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Friday's Markets Update (August 23, 2024)

On Friday, stocks rallied, led by technology and semiconductor stocks, after Powell signaled rate cuts in his Town Hall speech. Traders now anticipate a 70% chance of a 25 basis point rate cut in September. Globally, gold prices rose as the dollar weakened sharply while other major currencies gained value. Meanwhile, BTC and ETH broke through their monthly ranges, reaching 64K and 2.7K, respectively, boosted by traders' enthusiasm about impending monetary easing and Robert Kennedy's announcement of support for Donald Trump.

Details

During his speech at the Jackson Hole Economic Symposium, Powell indicated that an interest rate cut is likely in the September meeting. He observed a rapid cooling in the labor market due to a weaker July jobs report and revised payroll figures. Powell expressed growing confidence that inflation is nearing the 2% target, suggesting it's time for less restrictive monetary policy. Additionally, recent Fed meeting minutes showed broad agreement among policymakers on the need to lower rates this quarter.
Building permits fell in July but less than initially estimated. Single-family permits rose slightly, while multi-family permits plummeted. Regional data shows declines in most areas except the Northeast. 1Y trend: "Down" (Census)
Comment:

Only now, Powell seems to be realizing what other economists, including myself, have been trying to tell him for the past two years: that this inflationary curve was driven by disturbances in supply-demand factors and not by disproportionalities on the labor market, which the Fed tried to "remedy" with its misguided hikes.

In this speech, however, Powell acknowledges his mistake, a step in the right direction. But still, he praises the Fed's actions as appropriate, which is laughable.

All of this proves once again that the days of the Fed are numbered. This organization is completely useless, bureaucratic, and incapable of keeping up with not only the latest technologies but also contemporary markets.

Crypto

Robert F. Kennedy Jr. paused his independent presidential campaign on Friday, announcing his support for Donald Trump, a fellow BTC advocate. Speaking in Phoenix, he thanked his volunteers and hinted at a campaign conclusion but clarified that he would only withdraw his name from the ballot in swing states to avoid aiding Democratic candidate Kamala Harris. Kennedy's campaign has not ended entirely, as he seeks to navigate his path forward in the election. (source)
Recent data from the decentralized prediction market Polymarket indicates that Donald Trump is ahead of Kamala Harris in 2024 election odds, following Robert Kennedy Jr.'s campaign suspension. Trump has a 51% chance of winning, while Harris's odds have decreased to 48% after she replaced Joe Biden as the Democratic nominee. The market will confirm a "Yes" outcome if Trump wins the election; otherwise, it will resolve to "No." (source)

World Markets

The Bank of Japan (BoJ) remains committed to raising interest rates if inflation consistently reaches the 2% target, despite global market instability, Governor Kazuo Ueda said in Parliament. He emphasized that the BoJ is monitoring market volatility after its July interest hike. Ueda stated that any changes to monetary easing would depend on economic and price trends. He also noted that fluctuations in the yen could impact inflation forecasts, prompting discussions on potential policy adjustments if significant risks arise. 1Y trend: "Up" (JP)
Iceland's producer prices rose in July (by 6.2% YoY) at the fastest pace in 7 months. Marine products and metal prices surged, while food and other manufacturing prices slowed. Export prices rose faster than domestic prices. 1Y trend: "Up" (IS)

Currencies

The dollar weakened below 101 after Fed Chair Powell hinted at rate cuts. Markets are now expecting multiple cuts this year. The yen strengthened as Japan's central bank signaled potential rate hikes. 1Y trend: "Side"

Commodities

Gold prices surged to near-record highs as the Fed signaled rate cuts. Powell's dovish tone at Jackson Hole fueled expectations for a rate cut in September, 100bps in total this year. Lower interest rates boost demand for gold, which doesn't pay interest. 1Y trend: "Up"
WTI crude oil futures rose above $74 per barrel, rebounding from a low of $71.9 on August 21 as markets evaluated major suppliers' responses to declining energy demand. Reports of reduced consumption from top fuel consumers, along with a weak S&P PMI indicating lower manufacturing activity in August, fueled concerns. This led markets to speculate that OPEC+ might postpone phasing out output cuts in the fourth quarter, further affecting supply from major oil exporters. 1Y trend: "Side"

On Week 12, investors will be closely watching a number of key economic indicators. Locally, the second estimate of GDP growth, core PCE price index, durable goods orders, and the Dallas Fed manufacturing index will be released. Internationally, the Eurozone economic sentiment, German consumer confidence and inflation, French unemployment claims and inflation, and the Chinese manufacturing PMI will be of interest.