Market News by OnEquity

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21

Market Highlights for the Week: Inflation, Volatility, UK

Investors will be watching key inflation data set to be released next Wednesday for clues about the potential magnitude of an expected rate cut by the Federal Reserve in September. Markets are likely to remain volatile, and retail sales results will be monitored for signs of strength in consumer spending. Here’s a look at what’s expected in the markets this week.

CPI Data

July consumer price index (CPI) data is expected to indicate that inflation continues to move closer to the Fed’s 2% annual target. A report reflecting only a slight cooling could ease fears that the Fed has pushed the economy into a crisis by keeping rates elevated for too long. However, a negative report could reignite recession fears and trigger market volatility once again. The economic calendar also includes July retail sales figures, as well as the weekly report on initial jobless claims.

Investors will also have a chance to hear from several Fed officials, including Atlanta Fed President Raphael Bostic, Philadelphia Fed President Patrick Harker, and Chicago Fed President Austan Goolsbee. Comments from these Fed officials last Thursday suggested they are increasingly confident that inflation is moderating enough to warrant rate cuts.

Market volatility

Investors are likely to remain nervous this week after last Monday’s stock market plunge, triggered by a combination of fears of a U.S. recession and the unwinding of yen-funded global trades. On Thursday, a larger-than-expected decline in jobless claims showed that fears about the health of the labor market were overblown, helping markets recover most of their losses by Friday’s close. In the week ahead, attention will focus on whether the Fed’s assessment of expected rate cuts is supported by upcoming economic data and how much of the yen-financed selloff will persist.

Concerns about the possible escalation of conflict in the Middle East and the impending U.S. elections also suggest that volatility will not subside anytime soon.

Corporate results

Earnings season is in its final phase, and most companies have already reported their quarterly financial results. But there are a few notable names left to report next week, such as retailers Home Depot (HD) and Walmart (WMT).

Traders will be watching to see what retailers say about the resilience of consumer spending, a key driver of economic growth, especially given recent signs of weakness in economic data. Other big names on the earnings agenda include Cisco Systems (CSCO) and Fox Corporation (FOX).

Oil prices

Oil prices rose last week, supported by comments from Federal Reserve policymakers indicating that they may cut interest rates in September, which eased concerns about demand. Meanwhile, the risk of an escalation of conflict in the Middle East continues to heighten supply risks. Brent gained more than 3.5% for the week, while U.S. crude futures rose more than 4%.

Fears of a possible recession have subsided, bolstering demand expectations. Simultaneously, geopolitical tensions in the Middle East have fueled fears of a potential conflict that could disrupt production in the region and dent global crude supplies.

The possibility of retaliatory attacks by Iran against Israel heightens concerns about oil supplies in the world’s largest oil-producing region.

UK data

The U.K. will release a series of economic data that will influence monetary policy forecasts for the coming months. Wage growth data will be released on Tuesday, followed a day later by inflation figures, which will be closely watched for signs of persistent price pressures, particularly in the still-booming services sector. Thursday’s monthly GDP data is expected to show near-zero growth in June, but the economy is estimated to have grown by 0.6% in the second quarter.

Meanwhile, Friday’s retail sales data is expected to rebound in July after last month’s drop. The Bank of England cut rates for the first time since 2020 earlier this month, and markets are currently estimating a 33% chance of another quarter-point cut at its September meeting.

22

Tether Prepares for the Future: 200 Employees by 2025

The aim of this strategic expansion is to strengthen key sectors such as compliance and finance.

From Tether’s headquarters in Hong Kong, the creator of the largest stablecoin on the market has announced its ambitious plans to double its workforce in the coming months.

Strategic Growth in Turbulent Times

In an exclusive interview with Bloomberg News, Paolo Ardoino, CEO of Tether Holdings Ltd., revealed that the company plans to reach a workforce of around 200 people by mid-2025. This substantial increase in headcount will primarily aim to strengthen two critical areas: compliance and finance.

Tether’s decision to expand its team comes at a crucial period for the cryptocurrency industry. As the market becomes increasingly regulated and monitored, the company aims to consolidate its leadership in the stablecoin sector while ensuring the integrity and security of its operations.

Ardoino stressed the importance of preserving the company’s responsiveness over time, despite the planned growth. “We are very proud of the fact that we are very agile, and we want to remain so because we want to stay flexible,” said the CEO. “We are very careful when it comes to hiring people, we only hire senior staff.”

The Giant Behind USDT

Tether has transformed itself into a financial powerhouse in the cryptocurrency world, generating an impressive $1.3 billion in profits in the second quarter of this year. Today, the company manages assets worth close to $118 billion that serve as backing for the stablecoin USDT, whose market capitalization is close to $115 billion.

This exponential growth contrasts with the small size of its current team. While other industry giants, such as Binance and Coinbase, have thousands of employees, Tether has maintained a lean and efficient structure.

However, monitoring potential illegal activity in the USDT secondary market requires increasingly automated and sophisticated tools. Ardoino emphasized that this is one of the main objectives of the planned expansion.

Challenges and Opportunities on the Horizon

Tether’s statement comes against a backdrop of increasing scrutiny from regulators and the media. A recent Wall Street Journal report explained how USDT has been used by Russian arms smugglers to evade U.S. sanctions, prompting Tether to intensify its efforts to cooperate with global authorities.

The company announced in May a strategic partnership with Chainalysis Inc. to ” methodically monitor transactions” with functions including sanctions identification. This collaboration reinforces Tether’ s commitment to maintaining the integrity of its stablecoin and preventing its use in criminal activities.

Investments and Long-Term Outlook

In addition to its core business, Tether has diversified its operations, making significant investments in cryptocurrency startups. Over the past two years, the company has invested around $2 billion in companies such as Northern Data Group and Bitdeer Technologies Group, a publicly traded cryptocurrency miner.

The investments are overseen by a team of just 15 people, attesting to Tether’s operational efficiency. However, Ardoino was wary of an overly aggressive workforce expansion.

“There’s nothing I hate more than companies, especially Silicon Valley companies, that hire hundreds of people during bull markets and then lay them off as soon as there’s a market downturn,” the CEO commented.

