25 Aug

The US stock market is under a sell-off on hawkish comments from FOMC representatives. Japan is seeing a decline in inflation

August 25, 2023

By JustMarkets

As of Thursday’s stock market close, the Dow Jones Index (US30) decreased by 1.08%, while the S&P500 Index (US500) lost 1.36%. The NASDAQ Technology Index (US100) closed yesterday negative at 1.87%. Stocks were under a sell-off on Thursday, sending the Dow Jones Industrials Index to a 6-week low. The sell-off in technology stocks had a negative impact on the overall market. In addition, stronger-than-expected US economic news and hawkish comments from the Fed pushed bond yields higher and triggered the liquidation of long positions in equities ahead of Friday’s speech by Fed Chair Powell.

On Thursday, the Fed’s hawkish comments were bullish for the dollar index and bearish for stock indices. FRB Boston President Collins said it will take time for inflation to reach the Fed’s 2% target, and “we may need to raise rates further, and we may hold rates at restrictive levels for some time.” Former St. Louis Fed President Bullard said a pickup in economic activity this summer could delay the Fed’s plans to end its campaign to raise interest rates, “This acceleration could put upward pressure on inflation, stop the disinflation we’re seeing, and instead delay the Fed’s plans to change policy.” Philadelphia Fed President Harker believes policymakers have likely undertaken sufficient tightening and that the Fed has “probably done enough” and believes interest rates will be steady through the year’s end.

Today, markets await Fed Chairman Powell’s comments at the annual symposium of the world’s central banks in Jackson Hole, Wyoming. With inflation down from 40-year highs but still well above the Fed’s 2% target, Powell’s speech will be scrutinized for when the Fed might end its rate hike campaign. ECB President Lagarde will also speak at the event.

Equity markets in Europe traded flat yesterday. Germany’s DAX (DE40) decreased by 0.68%, France’s CAC 40 (FR40) lost 0.44% on Thursday, Spain’s IBEX 35 (ES35) added 0.10%, and the UK’s FTSE 100 (UK100) closed positive at 0.18%.

ECB Governing Council representative Centeno said yesterday that the ECB “should be cautious in deciding on additional rate hikes, as downside risks to the economy that were identified in June have materialized.”

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The GkK report showed that UK consumer confidence rebounded in August as inflation showed signs of cooling and strong wage growth supported household finances. The figures starkly contrast the sharp fall in retail sales in July, with industry research suggesting the decline is likely to continue.

Crude oil and gasoline prices closed modestly higher on Thursday. Stronger-than-expected economic news from the US on Thursday signaled a strengthening economy favorable for energy demand and crude oil prices. Signs of tight supply also supported oil after the EIA’s weekly crude inventories data fell more than expected to a 7-month low on Wednesday. But a stronger dollar on Thursday limited gains in energy prices.

Natural gas prices rose moderately on Thursday after weekly natural gas inventories released by the EIA increased by 18 Bcf (billion cubic feet), below expectations of 31 Bcf. The rise in natural gas prices was capped by a forecast that cooler temperatures will arrive in the lower 48 US states next week, reducing demand for natural gas from power suppliers to run air conditioners.

Asian markets were mostly up yesterday. Japan’s Nikkei 225 (JP225) added 0.87% for the day, China’s FTSE China A50 (CHA50) rose by 1.15%, Hong Kong’s Hang Seng (HK50) ended Thursday up 2.05%, and Australia’s S&P/ASX 200 (AU200) ended the day positive at 0.47%.

Core inflation in Japan’s capital slowed in August for the second consecutive month (3.0%→2.8%) but remained well above the Сentral Bank’s 2% target. Analysts expect inflation to continue slowing in the coming months, reflecting the recent decline in commodity prices and the base effect of last year’s price surge.

S&P 500 (F)(US500) 4,376.31 −59.70 (−1.35%)

Dow Jones (US30) 34,099.42 −373.56 (−1.08%)

DAX (DE40)  15,621.49 −106.92 (−0.68%)

FTSE 100 (UK100) 7,333.63 +13.10 (+0.18%)

USD Index  104.00 +0.58 (+0.56%)

Important events for today:
  • – Japan Tokyo Core CPI (m/m) at 02:30 (GMT+3);
  • – German GDP (q/q) at 09:00 (GMT+3);
  • – German Ifo Business Climate (m/m) at 11:00 (GMT+3);
  • – Jackson Hole Symposium at 15:00 (GMT+3);
  • – US FOMC Member Harker Speaks at 16:00 (GMT+3);
  • – US Michigan Consumer Sentiment (m/m) at 17:00 (GMT+3);
  • – US Fed Chair Powell Speaks at 17:05 (GMT+3);
  • – Eurozone ECB President Lagarde Speaks at 22:00 (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.


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