MARKET WRAPS
Watch For:
U.K. CBI distributive trades survey, Consumer confidence survey; France monthly business survey, OECD trade statistics release; trading updates from Harbour Energy, CRH, Norwegian Air Shuttle, Naspers
Opening Call:
Shares look set to open in positive territory in Europe on Thursday ahead of the much anticipated Jackson Hole meeting. In Asia, stock benchmarks were higher; Treasury yields were mixed; the dollar weakened; while oil fell and gold gained.
Equities:
European stocks could open higher early Thursday with the tech sector expected to be buoyed by chip maker Nvidia's strong results even as surveys of purchasing managers that flashed warnings of economic slowdown on both sides of the Atlantic could weigh.
Jennifer McKeown, chief global economist at Capital Economics, said the surveys imply that the U.S. economy is barely growing and that the eurozone and the United Kingdom are near recession.
"With output prices still easing gradually, the surveys strongly suggest that we are at or close to the peak in monetary tightening cycles," she said.
Investors will be listening for hints about the path of interest rates on Friday when Federal Reserve Chair Jerome Powell speaks at the Jackson Hole Economic Symposium in Wyoming.
Nigel Green, CEO of deVere Group warned that hype around Nvidia and other mega-cap tech stocks, fueled by enthusiasm over AI, may be reaching dangerous levels "as it could lead investors to assume that these stocks are a silver bullet to build long-term wealth -- and they are not, at least not on their own."
Robert Minter, director of ETF Investment Strategy at asset manager Abrdn, said investors were moving money into sure things, like cash and short-term U.S. debt, but were hesitant to be completely sidelined should stocks keep climbing.
"What we're hearing from people is they're taking a little off the table and putting it into cash, but they understand the danger of putting too much of their assets in cash," he said.
Ben Kirby, co-head of investments at Thornburg Investment Management, said he's recommending clients buy longer-term bonds to lock in attractive yields and accumulate dividend-paying stocks, which have lagged behind the market this year and are a relative bargain compared with tech stocks.
"If you're going to buy a money-market account that pays 5%, that probably looks great for a while, but if we do go into recession then what can happen is that rate will come down and you'll have to reinvest at a lower rate," he said.
Forex:
The dollar weakened slightly early Thursday ahead of the Jackson Hole meeting.
It might be difficult for Fed Chair Jerome Powell to get the "nuance" right in his speech Friday, ING economists said.
Should Powell talk up data-dependency of monetary policy, recent softer U.S. data releases could play into a less hawkish outlook, the economists added.
The surge in the ICE US dollar index since mid-July has been a pressure point for commodity traders, as a stronger dollar is seen as hampering export demand for US commodities.
"If Powell is hawkish on Friday, and rates return to their climb--the dollar can move up meaningfully and that can be a problem," Sterling Smith of AgriSompo said.
Chair Powell is likely to stick to the hawkish messages from the last meeting and its minutes in this Jackson Hole speech Friday, said Kevin Flanagan, head of fixed income strategy at WisdomTree.
"The chair would not want to upset the apple cart. You want to keep things kind of even keeled."
Flanagan said the FOMC "are relatively happy with the results so far," after their sharp and fast hiking cycle.
Inflation remains well above the 2% target, but the Fed "was realistic enough to know this could take a little bit of time."
If Powell makes any comments on the neutral rate, though, that could rattle markets, Flanagan added.
Bonds:
Treasury yields were mixed as weakening economic activity from the U.S., eurozone and U.K. dimmed the global outlook.
"Investors are increasingly convinced rates can -- and will -- remain elevated for some time, reflecting both solid growth expectations and rising odds of a soft landing. We would agree the rate risk is to the upside, at least in the near term as growth remains modest in a range of 2-3% through year-end and the Fed continues to raise rates closer to 6% in an attempt to slow inflation," economists at Stifel, Nicolaus & Co. said.
"That being said, there are already cracks in the economy," they said.
"With manufacturing contracting, the housing market slowing, and the consumer increasingly reliant on artificial supports to supplement spending, growth is likely to -- eventually -- slow. An outright recession may be avoided, but at the very least, 500bps+ in Fed rate hikes will expectedly result in a sluggish, lackluster topline expansion with GDP falling well below potential in '24-'25."
Investors were looking ahead to Friday when Fed Chair Jerome Powell gives a speech at the central bank's Jackson Hole symposium.
Until then, markets are pricing in an 88.5% probability that the Fed will leave interest rates unchanged at a range of 5.25%-5.5% on Sept. 20, according to the CME FedWatch Tool. The chance of a 25 basis point rate hike to a range of 5.5%-5.75% at the subsequent meeting in November is seen at 35.5%.
Energy:
Oil futures were lower in Asia weighed by the weak global economic data and concerns over rising supply.
There are concerns over higher supply with the Biden Administration said to be in talks with Venezuela to explore easing sanctions that have hindered the latter's oil sales, ANZ analysts said.
However, it may take a while to finally reach a deal, they added.
"The rally in oil appears to have run out of steam for now. China's macro issues, along with a growing expectation that maybe the U.S. Fed is not done with its tightening cycle have weighed on oil more recently, " ING said.
Troubles in China's property sector have added to concerns over lackluster economic data from the world's second-largest oil consumer. Investors were awaiting Federal Reserve Chair Jerome Powell's speech at an annual symposium on monetary policy in Jackson Hole, Wyo., on Friday.
A broadly stronger U.S. dollar is also providing headwinds, ING added.
Metals:
Gold edged higher early Thursday extending overnight gains after being battered by rising Treasury yields and a strengthening U.S. dollar.
For now, gold's attempt to recover from recent losses is a "positive signal for the metal as it shows that buyers are returning to be active, " said Carlo Alberto De Casa, external market analyst at Kinesis Money.
Still, "we cannot yet consider the current movement to be a proper inversion. What is missing is a major catalyst with the strength to trigger a rise big enough to offset the decline of the last few weeks," he said.
For the rest of this year, analysts at ICICI Bank said they see a "bearish trading environment for gold prices given that U.S. yields both real and nominal are unlikely to fall sharply."
They now see gold prices trading in a range of $1,850 to $1,950 this year, with downside potential of $1,800.
Going into 2024, they see a "possible uptrend emerging in gold prices contingent on our expectations that the lagged effect of U.S. monetary tightening works to weaken U.S. growth in the process."
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Copper prices were lower in early Asian trade, retreating from overnight gains after data showed weaker-than-expected business activity in Europe and the U.S. in July.
The weak purchasing manager indexes offer encouragement that global central banks may pause on rate hikes, ANZ analysts said.
However, the focus was on China as the world's biggest copper consumer struggles to boost economic growth, they said.
Beijing's efforts to support the yuan triggered a wave of buying across the market earlier this week, the analysts added.
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Iron ore futures rose amid improving demand prospects for the ferrous metal.
Speculation that China's steel mills will step up production ahead of the seasonal pickup in construction activity is supporting the market, ING commodities strategists said.
Declining iron ore port inventories in China, which are hovering around their lowest levels since August 2020, could also encourage domestic mills to start restocking, the strategists added.
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