The Future of Tether and Stablecoins

Tether’s planned expansion could have significant implications for the future of stablecoins and the cryptocurrency ecosystem in general. By consolidating its capabilities in regulatory compliance and financial management, the company seeks not only to maintain its leadership position but also to set new standards for the industry.

Tether ‘s growth can also serve as an indicator of the overall state of the cryptocurrency market. At a time when many companies in the sector have had to downsize due to market volatility, Tether’ s expansion suggests continued confidence in the future of digital assets.

However, this growth also brings new challenges. Tether will need to carefully balance its expansion with the need to maintain the agility and flexibility key to its success to date.

23

Dollar rises in light of PPI; Pound rises on wage data

The U.S. dollar advanced within a small range as traders awaited the July producer price index data, the first of the week’s inflation data, as a roadmap for future monetary policy decisions by the Federal Reserve.

The dollar awaits PPI data

The producer price index, which measures changes in producer prices, is expected to rise 0.2% month-over-month in July, which would mean an anal increase of 2.3%, down from 2.6% last month.

The underlying figure, which does not take into account volatile components such as food and energy, would also rise by 0.2% on a monthly basis, down from 0.4% in June, with an annual increase of 2.7%, down from 3.0%.

According to analysts, they expect a consensus figure of 0.2% month-on-month in the core and underlying measures to ease market jitters about a round of CPI/PCE hikes that would deal a blow to risk sentiment just as global stock indices finish their recovery from recent losses.

On Wednesday, consumer price index data will be released, which is also expected to indicate a slight cooling of inflation in July.

Investors will be scrutinizing the data to determine whether the Fed will implement a 50 basis point or a 25 basis point cut at its September meeting, according to CME’s FedWatch tool, traders are evenly split between the two options.

At the end of last month, the Fed kept the policy rate in the same 5.25%-5.50% range where it has been for more than a year, although it indicated that a rate cut could be generated in September if inflation continues to cool.

Pound rises on wage growth

Turning to Europe, GBP/USD rose 0.3% to 1.2801 following the release of data showing that UK wage growth excluding bonuses rose by around 5.4% in June.

Although this figure is a fall from the revised 5.8% last month, it is still above the estimated 4.6% growth and signals that the Bank of England will struggle if it wants to curb inflation completely.

Additionally, UK grocery inflation rose this for the first time, the increase not recorded since March last year, with market researcher Kantar reporting that annual grocery price inflation was 1.8% in the four weeks to August 4, up from 1.6% in the previous four-week period.

EUR/USD fell about 0.1% to 1.0922, with the euro losing slightly after consumer prices in Spain fell 0.5% in July, which appears to be a 2.8% annual rise.

The European Central Bank began cutting interest rates in June, and many expect policymakers to agree to another reduction in September, especially as inflation shows signs of dissipating.

Yen loses ground

Turning to Asia, USD/JPY rose 0.4% to 147.81 with the yen losing ground on a Reuters report that the Japanese parliament is planning to hold a special session on August 23 to discuss the central bank’s decision last month to raise interest rates.

Last week, the yen fell to near the 141 level on increased safe-haven demand and a reversal of carry trades, although doubts remain about the Bank of Japan’s room for further rate hikes in 2024.

The USD/CNY lost about 0.1% to 7.1704, with industrial production data along with retail sales expected later this week.

24

U.S. stock markets rise: PPI and Home Depot results in focus

U.S. stock index futures rose on Tuesday during quiet trading in anticipation of key inflation data, which could pave the way for a Federal Reserve rate cut in September.

Wall Street’s major indexes showed some volatility on Monday as investors appeared reluctant to commit ahead of the inflation data, especially after last week’s spike in volatility.

The Dow Jones index lost about 140 points, or 0.4%, while the S&P 500 index ended flat, and the tech-heavy NASDAQ Composite index gained 0.2%.

CPI inflation is awaited for further clues regarding rate cuts

This week, the focus will be on the latest U.S. inflation numbers, starting with Tuesday’s Producer Price Index and the Consumer Price Index on Wednesday, for more signals on the U.S. economy.

The PPI is expected to rise 0.2% month-over-month in July, which would mean a 2.3% year-over-year increase, down from 2.6% last month.

The core figure, which excludes volatile food and energy components, is also expected to increase by 0.2% month-over-month, down from 0.4% in June, with an annual rise of 2.7%, down from 3.0%.

Investors will be looking at the data to determine what the Federal Reserve will do at its meeting next month.

Traders are currently torn between a 25 basis point cut and a 50 basis point cut, and any signs of cooling inflation could increase the likelihood of a larger cut.

At the end of last month, the Federal Reserve kept the policy rate in the 5.25%-5.50% range it has maintained for more than a year, although it stressed that a rate cut could be triggered in September if inflation continues to cool.

According to UBS analysts, fears of an imminent economic recession appear exaggerated.

The analysts’ report notes that despite recent market volatility and increased concerns about a possible recession, fundamentals remain sound.

Analysts also expect the Fed to cut rates by 100 basis points over the remainder of the year, double its previous forecast, as it seeks to protect the labor market. However, recession risks appear exaggerated in the analysts’ view, as household finances remain on solid footing.

Retailer results due out this week

Although the second-quarter earnings season is mostly over, this week will bring results from major retailers Home Depot (HD) and Walmart (WMT).

Both will provide further signals on the strength of consumer spending, which, in turn, influences estimates of inflation and the economy.

The strength of consumer spending has become the mainstay of inflation in the U.S. in 2024, despite pressure from high interest rates.

Crude oil breaks its upward streak

Oil prices fell on Tuesday, ending a five-day winning streak, as traders took profits amid fears over demand growth this year.

The Organization of the Petroleum Exporting Countries on Monday cut its global demand forecast for 2024, the first cut since July 2023, following growing signs that demand in China has fallen short of estimates.

25

U.S. Wholesale Inflation Moderated in July, Sign of Easing Price Pressures

U.S. wholesale price increases slowed in July, indicating that inflationary pressures are moderating as the Federal Reserve (Fed) moves closer to potentially cutting interest rates, expected early next month. The Labor Department reported Tuesday that its Producer Price Index (PPI), which tracks inflation before it reaches consumers, rose 0.1% from June to July and 2.2% from a year ago.

