The markets kicked off the week quietly, with traders holding back in anticipation of this week’s potential catalysts.
However, crude oil stood out as an exception. The Black Gold surged sharply, showing little signs of retreat!
Explore the key themes that influenced Monday’s market movements:
Headlines:
- Over the weekend, Israel and Lebanon’s Hezbollah reportedly exchanged heavy fire, escalating tensions and risking an all-out war across the Lebanon-Israel border.
- As anticipated, the PBOC maintained its one-year MLF rate at 2.3% and its seven-day reverse repo rate at 1.7% in August.
- Libya’s eastern government announced the suspension of exports and the closure of all oilfields in eastern Libya.
- Germany’s Ifo Business Climate Index declined from 87.0 to 86.6 in August, with concerns that “The German economy is increasingly falling into crisis.”
- U.S. durable goods orders surged by 9.9% month-over-month in July, while core durable goods dipped by 0.2% (0.0% expected, 0.4% previous).
- FOMC voting member Mary Daly echoed Powell’s sentiments, stating it would be “hard to imagine” anything that could prevent a September rate cut.
- China’s Conference Board leading index improved from -0.3% to 0.0% in July.
- The U.K. BRC shop price index fell by 0.3% year-over-year in August, following a 0.2% increase in July, warning that “Renewed inflationary pressures could be lurking just over the horizon.”
- Japan’s services producer price index slowed from 3.1% year-over-year to 2.8% year-over-year in July (2.9% expected).
Broad Market Price Action:
Major assets started the week on a subdued note as investors digested insights from last week’s Jackson Hole meeting and remained cautious ahead of this week’s potential market triggers.
Volatility surged during the European session following reports that Israel and Hezbollah narrowly avoided an all-out war in southern Lebanon over the weekend. Additionally, Libya’s shutdown of its eastern oilfields likely contributed to the spike in oil prices, with WTI crude rising from $75.50 to $77.50 before settling at $77.00.
In the U.S., a mixed durable goods report garnered little attention as traders were more focused on the Fed's anticipated September rate cut. U.S. stocks had a mixed performance: the Dow reached a new record high, while the Nasdaq and S&P 500 retreated ahead of Nvidia’s earnings announcement.
Meanwhile, gold remained near its record highs, Bitcoin (BTC/USD) slipped to $63,000, and U.S. 10-year yields inched up from 3.77% to 3.82%.
FX Market Performance: U.S. Dollar vs. Major Currencies:
The U.S. dollar began the week on a weaker note against other safe-haven currencies, following dovish remarks from Fed Chair Jerome Powell on Friday. The Japanese yen, in particular, experienced broad gains and reached new intraday highs during the European session, though it ended the day with mixed results.
“Risk” currencies such as the Australian dollar, New Zealand dollar, and British pound saw early gains as the U.S. session began. However, these gains were short-lived as concerns over escalating tensions in the Middle East and caution ahead of the week’s economic data releases weighed on the markets.
The Canadian dollar stood out, benefiting from rising crude oil prices and ending the day stronger across the board.
During the U.S. session, the dollar faced renewed buying pressure despite FOMC voting member Mary Daly’s support for a September rate cut. By the end of the day, the Greenback was up against most of its counterparts, except for the Swiss franc and the Canadian dollar.
Upcoming Potential Catalysts on the Economic Calendar:
- BOJ Core CPI at 5:00 am GMT
- Germany Final GDP at 6:00 am GMT
- German GfK Consumer Climate at 6:00 am GMT
- U.K. CBI Realized Sales at 10:00 am GMT
- U.S. House Price Index at 1:00 pm GMT
- U.S. CB Consumer Confidence at 2:00 pm GMT
- Australia CPI at 1:30 am GMT (Aug 28)
Traders may need to rely on risk sentiment for direction today, as the economic calendar features mostly lower-tier reports. Keep an eye on headlines that could impact geopolitical tensions in the Middle East, as well as potential positioning ahead of the week’s more significant data releases.
