Latest Market Trading News
4th September 2024
Global Stocks Tumble as Flight from Risk Continues
A global flight from risk assets continues on Wednesday due to fears around the US economy and a sharp decline in US stocks especially in the big tech sector on Tuesday after the labour day holiday weekend.
Traders are fearing additional swings, looking for clues on whether the US economy is threatened by a recession, and the Federal Reserve’s next adjustments to its monetary policy.
A US job openings report expected today will indicate whether there is further cooling in the labor market, marking a 5th consecutive month of contraction in manufacturing activity. The market is shifting its focus from inflation to concerns over economic growth, causing turmoil in stocks and other risk assets.
Traders are expecting the Federal Reserve to start easing its policy in September by reducing rates by more than two full percentage points over the next 12 months, this is the steepest drop since the 1980s outside of a downturn. Furthermore, payrolls data is due on Friday and will be crucial in defining the magnitude of the initial rate cut.
In currencies, the dollar snapped a five-day winning streak whilst the yen extended its gains.
Oil dropped further after crashing to the lowest level this year, with Brent futures falling to around $73 a barrel due to growing concerns that weak demand and restored supplies from OPEC will create a new surplus.
Gold futures are hovering above $2,515 per ounce, down from their all-time high last month but still up almost 22% year to date. The precious metal remains the traders’ favourite hedge against geopolitical and financial risks, gaining additional support from expected Fed rate cuts later this month and ongoing EM central bank buying. Traders are pricing in a 31% probability of a 50-basis point cut instead of 25 basis points according to the CME FedWatch – CME Group.
- 24th August 2024
Powell’s keynote address at Jackson Hole sets the tone for rate cuts
The recent statements by Jerome Powell, Chairman of the Federal Reserve, in his keynote address at the Jackson Hole meeting on the August 23, signaled a potential shift in the central bank’s approach to monetary policy. The indication of a forthcoming reduction in interest rates reflects a response to the current economic indicators, such as the proximity of inflation rates to the Fed’s target and the uptick in unemployment figures. The balance between price stability and maximum employment is a delicate one, and the Fed’s dual mandate requires careful navigation of these economic waters.
The Fed’s inclination towards easing monetary policy suggests a prioritisation of employment over inflation concerns, a stance that is underscored by the current labor market conditions. The rise in unemployment to 4.3% from a lower point earlier in the year is not trivial, and the Fed’s acknowledgment of this trend is telling of its current focus. The increase in the labor supply, as mentioned by Powell, indicates a complex labor market dynamic that is not solely driven by job cuts but also by more individuals entering the job market.
Powell’s remarks about the ‘direction of travel’ being clear but the ‘pace of travel’ being uncertain encapsulate the current economic sentiment. The central bank’s cautious approach to adjusting policy, while recognising the need for action, reflects the uncertainties inherent in economic forecasting and policy implementation. The labor market cooling, as described by Powell, is a significant factor in the Fed’s policy considerations, as it seeks to avoid exacerbating any potential downturns in employment.
The Fed’s stance on not welcoming further cooling in the labor market conditions, despite the rising unemployment rate, is indicative of its commitment to fostering a robust job market. This is in line with the broader goal of ensuring long-term economic stability and growth. The absence of immediate concerns about a recession from Powell’s perspective offers a somewhat reassuring note amidst the complexities of the current economic landscape.
In summary, the Federal Reserve, under Powell’s chairmanship, appears to be preparing for a careful recalibration of its monetary policy in response to the evolving economic situation. The focus on maintaining employment levels while managing inflation reflects the intricate balance the Fed aims to achieve in its pursuit of economic stability and growth. As the next monetary-policy meeting approaches next month, all eyes will be on the Fed’s actions and their implications for the economy at large.
The economic landscape, as outlined by Mr. Powell, reflects the intricate balance central banks worldwide strive to maintain. The pandemic’s onset brought forth challenges that tested traditional economic models, revealing the complexity of global supply chains and the unpredictability of consumer behavior. The Federal Reserve’s response, characterised by agility and informed by evolving data, underscores the dynamic nature of modern monetary policy. This adaptability is crucial in a world where economic conditions can shift rapidly, and policies must be responsive to these changes.
The anticipation of a quarter-point reduction by the Fed, as inferred from bond-market pricing, suggests a cautious yet responsive approach to the current inflationary pressures. It’s a delicate maneuver, aiming to temper inflation without stifling economic growth. The investors’ expectations of about two more percentage points of cuts during the coming year indicate a belief in the Fed’s commitment to recalibrate its strategies in the face of persistent inflation.
On other news around the globe, Japan’s nuanced inflation metrics tell a story of an economy grappling with its own unique set of challenges. The rise in the core-inflation rate to 2.7% in July from 2.6% in June. However, the drop in the “core-core” rate to 1.9%, from 2.2% which was the first time it fell below the Bank of Japan’s 2% target since September 2022, paints a picture of an economy where external factors like food and energy significantly influence inflation. The Bank of Japan’s decision to raise interest rates last March for the first time in nearly two decades marks a pivotal shift, suggesting a move towards normalising monetary policy after 17 years of unprecedented stimulus measures.
In essence, the economic narratives from the United States and Japan highlight the ongoing efforts of central banks to navigate the post-pandemic recovery. They must balance the need to support economic growth with the imperative to maintain price stability. The actions of the Fed and the Bank of Japan will continue to be closely watched as indicators of how central banks might approach policymaking in an era marked by rapid change and heightened uncertainty. The global economic community remains attentive to these developments, understanding that the decisions made in Washington and Tokyo have far-reaching implications. The path forward is one of cautious optimism, with a keen awareness of the lessons learned during the pandemic and a forward-looking stance ready to adapt to the ever-evolving economic landscape.