Excluding food and energy prices, which tend to fluctuate month to month, so-called core wholesale prices were unchanged from June and up 2.4% from July 2023. The increases were more moderate than expected and are roughly consistent with the Federal Reserve’s 2% inflation target. The Producer Price Index can provide an early signal of the direction consumer inflation will take.

Economists also follow it closely because some of its components, particularly health care and financial services, are included in the Personal Consumption Expenditures (PCE) index, the Fed’s preferred inflation gauge.

Upcoming Release of Consumer Prices

The Labor Department will release the Consumer Price Index (CPI), the primary measure of inflation, on Wednesday. Forecasters estimate that consumer prices rose 0.2% from June to July, after falling 0.1% the previous month, and 3% from July 2023, according to a survey by data firm FactSet.

Inflation has decreased significantly since reaching a four-decade high in mid-2022. However, as Americans prepare to vote in the November presidential election, many remain dissatisfied with consumer prices, which are about 19% higher than before the inflationary spike began in the spring of 2021. Many have blamed President Joe Biden, although it remains unclear whether Vice President Kamala Harris, a presidential hopeful, will also face accountability.

The Federal Reserve May Soon Lower Interest Rates

The Fed, in its fight against high inflation, raised its benchmark interest rate 11 times in 2022 and 2023, bringing it to its highest level in 23 years. Year-over-year consumer price inflation has fallen from 9.1% in June 2022 to 3% as of the latest report. The much weaker-than-expected July U.S. employment report reaffirmed the general expectation that Fed policymakers may begin cutting rates when they meet in mid-September to support the economy. The employment report indicated that the unemployment rate rose for the fourth straight month to 4.3%, still good by historical standards, but the highest level since October 2021.

Over time, a series of rate cuts by the Fed would likely lead to lower borrowing costs across the economy—for mortgages, auto loans, credit card loans, and commercial loans—and could also stimulate stock prices.

26

Dollar Awaits CPI, Pound Falls

The U.S. dollar stabilized on Wednesday, benefiting from the previous night’s weakness ahead of the release of the July Consumer Price Index, while the British pound weakened following benign inflation data.

Dollar Slides on CPI Expectations

The U.S. dollar retreated on Tuesday after the Producer Price Index (PPI) for July came in below expectations, prompting traders to shift their bets slightly towards a 50 basis point rate cut in September.

The PPI reading raised hopes that the Consumer Price Index (CPI) inflation reading, to be released later today (Wednesday), will also indicate that inflation remained subdued in July, giving the Federal Reserve more room to initiate rate cuts.

Analysts have been bearish on the dollar in recent days and generally optimistic about anything that stabilizes confidence. A benign U.S. CPI reading could pave the way for more dollar trading until the underlying Personal Consumption Expenditures (PCE) data is released on August 30, followed by the September 6 employment numbers.

At the end of July, the Federal Reserve kept the official interest rate at 5.25% to 5.50%, as it has done for more than a year, although it indicated that it might cut rates in September if inflation continues to cool.

Pound Falls on UK Inflation Release

In Europe, GBP/USD lost about 0.2% to 1.2837 after UK consumer price inflation rose less than expected in July, increasing the likelihood that the Bank of England (BoE) will cut interest rates again.

The annual rate of consumer price inflation was expected to rise to 2.2% after two months at the BoE’s 2% target, but it came in below the 2.3% estimate.

The Bank of England cut interest rates from 5.25%, its highest level in 16 years, earlier this month, and financial markets are now pricing in a 44% chance that the BoE will cut rates by a quarter point in September, down from 36% before the data release.

EUR/USD rose nearly 0.3% to 1.1019, reaching levels not seen earlier this year, after France’s EU-harmonized year-on-year inflation rose to 2.7% in July from 2.5% in June.

The European Central Bank began cutting interest rates in June, and most expect policymakers to agree to another reduction in September, although rising inflation could make this less likely.

New Zealand Dollar Loses Ground After Rate Cut

In Oceania, NZD/USD fell nearly 1% to 0.6014 after the Reserve Bank of New Zealand (RBNZ) cut interest rates by 25 basis points, and Governor Adrian Orr reported that the bank had also considered a 50 basis point reduction.

The RBNZ highlighted progress made towards achieving its annual inflation target of between 1% and 3%, while noting market expectations that interest rates will fall by 100 basis points by mid-2025.

In Asia, USD/JPY was up nearly 0.2% to 147.15, showing signs of stability after strong overnight gains, although further strength in the yen was capped by improved risk appetite.

Second-quarter Gross Domestic Product (GDP) data from Japan will be released on Thursday, which is likely to influence the Bank of Japan’s rate-cutting plans.

USD/CNY lost about 0.1% to 7.1470, with industrial production data and retail sales figures due for release later this week.

27

U.S. Inflation Rose Less Than Expected in July, CPI Increased by 2.9% Annually

U.S. consumer prices increased in July at a slower-than-expected annual rate, raising the likelihood that the Federal Reserve will begin to cut interest rates at its next scheduled meeting in September.

The Labor Department’s consumer price index (CPI) rose by about 2.9% last month, slowing slightly from 3.0% in June. Economists had estimated that the figure would most likely match June’s rate.

On a month-on-month basis, the reading increased by 0.2% after falling by 0.1% in the previous month, matching estimates.

Excluding more volatile items such as food and gasoline, the core CPI rose by 3.2% in the twelve months to July, below estimates of 3.3%. On a monthly basis, core price growth increased by 0.2% after rising by 0.1% in June.

This release followed the cooler-than-expected July producer price index, which serves to confirm potentially benign inflation pressures that could give the Fed a chance to cut its interest rate from the 5.25%-5.50% range it has maintained for more than a year.

Fed Chairman Jerome Powell has stressed that positive inflation data is vital for a rate cut in September.

In addition, the non-farm payrolls report earlier this month indicated that U.S. employment growth slowed more than expected in July, while the unemployment rate increased to 4.3%, which could increase fears that the labor market is deteriorating, making the economy highly vulnerable to a recession.

