MARKET WRAPS
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EU money supply in euro area; OECD quarterly national accounts: GDP growth; no major corporate updates expected
Opening Call:
Shares seem poised for higher ground in Europe on Monday amid hopes U.S. Fed rate rises are nearing an end. In Asia, stock benchmarks mostly gained; Treasury yields were mostly lower; the dollar was barely changed; while oil slipped and gold inched up.
Equities:
European stocks look set to open in positive territory on Monday after Fed Chair Jerome Powell signalled steady interest rates for now.
Powell said the central bank will 'proceed carefully' on any further rate increases, but that past rate hikes had yet to fully slow the economy in a much-anticipated speech Friday. Investors are split over whether there will be more.
"There's a little bit of a cloud of uncertainty that's looming as we go forward from here," said Allianz Investment Management. "There's some uncertainty around the road ahead and the path of policy which is leaving a little optionality for the Fed."
Traders are largely expecting the Fed will hold rates steady in September, but see a chance of another interest rate hike in November or December, according to the CME FedWatch Tool, at last check.
Federal-funds futures were indicating a 49.9% probability of a quarter point hike to 5.5% to 5.75% at the Fed's November meeting, and a slightly lower chance of such a hike to that same range in December.
Meanwhile, stocks are continuing to adjust to bond-market volatility, said Charles Schwab, pointing to the burst higher in Treasury yields in August.
Forex:
The dollar was steady in Asia, as Fed Chair Powell stuck with the higher-for-longer message at his Jackson Hole speech on Friday, CBA said.
The greenback could keep moving higher, it said, noting that this week's U.S. data such as nonfarm payrolls are expected to support a soft-landing scenario.
The U.S. economy's resilience may reinforce expectations that U.S. rates will remain high for longer, supporting Treasury yields and the dollar, it added.
"Comments from Powell have not put traders' minds at ease and the traders are increasingly being forced to come to terms with rates remaining higher for even longer, strengthening the dollar," Oanda said.
There was something for everyone in Powell's Jackson Hole comments, said ANZ. Overall, he was careful to leave all options open, while reiterating that rates were likely to stay high for some time.
Initially markets reacted badly to the remark that another rate hike, perhaps even two, can't be ruled out, but in the end took heart from the comment, which was seen as indicating a good chance that rates will be kept on hold next month.
Bonds:
Treasury yield mostly slipped, as investors adjusted expectations for how high U.S. interest rates could go and for how long.
Powell confirmed the Fed's commitment to bringing inflation down to 2%, while warning that the economy may still be too hot.
After Powell's speech, traders zeroed in on the view that a still-hot U.S. economy will likely be one of the biggest challenges facing Fed policy makers.
"Powell understood how closely this speech would be scrutinized, and it seems to us like he achieved what he was aiming to do," said Monetary Policy Analytics.
"He gave what seemed to us an evenhanded discussion of the incoming data and outlook-incoming data and an outlook that, to us, have supported our view that the Fed isn't done hiking."
"So you could call it hawkish since the market had been thinking the Fed is likely done hiking (though with less conviction, most recently)," it said. "But to us it was consistent with our (hawkish) call for one further rate hike, in November. We have consistently said that appropriate policy would likely require one more rate hike."
Energy:
Oil prices extended losses in Asia amid signs of additional crude oil supplies hitting the market.
"The narrative of tightening supply has been eroded by prospects of easing sanctions on Iran and Venezuela," ANZ Research said.
There are reports of the U.S. and Iran holding talks, opening the door to discussions on a possible nuclear deal.
Meanwhile, Washington is mulling broader Venezuela oil sanctions relief, which would allow more companies and countries to import Venezuelan crude oil.
"Hopes are pinned on Venezuela, Iran and Iraq," Commerzbank said.
U.S. officials were drafting a proposal that would ease sanctions on Venezuela's oil exports if the country moves toward a free and fair presidential election, Reuters reported Wednesday afternoon.
Daily production in Iran has already increased by 350,000 barrels since the spring, Commerzbank noted, with exports recently exceeding 2 million barrels per day.
If survey-based production estimates news services, which are due to be published from the end of next week, confirm that the increased production trend has continued in August, prices are likely to fall further, even if OPEC supply remains at a low level due to Saudi Arabia's massive production cut, it said.
Metals:
Gold prices edged higher in Asia. However, the precious metal may come under pressure after Fed's Powell remained hawkish at Jackson Hole, ANZ said.
Powell kept the door open for further policy tightening, suggesting inflation remains too high. U.S. Treasury yields rose Friday after Powell signaled more rate hikes could be ahead. Bond yields move inversely to gold prices, and higher yields tend to lower the appeal of the non-interest-bearing metal.
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Copper was steady, supported by reports that China is introducing more measures to aid its ailing property sector.
Citing media reports, ANZ Research said China is proposing that governments can scrap a rule that disqualifies people who have had a mortgage from being considered as first-home buyers in major cities.
The country's finance ministry is also said to be considering the extension of personal income tax rebates for people who buy a new home within one year of selling their old homes until end-2025, the analysts added.
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Iron-ore futures were higher, boosted by reports of China's property measures that could generate steel demand.
Chinese policy makers have reportedly announced measures to ease mortgage rules, effectively lowering mortgage rates and reducing down payments, CBA said.
TODAY'S TOP HEADLINES
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That apprehension explained the uneasy optimism underlying their discussions here in the Wyoming mountains this weekend about whether interest rates have reached a summit.
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08-28-23 0016ET
