily chart
With keen anticipation, market participants are awaiting valuable insights into the trajectory of interest rates, which are expected to be shared by prominent central bank officials. Esteemed figures from the Federal Reserve, the European Central Bank, the Bank of England, and the Bank of Japan are all set to convene at the annual central bank conference in Jackson Hole, Wyoming, during the upcoming week.
Analytical expectations at TD Securities suggest that Fed Chair Jerome Powell is likely to exercise caution in providing explicit signals for September's actions. Instead, he might hint at the potential of sustaining elevated rates for an extended period, aiming to mitigate inflationary pressures effectively.
In a welcome development, a surge of 0.7% in technology shares propelled pan-European stocks, thereby contributing to the upbeat performance of the broader European market.
Nevertheless, the focus once more shifted to the realm of US Treasuries. The yield on the pivotal 10-year Treasury note made a formidable leap to 4.366%, reaching its highest point since 2007. This escalation translated to an almost 40 basis points increase for the month. Subsequently, the yield retraced slightly, settling at 4.318% after reaching its peak. This dynamic showcases the underlying volatility and heightened significance of bond markets in the current financial landscape.
US 10-year Treasury daily chart
The surge in yields, which exhibit an inverse relationship with bond prices, has been a consequence of unexpectedly positive economic news in the US. This turn of events prompted investors to recalibrate their expectations for future policy easing by the Federal Reserve over the coming year.
These growing concerns, stemming from the potential for sustained elevated interest rates and apprehensions about China's economic deceleration, have recently subdued investor enthusiasm towards the stock market. However, this gloomy sentiment experienced a reversal on Tuesday, initiating a noteworthy rebound across stock markets.
The present Treasury futures contracts now suggest a projection of 100 basis points (bps) in rate reductions by the Fed by the conclusion of 2024. This marks a reduction from the earlier projection of 130 bps, which was observed just a matter of weeks ago.
Conversely, inflation expectations have displayed limited movement, resulting in a significant upsurge in "real" yields—yield values that incorporate inflation expectations. This development is poised to prompt investors to reconsider their appetite for risk-taking.
The noteworthy upswing in European stock performance is primarily attributed to a robust 2% climb within the technology sector. This surge was predominantly propelled by upbeat sentiments surrounding Nvidia (NASDAQ: NVDA), the world's most valuable chipmaker. Investor optimism is particularly elevated ahead of Nvidia's impending quarterly earnings report, thereby generating enthusiasm within the technology sector and beyond.
US Dollar Currency Index daily chart
The dollar index, which gauges the strength of the currency in relation to six significant developed-market counterparts, made a marginal advance, reaching 103.61. This level was just slightly below its recent 10-week peak of 103.68, attained on the preceding Friday. In contrast, the euro faced a 0.39% retreat, descending to $1.08535.
EUR/USD daily chart
China's yuan experienced a marginal retracement, settling at around 7.30 per dollar following indications of stability. Prior to this, state banks had undertaken interventions in the offshore forwards market to provide reinforcement to the yuan's valuation.
USD/CNY daily chart
USA - Building Permits
USA - S&P Global US Services PMI (Aug)
USA - New Home Sales (Jul)
USA - Crude Oil Inventories
On Tuesday, global stock markets aimed for a rebound, yet this resurgence encountered a setback as benchmark Treasury yields surged to levels not witnessed in almost 16 years. Apprehensions regarding the prolonged existence of elevated interest rates contributed to the robust performance of the safe-haven dollar, which remained in proximity to its highest point in a span of 10 weeks.
In the midst of US afternoon trading, the MSCI All Country stock index surrendered its earlier advances and settled without any significant change. This distancing from the 2-1/2 month low it had experienced on the preceding Friday underscored the ongoing market volatility.
Among the prominent US indices, the S&P 500 saw a decrease of 0.23%, while the Dow Jones Industrial Average faced a decline of 0.46%. In contrast, the Nasdaq Composite Index managed a modest gain of 0.1%, displaying a degree of resilience amidst the broader market fluctuations.
With keen anticipation, market participants are awaiting valuable insights into the trajectory of interest rates, which are expected to be shared by prominent central bank officials. Esteemed figures from the Federal Reserve, the European Central Bank, the Bank of England, and the Bank of Japan are all set to convene at the annual central bank conference in Jackson Hole, Wyoming, during the upcoming week.
Analytical expectations at TD Securities suggest that Fed Chair Jerome Powell is likely to exercise caution in providing explicit signals for September's actions. Instead, he might hint at the potential of sustaining elevated rates for an extended period, aiming to mitigate inflationary pressures effectively.
In a welcome development, a surge of 0.7% in technology shares propelled pan-European stocks, thereby contributing to the upbeat performance of the broader European market.
Nevertheless, the focus once more shifted to the realm of US Treasuries. The yield on the pivotal 10-year Treasury note made a formidable leap to 4.366%, reaching its highest point since 2007. This escalation translated to an almost 40 basis points increase for the month. Subsequently, the yield retraced slightly, settling at 4.318% after reaching its peak. This dynamic showcases the underlying volatility and heightened significance of bond markets in the current financial landscape.
The surge in yields, which exhibit an inverse relationship with bond prices, has been a consequence of unexpectedly positive economic news in the US. This turn of events prompted investors to recalibrate their expectations for future policy easing by the Federal Reserve over the coming year.
These growing concerns, stemming from the potential for sustained elevated interest rates and apprehensions about China's economic deceleration, have recently subdued investor enthusiasm towards the stock market. However, this gloomy sentiment experienced a reversal on Tuesday, initiating a noteworthy rebound across stock markets.
The present Treasury futures contracts now suggest a projection of 100 basis points (bps) in rate reductions by the Fed by the conclusion of 2024. This marks a reduction from the earlier projection of 130 bps, which was observed just a matter of weeks ago.
Conversely, inflation expectations have displayed limited movement, resulting in a significant upsurge in "real" yields—yield values that incorporate inflation expectations. This development is poised to prompt investors to reconsider their appetite for risk-taking.
The noteworthy upswing in European stock performance is primarily attributed to a robust 2% climb within the technology sector. This surge was predominantly propelled by upbeat sentiments surrounding Nvidia (NASDAQ: NVDA), the world's most valuable chipmaker. Investor optimism is particularly elevated ahead of Nvidia's impending quarterly earnings report, thereby generating enthusiasm within the technology sector and beyond.
The dollar index, which gauges the strength of the currency in relation to six significant developed-market counterparts, made a marginal advance, reaching 103.61. This level was just slightly below its recent 10-week peak of 103.68, attained on the preceding Friday. In contrast, the euro faced a 0.39% retreat, descending to $1.08535.
China's yuan experienced a marginal retracement, settling at around 7.30 per dollar following indications of stability. Prior to this, state banks had undertaken interventions in the offshore forwards market to provide reinforcement to the yuan's valuation.
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