28

U.S. Stock Markets Rise on Positive CPI Data

U.S. stocks rose on Wednesday as investors digested the latest consumer inflation data amid expectations that the Federal Reserve will ease its monetary policy stance next month.

CPI Data Expected to Support Rate Cut Expectations

U.S. consumer prices rose less than estimated on an annual basis in July, with the consumer price index increasing by 2.9%, slightly slowing from June’s 3.0%. Market analysts had expected the figure to remain at the June rate.

On a month-to-month basis, the reading rose by 0.2% after falling by 0.1% in the previous month, which matched estimates.

Excluding more volatile items such as food and gasoline, the core figure rose by 3.2% in the twelve months to July, slightly below estimates of 3.3%. On a monthly basis, core price growth increased by 0.2% after a 0.1% rise in June.

Although this release confirmed generally benign inflation pressures, following Tuesday’s cooler-than-expected July producer price index, expectations for a more substantial rate cut have increased.

The Federal Reserve is expected to officially cut its interest rate in September from the 5.25%-5.50% range it has maintained for more than a year, although uncertainty remains regarding the size of the reduction.

Traders are currently divided between expecting a 25 to 50 basis point cut in September, according to CME’s FedWatch tool.

Intel Sells Its Shares in Arm

In the corporate sector, Intel (INTC) sold its 1.18 million-share stake in U.K. chip firm Arm Holdings (ARM) in the second quarter, according to a regulatory filing released Tuesday.

The chipmaker mentioned earlier this month that it would cut more than 15% of its workforce and suspend its dividend amid a pullback in spending on traditional data center semiconductors and a shift toward AI chips.

Chocolate maker Mars Inc. wants to pay $83.50 per share for packaged food producer Kellanova (NYSE
), representing a 12% premium over Tuesday’s close and valuing the company at more than $30 billion, according to The Wall Street Journal.

Oil Prices Rise After U.S. Inventory Drawdown

Oil prices rose on Wednesday, supported by industry data that indicated a larger-than-expected drawdown in U.S. inventories.

Data from the American Petroleum Institute showed that U.S. crude inventories fell by 5.2 million barrels in the week ended August 10, much more than the estimate of a near 2 million barrel drawdown.

If confirmed by official inventory data later in the week, this reading suggests that demand continues to be strong in the world’s largest fuel consumer, even as the generally travel-heavy summer season begins to wind down.

29

U.S. Inflation Slows in July to 2.9%, Bitcoin Dips Below $61,000

U.S. inflation showed signs of slowing in July, aligning with economists’ estimates and paving the way for a possible interest rate cut.

The U.S. Consumer Price Index (CPI), a widely analyzed measure tracking the cost of a broad basket of goods and services, increased slightly by 0.2% month-over-month in July, leaving the 12-month inflation rate at 2.9%, according to a report released Wednesday by the Labor Department’s Bureau of Labor Statistics.

These results were in line with forecasts from economists surveyed by Dow Jones, which had predicted readings of 0.2% for the month and 3% for the year, according to CNBC. The annual reading, slightly below estimates and down from June’s 3%, is the lowest since March 2021.

The core CPI, which excludes food and energy costs, also showed a modest increase of 0.2% in July, matching expectations and slightly above the 0.1% increase from the previous month. The year-over-year core CPI was 3.2%, in line with estimates and slightly lower than June’s 3.3%.

Inflation data has been moving progressively closer to the Fed’s 2% annual target. The latest reading supports the narrative for an upcoming interest rate cut in September, as investors anticipate.

Fed officials have signaled their willingness to ease rates, though they have not committed to a specific timeline or speculated on the pace of the cuts.

The Fed raised interest rates rapidly to combat inflation, which reached multi-decade highs in 2022 after the COVID-19 pandemic, and has not cut rates since. Rates have remained at a 23-year high within the 5.25% – 5.5% range for over a year.

Bitcoin Slides Below USD $61,000

The cryptocurrency market did not respond positively to the inflation news, as Bitcoin slipped below USD $61,000 after the report’s release. This downturn was mirrored by other major cryptocurrencies, which are currently showing declines of nearly 1% over the last hour.

In contrast, gold surged to $2,474.04 an ounce in Wednesday morning trading, approaching record highs, as reported by Reuters.

Earlier in the week, Bitcoin experienced its fastest pace of decline in several years, plunging to the USD $49,000 area amid concerns about a slowing U.S. labor market and fears of an economic recession. The situation was further exacerbated by tensions in the Middle East and a rate hike announced by the Bank of Japan.

The digital asset market has shown signs of recovery from last week’s downturn, although volatility persists. Bitcoin is hovering around USD $60,900 at the time of publication, up 3.3% in the last few hours and 6.3% for the week, according to CoinMarketCap data.

31

Dollar gains bearish momentum, pound reaches one-month highs

The U.S. dollar fell ahead of the release of the Federal Reserve’s July monetary policy meeting minutes and Chairman Jerome Powell’s upcoming speech in Jackson Hole near the end of the week.

Dollar downtrend begins to gain momentum

The minutes, which will be released on Wednesday, and Jerome Powell’s speech on Friday are likely to be the main precursors of the week’s currency movements, with traders expecting a negative tone to emerge.

According to market analysts, the signals may be subtle, but the downward momentum may be starting to consolidate. Likewise, the DXY dollar index appears to be crossing the same levels seen at the beginning of August. This week’s events, such as the July FOMC minutes, revised payrolls and Fed speakers, could add to the dollar’s losses. Market investors most likely want to see how much further the dollar can fall next month.

The Fed has kept its benchmark overnight rate between 5.25% and 5.50% since the previous July, just after it had risen 525 basis points since 2022.

Traders have fully discounted a 25 basis point rate cut by the Fed in September, with a 24.5% chance of a move of almost 50 basis points.

Pound hits one-month highs

Turning to Europe, GBP/USD rose nearly 02% to ,2963, reaching a one-month high, as the pound benefits from a weaker dollar.

According to market analysts, GBP/USD looks set to revalidate its high for the year at 1.3045, as broad dollar weakness dominated global currency markets. A dovish stance from the Bank of England could contain the pound’s gains. Not to forget, the Bank’s Governor, Andrew Bailey, will have the opportunity to speak at Jackson Hole on Friday this week.

