In the wake of Fed Chairman Warsh’s remarks at Jackson Hole the previous week, markets had settled into a trend-continuation pattern. However, Friday’s robust Nonfarm Payrolls figures disrupted this calm and introduced increased volatility. The pressing concern now is whether the Fed will raise interest rates at the September FOMC meeting.
Despite Friday’s strong NFP data, the US Dollar experienced a lacklustre week, largely due to mixed overall data. The DXY concluded last week 0.5% lower at 99.159.
Both the Euro and the Pound exhibited minimal movement, with the Pound lagging due to a challenging domestic political and fiscal climate. The ECB is expected to raise rates by 25 basis points next week, but attention will again be on the subsequent press conference.
Commodity currencies had a relatively good week as the Dollar struggled for strength. The NZD was the poorest performer, declining 0.5% as the RBNZ increased rates but adopted a surprisingly dovish future outlook. The AUD and CAD each gained approximately 0.5% over the week, while the NOK was the top performer, climbing 0.9%. In other FX news, the CHF remained stable, and the JPY was the week’s strongest performer, rising 2.4% against the Dollar.
Oil prices remained highly volatile, with US-Iran tensions last week pushing WTI up nearly 10% to $91.23.
Precious metals enjoyed a strong week until Friday’s NFP data exerted significant downward pressure. Nonetheless, they continue to perform well overall, potentially marking a medium-term bottom. Last week, Gold and Silver were slightly lower at $4,430 and $66.21, respectively.
Bonds once again traded better than expected amid the economic data and the oil price surge. Last week, the 10-year UST yield rose 5 basis points to close at 4.78%, while the 10-year Bund fell 0.4%, ending just below the 123 level.
Equities remain robust, especially in the US, with bullish price action prevailing despite the Fed’s hawkish stance and strong NFP data. European equities are slightly underperforming, but the market action is not bearish there either. Last week, the S&P500 index remained unchanged at 7708, while the DAX fell by 2% to close at 26046 points.
Finally, cryptocurrencies are attempting to solidify recent gains and demonstrate that their previous underperformance has ended for now. Bitcoin is currently 2% higher at $79,700, and Ethereum is stable at $2,460.
Looking Ahead:
The key issue is whether the Federal Reserve will opt to raise interest rates at its September meeting in light of the NFP data and the forthcoming week’s CPI report. The situation remains delicately balanced, so market movements are expected regardless of the decision. US CPI data should capture market attention, along with the ECB’s anticipated 25-basis-point hike.
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