Fed chief hints at another rate hike. Oil may come under pressure in the coming weeks

By JustMarkets

At Friday’s close, the Dow Jones Index (US30) increased by 0.73% (-0.53% for the week), while the S&P 500 Index (US500) added 0.67% (+0.58% for the week). The NASDAQ Technology Index (US100) closed positive by 0.94% (+1.82% for the week) on Friday. Fed Chairman Jerome Powell said on Friday that policymakers are prepared to raise interest rates further if necessary but also signaled that they may keep rates at current levels in September if economic data support it.

Key talking points from US Federal Reserve Chairman Jerome Powell’s speech at the conclusion of a conference in Jackson Hole:

• We are attentive to signs that the economy may not be cooling as expected;
• Evidence of sustained above-trend growth could jeopardize further progress in inflation and warrant further monetary tightening;
• Evidence that labor market tightness is no longer easing could also warrant a monetary policy response.

According to analysts, despite the hawkish tones in Jerome Powell’s speech, the Fed is happy with current trends, and if they continue, they won’t change anything. But if the US Central Bank sees that these economic trends are fading or suddenly beginning to change, it will increase the likelihood of another rate hike because the Fed will be very sensitive to the data, and this sensitivity will be one-sided – in the direction of tightening.

Equity markets in Europe were mostly rising on Friday. German DAX (DE40) rose by 0.07% (week’s total +0.37%), French CAC 40 (FR40) rose by 0.38% (week’s total +0.90%), Spanish IBEX 35 (ES35) jumped by 0.15% (week’s total +0.76%), British FTSE 100 (UK100) closed up by 0.07% (week’s total +1.05%). Germany’s August business climate fell by 1.7 to a 10-month low of 85.7, below expectations of 86.8. ECB President Lagarde said at a symposium in Jackson Hole that the ECB “will set interest rates at a fairly restrictive level for as long as necessary to bring inflation back to the medium-term target of 2% in a timely manner.” For his part, Nagel of the ECB’s Governing Council said that with inflation still standing around 5%, “it is too early to think about a pause” in interest rate hikes. European inflation data will be released this week. Core inflation in Germany, as well as across the Eurozone, is expected to fall slightly, raising the possibility that the ECB may hit the pause button in September.

Oil was supported on Friday after Marathon Petroleum shut down its Garyville refinery in Louisiana, the third-largest refinery in the United States with a refining capacity of 596,000 BPD, due to a fire. In addition, Friday’s weekly report from Baker Hughes was upbeat for oil as the report showed that active oil rigs in the US fell to their lowest level in a year and a half. But analysts believe that against the backdrop of September, which is considered a seasonally weak month, there is a high probability of oil price declines in the coming weeks. Moreover, open interest is sharply declining, suggesting that oil bulls are taking profits after the rally.

Asian markets were also mostly up last week. Japan’s Nikkei 225 (JP225) increased by 0.23% for the week, China’s FTSE China A50 (CHA50) gained 0.04%, Hong Kong’s Hang Seng (HK50) ended the week up by 0.89%, and Australia’s S&P/ASX 200 (AU200) ended the week negative by 0.46%.

In Australia, seasonally adjusted retail sales for July rose by 0.5% month-over-month versus an expected 0.3%. Despite the increase, Australian Treasurer Jim Chalmers said he expects growth in the Australian economy to weaken significantly due to interest rate hikes by the Reserve Bank of Australia (RBA) and a slowdown in China.

A meeting between Bank of Canada Governor Kazuo Ueda and Japan’s Prime Minister last week sparked new rumors of monetary policy normalization. Traders are also wary of government intervention against the yen after it hit a nine-month low last week. The weak yen, which has helped Japanese stocks outperform global peers this year, is now pressuring the market, raising expectations that the Bank of Japan will be forced to move toward monetary tightening.

S&P 500 (F)(US500) 4,405.71 +29.40 (+0.67%)

Dow Jones (US30) 34,346.90 +247.48 (+0.73%)

DAX (DE40)  15,631.82 +10.33 (+0.07%)

FTSE 100 (UK100) 7,338.58 +4.95 (+0.07%)

USD Index  104.19 +0.21 (+0.20%)

• – Australia Retail Sales (m/m) at 04:30 (GMT+3).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.