Possibly what analysts may be underestimating, however, is the demand for sterling coming from M&A activity. In this 2024, the UK is the hub region for deals worth close to $200 billion.

EUR/USD rose as much as 0.1%, or 1.1037, approaching the more than seven-month high reached the previous week.

Yen rises

In Asia, the USD/JPY lost 1% to 146.05 on the back of a broad-based weakening of the dollar and the likelihood of further political divergence between the U.S. and Japan.

Bank of Japan Governor Kazuo Ueda is scheduled to address Parliament on Friday, where he is expected to speak on the central bank’s decision last month to raise interest rates.

The USD/CNY lost about 0.3% to 7.1408, and the yuan headed for its biggest gain in two weeks, taking advantage of a broad-based sell-off in the dollar as investors bet on a US Fed rate cut.

32

U.S. Stock Markets Flat, Jackson Hole and Fed Minutes in Focus

U.S. stocks traded flat on Monday, consolidating after last week’s gains as investors awaited further signals regarding the Federal Reserve’s monetary policy outlook.

Wall Street’s major indices recorded their best week so far in 2024, as recent positive data eased fears of a possible recession.

The S&P 500 index gained nearly 3.9%, posting its best week since 2023. The tech-heavy Nasdaq Composite added 5.2%, while the blue-chip Dow Jones Industrial Average rose 2.9%.

Recessionary Prospects Decline

The previous week’s rally came after a turbulent start to the month following the disappointing July nonfarm payrolls reading.

However, July’s ISM non-manufacturing index rebounded, with its employment component entering the expansionary zone for the first time since November last year, according to economists.

In addition, July retail sales exceeded estimates, indicating a marked growth in real consumption, and initial jobless claims have fallen over the past two weeks.

Goldman Sachs has revised its one-year US economic recession forecast to 20% from 25%, citing the latest economic data that indicate no signs of a slowdown.

The increase was midway between the long-term average recession probability of 15% – based on the historical occurrence of one recession every seven years – and the 35% estimate during the banking turmoil in early 2023.

Investors will focus this week on the minutes of the Fed’s latest meeting, due out on Wednesday, ahead of Fed Chairman Jerome Powell’s speech at Jackson Hole next Friday.

Earnings Season Continues

Earnings season continues this week, with results due on Monday from Palo Alto Networks (PANW) and Estée Lauder (EL).

Bank of America’s most recent survey of fund managers indicated a decline in the proportion of investors overweight equities, from 51% to 31%.

The survey also highlighted that 40% of investment managers are pushing for CEOs to improve their companies’ balance sheets. Despite the current AI boom, the desire to increase capital expenditure has fallen to 24%, the lowest level since November 2023.

Crude Oil Prices On The Lookout For Gaza Ceasefire Talks

Crude oil prices fell on Monday due to concerns over weaker demand in top oil importer China, while ceasefire talks in the Middle East remain in focus.

Attention is now focused on Gaza ceasefire talks, which will continue this week in Cairo after a two-day meeting in Doha the week before.

U.S. Secretary of State Antony Blinken on Monday called Washington’s latest diplomatic effort to reach a Gaza ceasefire agreement “perhaps the best and last chance” and urged all sides to reach an agreement that would get them over the finish line.

The urgency to reach a ceasefire agreement has grown amid fears of an escalation of hostilities across the region, an upsurge that could impact on supplies to the oil-rich area.

33

Market Highlights for the Week: Powell, Dems, PM

The future path of U.S. interest rates may become clearer this week when Federal Reserve Chairman Jerome Powell delivers his speech at the central bank’s annual retreat in Jackson Hole. Before then, the Democratic National Convention will begin, global PMI data will shed light on economic strength and energy markets are likely to remain volatile amid heightened geopolitical tensions. Here’s a look at what will happen in the markets this week.

Powell at Jackson Hole

On Friday at 10:00 a.m. ET (14:00 GMT), Federal Reserve Chairman Jerome Powell will deliver the keynote address at the central bank’s annual economic symposium in Jackson Hole, Wyoming.

Markets will be watching closely for indications of the pace and timing of rate cuts in the months ahead. Expectations of a soft landing for the economy are buoying U.S. stock markets again, as recent positive data have eased worries about the likelihood of a recession, after concerns over the pace of growth triggered a brutal sell-off earlier this month.

Most market participants believe the Fed will cut rates at its next meeting in September, with the biggest debate centering on the size of the cut: a quarter or half a percentage point.

US data

The Fed will release the minutes from its July meeting on Wednesday. Last month, the Fed kept the door open to a rate cut in September, with Powell acknowledging progress on inflation. Also on Wednesday, the Bureau of Labor Statistics will release a preliminary forecast of the benchmark revision to the March 2024 nonfarm payrolls levels.

On Thursday, the weekly report on initial jobless claims will be released. Several Fed officials are also scheduled to make appearances throughout the week, including Fed Governor Christopher Waller, Atlanta Fed President Raphael Bostic, and Fed Vice Chairman for Supervision Michael Barr.

The Democratic Convention

The U.S. presidential contest heats up as Democrats try to boost the candidacy of Vice President Kamala Harris at the party’s convention in Chicago, which begins on Monday. During the four-day event, prominent Democratic Party figures are expected to give speeches aimed at solidifying support for Harris.

Harris, who entered the race after President Joe Biden’s decision to drop out of the campaign, has energized the Democratic base and has closed the gap on Republican candidate Donald Trump in certain opinion polls. Harris has even outperformed Trump in several betting markets ahead of the November 5 election.

As the race heats up, investors are eager to know what Harris’s policy positions are. The candidate has emphasized her commitment to preserving the Fed’s independence, a position that clashes head-on with the views of her Republican rival, former President Trump.

PMI data

Purchasing managers’ indices (PMIs) provide a real-time snapshot of economic activity and, with most of them released on Thursday, will provide important insights into global growth prospects. The July PMIs point to an economic slowdown coupled with persistent inflation, highlighting the dilemma facing central banks.

U.S. manufacturing activity slowed, and German figures were unexpectedly gloomy, pointing to a contraction in the eurozone’s largest economy.

