Global Market Weekly Recap: August 28 – September 1, 2023

After a slow start, the leading financial asset categories began to show a trend against the U.S. dollar. This shift was largely driven by the extensive U.S. economic calendar revealing weaknesses in economic growth.

This change in the financial landscape raised the likelihood of the Federal Reserve approaching the end of its tightening phase, which in turn led to a decline in the value of the U.S. dollar for most of the week. Simultaneously, this boosted the performance of both gold and U.S. equities.

Now, let's explore how other global assets fared during the week. I can provide an analysis, but first, let's go over the most significant headlines.

Notable News & Economic Updates:

Broad Market Risk-on Arguments

Retail sales in Australia rebounded by 0.5% month-on-month in July (forecast: 0.3%; previous: -0.8%), with annual sales increasing by 2.1%, albeit at its slowest pace since August 2021.The U.K.'s annual shop price inflation, according to the British Retail Consortium, decreased from 7.6% to 6.9% in August, marking the slowest price increase since October 2022.Germany's unemployment rate remained steady at 2.9% in July 2023, with minimal month-on-month job growth.Australian inflation slowed from 5.4% year-on-year to a 17-month low of 4.9% year-on-year in July, primarily due to declines in holiday travel and fuel prices.Australia's private capital expenditure increased by 2.8% quarter-on-quarter in Q2 (forecast: 1.1%; previous: 3.7%), driven by investments in new equipment and machinery.New Zealand's business confidence improved by 9 points to -3.7, reaching its highest reading since mid-2021, as inflation indicators continued to ease.Broad Market Risk-off Arguments

The Job Openings and Labor Turnover Survey indicated a decrease in job openings, from 9.17 million in June to 8.83 million in July.ECB Governing Council member Robert Holzmann suggested on Monday that they are likely to raise interest rates again in September.U.K. net mortgage approvals declined to 49.4 thousand in July, down from 54.6 thousand in June.The second estimate for U.S. GDP growth in Q2 2023 was lower at 2.1% year-on-year, compared to the forecast of 2.2%. The quarterly core PCE Prices Index change stood at 3.7% (forecast: 3.8%; previous: 4.9%).The U.S. Core PCE Price Index for July met expectations at 0.2%. Inflation-adjusted consumer spending increased by 0.6% month-on-month.J.P. Morgan Global Manufacturing PMI for August was 49.0, slightly up from 48.6 in July but still indicating contraction.U.S. Non-Farm Payrolls for August reported 187 thousand jobs (forecast: 180 thousand), with the July figure revised lower to 157 thousand from 209 thousand. The unemployment rate unexpectedly increased to 3.8% from 3.5%, and average hourly earnings grew by +0.2% month-on-month (forecast/previous: +0.4%).Global Market Weekly Recap

 China started the week with a bang, as authorities announced measures to support its equities markets:

The stamp duties on stock transactions will be cut from 0.1% to 0.05%.The margins required before buying stocks will be lowered.The pace of IPOs will be lowered due to “recent market conditions.Selling from top stakeholders of firms whose stock prices have fallen below IPO prices or net asset levels will be restricted.In the beginning, the new measures were somewhat disappointing compared to the substantial financial assistance the markets had anticipated. Additionally, with U.K. traders away on holiday, market volatility remained low. Those who were present seemed to maintain a risk-on attitude.

Adding to this sentiment, Asian and European session traders appeared to be factoring in comments from Fed Chairman Powell, who, during the Jackson Hole weekend, suggested that the Fed would proceed with caution in its next policy changes, implying a less hawkish stance.

U.S. 10-year yields experienced a consistent decline, and the Australian dollar, already supported by robust retail sales data, closed near its intraday highs.

On Tuesday, risk-friendly and anti-Dollar sentiments gained significant momentum after weak reports from the U.S. Job openings fell to their lowest levels since 2021, and consumer confidence deteriorated, primarily due to concerns about jobs, high borrowing costs, and persistent inflation. Market participants interpreted this as potentially leading to a more cautious approach by the Fed regarding further interest rate hikes.

As a result, U.S. stocks saw their most substantial gains since June, and U.S. 10-year yields dropped from their intraweek high of 4.24% to 4.10%. The U.S. dollar struggled against major currencies.

Bitcoin also received a boost when Grayscale Investments won a ruling that required the U.S. Securities and Exchange Commission to re-evaluate its process and standards for denying Grayscale's proposal to convert its Bitcoin Trust (GBTC) into an ETF. This pushed BTC/USD up to $28,000 briefly before some profit-taking brought it back to $27,500.

Wednesday brought mixed price action. During the Asian session, BOJ board member Naoki Tamura suggested that the central bank's 2.0% inflation target was becoming more achievable and could lead to a change in the BOJ's dovish stance as early as January through March next year. This led to a decline in JPY across the board.

Later, attention turned to Europe as inflation figures from Germany and Spain left room for further ECB rate hikes. EUR reached new intraweek highs, while GBP also made gradual gains throughout the day.

However, the "bad news is good news" sentiment lost some of its appeal during the U.S. session. Data revealed that the U.S. economy made less progress in Q2 than initially estimated, and the ADP report indicated a slower rate of employment growth. Despite this, U.S. equities continued to rise.

Thursday's reports accelerated the selling, particularly for European currencies. French CPI supported an ECB rate hike, but misses in German retail sales and French consumer spending served as a reminder that higher interest rates are not always favorable for economic growth. ECB members Isabel Schnabel and Luis De Guindos also made hawkish remarks in their interviews, adding to the selling pressure.

EUR, GBP, and even CHF experienced moderate downward movements throughout the day. BTC/USD also saw some selling, retreating from its $27,500 highs to its pre-Grayscale headline levels around $25,800.

However, U.S. crude oil prices continued to rise, boosted by the possibility of a less hawkish Fed earlier in the week and Russia's announcement of further OPEC+ export cuts, to be revealed the following week. USOIL extended its bullish breakout from an intraweek low of $79.50 to the $83.50 territory.

As Friday's session began, broad market volatility was subdued as traders awaited the highly anticipated U.S. employment situation update. The report exceeded expectations in terms of net change but revealed a rise in the unemployment rate from 3.5% to 3.8%. Average hourly earnings also missed at 0.2% month-on-month.

This mixed report initially had a bearish impact on the U.S. dollar. However, the markets received the latest ISM Manufacturing PMI for August, which, although still signaling contraction, surpassed both expectations and the previous reading. This prompted a mixed reaction across major assets, ultimately leading to a modest uptick in the U.S. dollar index, aligning it with other major asset classes in positive territory as the week concluded.

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