Global Market Weekly Recap: Sep 4-8,2023

The US dollar continued to perform well during the week, buoyed by speculations that the Federal Reserve would maintain elevated interest rates for an extended period.

However, this same hawkish outlook didn't bode well for other major currencies, as poor economic data releases raised concerns that higher interest rates could potentially hinder the growth prospects of their respective economies.

In the commodities sector, gold, a non-yielding asset, saw a decline in value over the week, while news related to supply pushed up the prices of major crude oil benchmarks.

Now, let me provide a detailed breakdown of how major global assets performed this week. But before we delve into that, here are the most significant headlines from the week:

Notable News & Economic Updates:

Broad Market Risk-on Arguments

On Tuesday, Chinese property developer Country Garden Holdings managed to avoid default by paying $22.5 million in coupons but still seeking to extend payments on seven more onshore bonds by three years.S&P Global ASEAN Manufacturing PMI in August: 51.0 vs. 50.8; “The rate of input price inflation accelerated for the first time in seven months.”Bank of England Governor Bailey said on Wednesday to lawmakers that they are no longer in a phase where it was clear that rates needed to rise, and that policy is restrictive.Australian GDP grew 0.4% q/q in Q2 2023 vs. estimated 0.3% expansion, previous quarter growth upgraded to 0.4% from initially reported 0.2% uptick.The Bank of Canada today held its target for the overnight rate and deposit rate at 5.00% on Wednesday as expected; Sees evidence of excess demand easing but is prepared to increase policy interest rate further if needed.Canada Employment Change for August 2023: 39.9K (-8.0K forecast; -6.4K previous); Unemployment Rate was 5.5% (5.7% forecast); Average Hourly Wages: 5.2% y/y (4.8% y/y forecast)Broad Market Risk-off Arguments

Reserve Bank of Australia kept interest rates on hold at 4.10%, citing that “further tightening may be needed” but that inflation may have already passed its peak and that uncertainties are weighing on the outlook.Swiss GDP showed that economic activity was flat in Q2 vs. estimated 0.1% q/q growth figure and earlier 0.3% expansion.Saudi Arabia and Russia extends the 1.3M barrel/day cut through December.Chinese Caixin services PMI fell from 54.1 in July to 51.8 in August vs. estimated 53.6 figure, reflecting the slowest pace of growth in eight months.The latest ECB Consumer Expectation Survey showed rising inflation expectations.Chinese trade surplus fell from $80.6 billion to $68.4 billion in August, as imports and exports both declined again.S&P Global US Services PMI for August: 50.5 vs. 52.3 in July; businesses are starting to see waning post-pandemic economic strength; sees renewed “upward pressure on energy, fuel & transportation costs”.German factory orders tumbled 11.4% m/m in July vs. expected 4.3% decrease and previous 7.6% gain (upgraded from initially reported 7.0% figure)In a speech in Calgary, Alberta, BOC Gov. Macklem said that, aside from the delayed impact of higher interest rates, one possible reason for inflation staying above target is that “monetary policy is not yet restrictive enough.”Fed Speak lifts Dollar: Cleveland Fed President Loretta Mester said on Tuesday that interest rates may need to be “a bit higher,” but said that there’s plenty of time until the next meeting to weigh upcoming data.German industrial production slumped by 0.8% m/m in July vs. estimated 0.4% dip and earlier 1.5% decline.Japan’s final GDP revised lower from 6.0%y/y to 4.8% y/y in Q2 due to weak capital spending; cash earnings was up by 1.3% y/y in July (vs. 2.4% expected, 2.3% previous) but real wages fell by 2.5% y/y. The week began with a relatively calm start, as traders in Asian and European sessions reacted to weak U.S. jobs data from the previous week and the possibility of the Federal Reserve maintaining its current monetary policies. Positive news regarding China's Country Garden's bond payments and bank holidays in the U.S. and Canada contributed to positive risk sentiment.

This optimism initially led to gains in Asian equities, the Australian and New Zealand dollars, as well as European equities, the euro, and the British pound.

However, as the week progressed, weak economic data started to weigh on market sentiment. China's Caixin services PMI for August showed its weakest reading in eight months. The Reserve Bank of Australia (RBA) decided to keep its interest rates unchanged but hinted at possible future tightening. Eurozone PMI data indicated a contraction in private sector activity, raising concerns about the European Central Bank (ECB) keeping interest rates steady in September.

These weak PMI reports, coupled with expectations of a less hawkish ECB and RBA, contrasted with the Federal Reserve's stance, and contributed to higher U.S. 10-year Treasury yields and a stronger U.S. dollar. The U.S. dollar gained strength against currencies like the Australian dollar, New Zealand dollar, Canadian dollar, euro, and British pound.

Crude oil was an exception, receiving support from Saudi Arabia and Russia extending oil production cuts and export reductions.

Wednesday saw some relief, with the Australian and New Zealand dollars benefiting from better-than-expected Australian GDP data. There was also speculation that China's state-owned banks were selling USD/CNY to support the yuan.

Bank of England (BOE) Governor Bailey's remarks about the BOE being near the top of the rate hike cycle led to a significant drop in the British pound.

A strong U.S. ISM services PMI supported the Federal Reserve's stance, resulting in declines in gold, cryptocurrencies, and equities.

Risk sentiment was further dampened by reports that China directed government agencies not to use foreign-branded devices for work, and the European Commission classified major tech companies as "gatekeepers" under its new Digital Markets Act.

On Thursday, weak Chinese trade data added to economic concerns, leading to declines in bond yields, oil prices, equity futures, and cryptocurrencies.

During the U.S. session, positive U.S. initial jobless claims data suggested continued strength in the U.S. employment sector, boosting risk assets.

Friday saw limited volatility until the U.S. session when a strong Canadian jobs report led to a surge in the Canadian dollar. The data, including better-than-expected average hourly earnings, supported the idea that the Bank of Canada may not ease its fight against inflation, making the Canadian dollar the second-strongest major currency of the week, behind the U.S. dollar.

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