However, manufacturing input prices in advanced economies hit 18-month highs.

Inflation will determine the pace and intensity of future rate cuts. A reiteration of the disappointing July PMI data could mean that monetary easing will come more slowly than markets would like.

Energy markets

Global energy markets have been volatile amid a combination of risk factors, with no immediate relief in sight. Growing concerns about the escalating conflict in the Middle East have pushed international crude oil prices above $80 per barrel, reflecting fears of potential supply disruptions in the region. At the same time, uncertainty about oil demand, especially in China, is preventing oil prices from rising further.

Wholesale gas prices in Europe have also experienced notable fluctuations, exacerbated by the possible disruption of Russian gas supplies via Ukraine. Ongoing conflicts near the Russian city of Sudzha, a key transit point for gas flowing to Ukraine, have raised fears of a possible disruption of gas deliveries before a five-year deal with Gazprom expires.

34

Bitcoin Accumulation Initiatives in US Politics

At the recent Bitcoin2024 event, two U.S. political figures proposed significant initiatives regarding the accumulation of Bitcoin (BTC) as a reserve asset by the U.S. government. Robert F. Kennedy Jr., an independent presidential hopeful, stated that if elected, his administration plans to stockpile four million Bitcoin as a strategic reserve asset. Simultaneously, Senator Cynthia Lummis unveiled a bill that would prompt the government to purchase one million BTC, which is about 5% of the total Bitcoin supply, over a five-year period.

Raoul Pal, a former Goldman Sachs executive and renowned macroeconomics expert, expressed his concerns during a conversation with Anthony Scaramucci, founder of Skybridge Capital. Pal highlighted the potential conflicts and risks of the U.S. government becoming one of the largest holders of Bitcoin. While a new buyer of such magnitude could initially boost Bitcoin’s price, Pal expressed fears of possible market manipulations.

Consequences of Government Involvement in Bitcoin

Pal argues that while the cryptocurrency market could benefit from additional demand, the prospect of the U.S. government positioning itself as a major buyer of Bitcoin is concerning. In his view, Bitcoin was conceived to minimize the government’s role in controlling money, and such a government takeover would run counter to the fundamental principles of decentralization and financial autonomy that cryptocurrency promotes.

Possible Consequences of Government Manipulation

The expert warned that if the government manages the Bitcoin market, it could, for example, sell large amounts to influence the price or buy more to keep prices high, similar to how it manages interest rates in the conventional economy. This ability to influence could undermine the independence that Bitcoin aims to offer in the financial world.

The debate raises a major dilemma: while the accumulation of Bitcoin by the U.S. government could further validate the cryptocurrency as a legitimate investment asset, it could also lead to control and manipulation, contrary to the ideals of free markets and autonomy that characterize Bitcoin. These concerns highlight the delicate trade-off between the official adoption of cryptocurrencies and the preservation of their decentralized spirit.

35

Dollar declines on rate cut expectations; euro near yearly highs

The U.S. dollar declined on Tuesday, approaching seven-month lows, amid expectations that the Federal Reserve will cut interest rates in September.

Dollar weakens on optimism ahead of Fed rate cut

The U.S. dollar has fallen by approximately more than 2% over the past month, on par with U.S. Treasury yields, amid growing optimism that the Federal Reserve will cut interest rates next month.

Fed Chairman Jerome Powell will have the opportunity to speak at the Jackson Hole symposium this Friday and traders are looking for more signals as to when and by how much the central bank will cut rates.

The Federal Reserve has held its benchmark overnight rate at the current 5.25%-5.50% range since last July, and traders have been compellingly discounting a 25 basis point rate cut in September, with a 24.5% probability of a 50 basis point move.

EUR/USD hits its highest level so far this year

Turning to Europe, EUR/USD traded flat at 1.1086, with dollar weakness driving the euro to record and touch its highest level so far this year.

The euro is up about 2% this month and is on track for its best monthly performance since November.

Europe’s consumer price index remained little changed in July, rising 2.6% on a yearly basis, which serves to confirm that inflation pressures remain subdued.

GBP/USD was up 0.2% at 1.3009, reaching its highest level in a month, due to weakness in the dollar.

Market traders are currently divided on the likelihood of the Bank of England lowering rates again in a month’s time, after a tight rate cut campaign earlier this month.

The yen is unchanged ahead of Ueda’s speech.

In Asia, USD/JPY fell to 146.35, close to last session’s near two-week high, but well off the seven-month low of 141.67 reached at the beginning of August.

Market investors’ attention will be focused on Bank of Japan Governor Kazuo Ueda when he testifies in front of Parliament next Friday. Ueda is expected to speak on the bank’s decision last month to raise rates and attention will focus on whether he maintains his recent hawkish tone.

USD/CNY traded flat at 7.1395, with slight support from the People’s Bank of China maintaining its benchmark lending rate preference as expected.

The August hold was due to the People’s Bank of China unexpectedly cutting the benchmark lending rate in July in an attempt to stimulate economic development.

36

U.S. Stock Markets Stabilize With Jackson Hole and DNC Top of Mind

U.S. stock indexes traded steadily on Tuesday, consolidating after another session of positive numbers on Wall Street, with attention focused on the Jackson Hole Symposium for further signals.

Wall Street’s benchmark indices were able to close higher on Monday, with the S&P 500 up nearly 1% and the Nasdaq Composite up 1.4%. Both indices posted their eighth straight session in positive territory, the first for the S&P 500 since November 2023, and the longest streak for the Nasdaq since December of last year.

Jackson Hole awaits signals on rate cuts

The Jackson Hole Symposium, a meeting of top central bank leaders and Indian finance ministers later this week, with a speech by Federal Reserve Chairman Jerome Powell on Friday.

Powell’s speech will be closely watched amid growing conviction that the central bank is preparing to cut interest rates by about 25 basis points next month, as recent economic readings pointed to some cooling of inflation.

Powell could signal the possibility of a 50 basis point cut, according to analysts at Evercore, although they do not expect the Fed chairman to speak explicitly on when he plans to start cutting rates.

Any comments regarding a possible recession will also be in focus, particularly if Powell still envisions a soft landing for the U.S. economy.

