Markets:
- Gold falls $2 to $2511
- The yield on the 10-year US Treasury note fell 2 basis points to 3.79%.
- West Texas Intermediate crude fell $1.26 to $71.92.
- S&P 500 rises 0.4%
- Sterling advances, dollar lags
The weaker dollar was the main theme again, this time with some support as the Bureau of Labor Statistics cut nonfarm payrolls by 818,000 for the year ended March. There are good arguments for overstatement but Goldman estimates the real loss is about half that number, which is still a weaker labor market and a reason for the Fed to cut interest rates.
The FOMC added to this thinking by highlighting a near-unanimous view on rate cuts. That sent the dollar to its lowest levels of the day (and the year on several fronts) before rallying 25 basis points late in the session amid oversold conditions.
In terms of extremes, the euro broke the December 2023 peak and the pound came within 50 pips of the 2023 high. The USD/JPY pair fell to 144.50, the lowest close this year except for a quick recovery to 145.18.
The USD/CAD pair hit a four-month low, partly due to a potential Canadian rail strike tomorrow and growing calls for the Bank of Canada to be more aggressive.
The AUD/USD pair failed to finish recovering its losses in July but is now close to doing so despite a sharp decline in iron ore.
Overall, it’s hard to reconcile all of these moves—strong stocks and bonds versus a weak dollar—but they paint a picture of an economy in the early stages of its cycle, at least outside of the five-day collapse in oil prices. But perhaps we’re overthinking the August market, and this is all just a repositioning before Powell.