Equities Surge on Recession Optimism, Fed Rate Cuts in Focus

We start the week relatively quite with not much news out today, the past week saw equity markets rally strongly, recovering from recent losses, fuelled by optimism that the U.S. might dodge a severe recession. This sentiment has led to renewed strength in the U.S. dollar, though some softening is expected as the Federal Reserve gears up for potential rate cuts.

This Week’s Economic Calendar

• Tuesday, August 20: The Reserve Bank of Australia (RBA) releases its meeting minutes, which will give further insight into the central bank’s stance on inflation and interest rates. Meanwhile, Canada will release its July inflation figures, with the YoY rate expected to hit 2.7%.
• Wednesday, August 21: Japan’s trade balance for July is expected to show a recovery to ¥224.0 billion after a deficit of ¥-330.7 billion in the previous month. The U.S. will release the FOMC meeting minutes, providing clues on the Fed’s thinking ahead of the September meeting.
• Thursday, August 22: Germany’s HCOB Manufacturing PMI Flash for August is forecasted to remain in contraction territory, with expectations set at 43.7, slightly up from the previous month’s 43.2.
• Friday, August 23: Japan’s inflation rate for July is anticipated to tick up to 2.9%. The highlight of the day will be Fed Chair Powell’s speech at the Jackson Hole Symposium, where markets will be looking for hints on the future path of U.S. monetary policy.

Major Currency Pairs

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EUR/USD: The Euro has managed to stay above 1.1000, buoyed by improving economic data in the Eurozone. The pair’s direction this week will largely hinge on the tone of the FOMC minutes and Powell’s speech at Jackson Hole.

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GBP/USD: The Pound has been trading around 1.2900, supported by better-than-expected UK economic data. However, the outlook remains cautious with the Bank of England’s dovish stance likely to limit gains.

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USD/JPY: The Yen has seen increased volatility, recently trading around 145.00, as the market digests Japan’s unexpected economic data and the U.S. dollar’s performance ahead of key Fed updates.

Commodities

Oil: The price of WTI crude oil is indeed around the $75.30 per barrel mark. This aligns with market data showing that oil prices are under pressure due to concerns about weaker demand from China, which is a significant factor in the global oil market​ (DailyFX)​ (Collinson Co).

Gold: The gold price (XAU/USD) is showing some resilience in early European trading on Monday, managing to stay above the $2,500 level and remaining close to its recent high. Despite being under some pressure, it remains well within reach of its all-time peak.

Political News

In the UK, political focus remains on the implications of a weakening economy and upcoming general elections, which could significantly influence Sterling. In the U.S., all eyes are on the political climate as the 2024 presidential election looms, with economic policies likely to dominate the discourse as inflation and interest rate decisions become central issues.