DNC in the spotlight in the race for Chair 2024

This week, attention will also be focused on the Democratic National Convention, where President Joe Biden will speak on Tuesday.

Vice President Kamala Harris was officially named the Democratic Party’s nominee for president in early August and chose Minnesota Governor Tim Walz as her running mate.

Harris received Biden’s endorsement in July, and recent polls show her closing in fast on Republican frontrunner Donald Trump, indicating a tight race for the presidency in 2024.

Lowe’s Result

Tuesday’s economic data agenda is virtually empty, with investors set to remain focused on the minutes of the Federal Reserve’s latest meeting on Wednesday and Chairman Jerome Powell’s speech in Jackson Hole on Friday.

Home improvement retailer Lowe’s (LOW) will release its results, while shares of cybersecurity company Palo Alto Networks (PANW) rose nearly 2% after reporting positive fiscal fourth-quarter earnings.

The fight to take control of Paramount Global (PARA) has intensified, with media executive Edgar Bronfman Jr. submitting a bid of about $4.3 billion to buy National Amusements, the company that owns a controlling stake in the media giant.

This move puts the planned acquisition by David Ellison, founder and CEO of Skydance Media, in jeopardy.

Crude oil loses ground as geopolitical risks recede

Crude oil prices declined on Tuesday as geopolitical risks eased following progress on a possible Gaza ceasefire deal.

U.S. Secretary of State Antony Blinken said Monday that Israeli Prime Minister Benjamin Netanyahu accepted a “bridging proposal” put forward by Washington to resolve disagreements blocking a Gaza cease-fire deal, and invited Hamas to do the same.

This indicates a greater likelihood of a ceasefire agreement, which would cause market participants to discount the potential dangers of an escalation across the region, something that could affect supply in this oil-rich area.

The decision by the People’s Bank to leave its benchmark interest rate unchanged disappointed some traders, given the weakness of the country’s latest economic data.

In the United States, the American Petroleum Institute will release its estimate of crude oil reserves.

37

Dubai Admits Cryptocurrencies as Legitimate Salary Payment

Dubai’s justice administration has officially recognized the use of cryptocurrencies as a valid means of paying salaries.

The landmark decision, adopted by the Dubai Court of First Instance, marks a milestone in the development of cryptocurrencies in the city, which aims to lead innovation in disruptive technologies.

Recently, the court issued an order recognizing cryptocurrencies as a lawful method of paying salaries, a decision that not only reinforces Dubai and the UAE’s position as leaders in the adoption of cryptocurrencies but also sets a significant precedent for the future development of cryptocurrency labor relations.

Dubai Sets a New Precedent in Labor Law

As reported by Lexology, a legal analysis and news platform, the decision by the Dubai Court of First Instance stems from a case last year in which a former employee sued his employer for unpaid wages, partly paid in a cryptocurrency called EcoWatt.

Lexology notes that in that case, the court was cautious regarding salary payments in cryptocurrency due to difficulties related to volatility, calculating value in fiat currency, and, in general, the lack of precise regulation on the matter.

However, in a recent order, registered in case number 1739 of 2024, the court made a 180° turn, adopting a more progressive stance and accepting cryptocurrencies as a legal method of paying labor remunerations.

This, Lexology noted, represents a marked change from the 2023 ruling, highlighting the evolving legal interpretation of cryptocurrencies in the city and reflecting greater acceptance of cryptocurrencies as a legitimate form of remuneration.

According to the resolution, cryptocurrencies are valid not only for paying salaries, but also employees will be able to receive cryptoassets as remuneration without the need to convert them to fiat currency.

The Evolution of Cryptocurrencies in the UAE Judicial Scenario

The recent ruling by the Dubai Court of First Instance comes in a context where cryptocurrency regulation in the UAE has been continuously evolving.

As mentioned earlier, last year the city’s court took a more cautious and conservative stance, requiring a clear methodology for calculating the value of cryptocurrencies to enforce payments claimed in these cryptoassets. However, the change in the court’s decision this month signals greater receptivity toward cryptocurrencies, aligning with the country’s vision of transforming into a global hub for technological and financial innovation.

The court based its ruling on the principle that salary is a worker’s right and reiterated that employment contracts must be fully enforced, as long as they do not violate laws or public policies.

Experts have pointed out that this decision has set a precedent that could influence future litigation related to remuneration in cryptocurrencies. It could also motivate more companies to consider including digital assets in their pay structures and transform how labor relations are handled in the country.

Dubai and UAE, pioneers in the regulation of cryptocurrencies

The recognition of cryptocurrencies as a legitimate mode of remuneration in the workplace has significant implications for the UAE economy. With the official recognition of these digital assets, Dubai establishes itself as a pioneer in the integration of cryptoassets into the conventional financial system, potentially attracting more cryptocurrency and blockchain companies to the emirate and fostering an innovation ecosystem that benefits the local economy.

Experts believe that the recent court decision may impact other sectors, encouraging more industries to explore the use of cryptocurrencies in their business transactions.

This could make cryptocurrencies and blockchain technology more widely accepted globally, while also highlighting Dubai and the UAE’s progressive stance in modernizing their economies by adapting legal frameworks to new and emerging technologies.

Dubai’s decision could be the catalyst that leads other countries to reconsider their policies on the use of cryptocurrencies in the workplace and beyond.

38

Dollar Rebounds but Continues Near Seven-Month Lows

The U.S. dollar rose in early European trading on Wednesday but remains near seven-month lows, as the Federal Reserve minutes from its last meeting and likely revisions to payroll data point to a rate cut next month.

The dollar loses strength in anticipation of Fed minutes and payroll revisions

The dollar has been under pressure, falling more than 2% over the past month, with U.S. bond yields falling to more than a one-year low after unexpectedly weak employment figures sparked fears of a possible economic recession.

As a result, the revised payroll data, due out Wednesday, is in focus, and the likelihood of a possible downward revision is weighing on the dollar.

The minutes of the Fed’s late July meeting are likewise being released a few hours later in the session, and traders will be paying close attention to estimates that the Fed will cut interest rates at its policy meeting in the middle of next month.

Since July, the Fed has kept its benchmark overnight interest rate between 5.25% and 5.50%.

