SUMMARY
Last week was positive for risk markets and the US Treasury bond market, as a confluence of data suggests that the Fed is about to officially pivot with the first Fed Funds decrease pencilled in for the September FOMC meeting. The price of gold is continuing to increase, as the US Dollar continues to gradually weaken. The big event this coming week will be NVIDIA 2Q25 earnings, which the company will release after the bell on Wednesday (28 August).
WHAT HAPPENED LAST WEEK THAT MATTERED
Non-farm payrolls was revised down by an unexpected 818,000 jobs according to the BLS in a report released on Wednesday, surprising markets but serving as another indicator that the Fed should begin lowering its key monetary policy rate at the September FOMC meeting. The revision was the largest in the annual payroll data since 2009. It appears expectations for the revision were in the 650,000 area. The revision means that for the period April 2023 to March 2024, an average of 173,500 new jobs were added per month (2.1 million for the year) rather than the initial average of 242,000 per month (2.9 million for the year). I looked at historical data on the FRED website, and did not see a year in which even 2.1 million new jobs were added to the US economy in a single year.
Also on Wednesday, the Federal Reserve released the minutes from its last FOMC meeting on July 30-31, indicating that although the decision was made o leave the Fed Funds rate intact at the July meeting, the FOMC has set the stage for lowering rate at the next FOMC meeting in September.
The speech of Fed Chair Jerome Powell at the Jackson Hole Symposium (sponsored by the Kansas City Fed) on Friday provided the third indication that the Fed is finally preparing to ease monetary policy. In essence, Mr Powell suggested that the Fed has shifted its focus to the second prong of its mandate – supporting the US labour market – since inflation is heading comfortably towards the 2% target. Mr Powell was careful not to discuss the potential magnitude of future reductions. The #CMEFedWatchTool is suggesting a 25bps reduction at the September FOMC meeting, and a total of 100bps in Fed Fund rate reductions (meaning one jumbo reduction) for 2024.
Bank of Japan Governor Kazuo Ueda said on Friday that the central bank would maintain its policy of normalising interest rates in spite of recent instability caused by the strengthening Yen. Investors did not flinch, with the Yen 2.2% stronger on the week and the Nikkei 225 continuing its bounce-back (+0.8% WoW).
Eurozone preliminary PMI for August was better than expected, driven by services PMI. Manufacturing PMI in the common currency zone was worse than expected, remaining in contractionary territory. The major drag continues to be the currency bloc’s largest economy, Germany, with PMI below 50 in both services and manufacturing.
UK preliminary PMI data for August was better than expected across the board, with both manufacturing and services showing growth.
Preliminary PMI data for August for the US was better than expected overall, but manufacturing PMI was worse than expected and is in a contractionary zone, suggesting a cooling US economy. Manufacturing PMI was the lowest in eight months in the US.
MARKET PERFORMANCE LAST WEEK
In summary, most global equity markets with the exception of China were better, with momentum in the US especially building after Fed Chairman Powell’s speech on Friday at the Kansas City Fed Symposium. This, coupled with rather mixed data in terms of the US economy and jobs market, also sent bond yields lower. Gold has been a particular surprise as the combination of a weaker US Dollar and lower bond yields pushes the price higher. The tables below summarise performance for last week, the last month and YtD.
WHAT’S AHEAD
Economic data this coming week includes Eurozone and Japan preliminary CPI reads for August, and July PCE data in the US, the Fed’s preferred inflation indicator. We also get some consumer confidence sentiment indicators for Europe and the US.
AI/NVDA earnings: After all the AI concerns, certainly NVDA’s earnings release slated for August 28th (Weds) will be a focal point for investors and influential for tech shares (especially the semi-conductor value chain)
Monetary policy meetings perhaps most in focus the BoJ and the FOMC:
FOMC: Sept 17/18, Nov 6/7 and Dec 17/18
Bank of Japan: Sept 19/20, Oct 30/31 and Dec 18/19
ECB: Sept 12, Oct 17 and Dec 12
Bank of England: Sept 19, Nov 7 and Dec 19
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