Nomura expects continued weakness in the U.S. dollar, supported by various macroeconomic factors, positioning adjustments, and, ultimately, portfolio reallocations, which are expected to put downward pressure on the dollar in the coming months.

The euro heads for a strong month

Turning to Europe, EUR/USD was down about 0.1% to 1.1120, slightly below a high of 1.1130, the highest level since November 28.

Nomura expects a narrowing of the growth differential between the U.S. and Europe, which has been an important factor in the dollar’s strength.

GBP/USD was down about 0.1% at 1.3020, just below last session’s high of 1.3054, a level last reached in July of last year.

Data released on Wednesday showed that U.K. government borrowing rose more than expected in July, with public sector net borrowing of £3.1 billion the previous month, £1.8 billion higher than a year ago, and the highest July borrowing recorded since 2021.

Traders are divided on the odds regarding a further rate cut by the Bank of England in mid-September, after starting a rate-cutting campaign earlier this year in a very tight decision.

Yen loses ground

Turning to Asia, USD/JPY rose 0.5% to 146.01, although it remained well below the high of 160 reached earlier in the year.

USD/JPY had fallen to 141 in early August as the yen carry trade had largely unraveled on signs of strength from the Bank of Japan, with rising interest rates in Japan expected to underpin the yen and further weaken the carry trade in the coming months.

USD/CNY traded virtually flat at 7.1326 after a slightly stronger midpoint fixing by the PBOC. During Tuesday’s trading, the central bank also kept its prime lending rate unchanged.

39

U.S. Stocks Rise Ahead of Payroll Revisions and Fed Minutes

U.S. stock indexes rose on Wednesday, with investors cautious ahead of revisions to U.S. payroll data and the release of minutes from the Federal Reserve’s latest monetary policy meeting.

Wall Street indexes closed lower on Tuesday, ending an eight-day upward streak, despite recovering from weakness and volatility in early August.

Payroll revisions and Fed minutes in focus

Markets are trading cautiously as investors look for more signals about the Federal Reserve’s intentions for its September meeting.

The Bureau of Labor Statistics report on likely revisions to the latest nonfarm payroll data is due later in the session, and most economists expect a downward revision.

Goldman Sachs estimates that about 600,000 to 1 million fewer jobs were created between April 2023 and March 2024 than previously reported, although the influential investment bank noted the likelihood of a downward revision.

Minutes from the Fed’s July monetary policy meeting will also be released later today, ahead of Fed Chairman Jerome Powell’s speech at the Jackson Hole symposium on Friday.

Although investors expect Powell to provide more dovish signals amid recent signs of cooling inflation, he is not expected to explicitly outline plans for an interest rate cut in September.

However, the Fed is widely expected to cut rates next month, with about a 67% chance of a 25 basis point cut and a 33% chance of a 50 basis point reduction, according to CME FedWatch.

Walmart plans to sell its stake in JD .com

The quarterly earnings season is winding down, although results from several high-profile retailers are still pending.

Target Corporation (TGT) and TJX Companies (TJX) will release their results later on Wednesday, and investors will be watching closely to see if they gain market share with back-to-school sales.

Elsewhere, shares of Chinese e-commerce company JD .com (JD) fell sharply before the market opened after Bloomberg reported that Walmart (WMT) was considering selling its stake in the company for about $3.7 billion.

Shares of Keysight Technologies (KEYS) rose after its earnings beat forecasts, while 3D Systems (DDD) lost value after reporting lower-than-expected earnings.

Shares of furniture maker La-Z-Boy Incorporated (LZB) fell as weaker-than-expected forecasts largely offset strong results.

40

Tether Launches Dirham-Backed Stablecoin in the UAE

Tether is partnering with Phoenix Group and Green Acorn Investments in the United Arab Emirates to create a dirham-linked stablecoin aimed at facilitating international trade and remittances. Tether, the largest stablecoin provider in the digital asset sector, has announced its plans to launch a new stablecoin pegged to the United Arab Emirates dirham (AED). According to a press release shared with Cointelegraph, the new stablecoin will be launched in partnership with Phoenix Group and Green Acorn Investments, both UAE-based companies.

The main objective of this collaboration is to establish a digital representation of the dirham currency, which will be “fully backed by liquid reserves in the UAE.” This will ensure the stability and reliability of its value. “Following Tether’s transparent and robust reserve standards, each dirham-linked token is guaranteed to be pegged to the value of the AED, providing stability and confidence.”

Tether expands its market in the UAE

Separately, Tether’s expansion into the UAE financial market with its new dirham-linked stablecoin is expected to provide users with a cost-effective and easily accessible means to “access the benefits of the AED.”

The press release states that the new stablecoin will “streamline international trade and remittances” by lowering transaction fees and providing a hedge against currency fluctuations. Paolo Ardoino, CEO of Tether, explained that the company is “delighted” to add the dirham-linked stablecoin to its “range of stablecoin options.”

“The UAE is transforming into a major global economic hub, and we believe our users will find our dirham-linked token to be a valuable and versatile addition.”

Collaboration with Phoenix Group

In partnership with Phoenix Group, a multi-billion-dollar technology conglomerate based in Abu Dhabi, Tether seeks to provide businesses and individuals with an “essential tool” for transactions.

According to the press release, the use of cryptocurrencies in the UAE has grown exponentially since 2022, driven primarily “by the establishment of the Virtual Assets Regulatory Authority.” Indeed, this boom reflects a considerable shift in the adoption of digital assets in the region.

Seyed Mohammad Alizadehfard, co-founder and CEO of Phoenix Group, stated that the partnership “reflects” the firm’s “dedication to providing financial solutions” to its clients.

Tether’s expansion to the Aptos blockchain

On August 19, Tether introduced its USDT token on the Aptos Layer 1 blockchain, with the goal of improving access to and use of the digital currency worldwide and reducing transaction costs. Thanks to the speed and scalability of Aptos, Tether aims to offer blockchain users “extremely low gas fees, costing only a fraction of a cent.”

Through this integration, transaction fees on Aptos using USDT will become “economically viable” for many use cases, including larger-scale enterprise operations and microtransactions.