Daily Broad Market Recap – August 20, 2024

Risk aversion has returned to the markets in recent trading sessions, sending stock indices lower again and pushing gold to test record highs.

However, the US dollar failed to make safe-haven gains, as the greenback fell to its lowest level in a year.

Check out these headlines and economic updates to see what’s happening!

Headlines:

• The People’s Bank of China kept the 5-year prime lending rate unchanged. At 3.85% and the one-year interest rate is fixed at 3.35% as expected.
• Reserve Bank of Australia Monetary Policy Meeting Minutes He suggested that interest rates could remain stable for a long time.
• Switzerland’s trade surplus fell from CHF 6.12 billion to CHF 4.89 billion (CHF 5.44 billion consensus).
• German Producer Price Index showed a rise of 0.2% on a monthly basis in July as expected (0.2% previously).
• Eurozone final CPI stood at 2.6% y/y, core CPI at 2.9% y/y
• Swiss National Bank President Jordan He stressed that the strength of the franc is necessary to protect the Swiss economy from imported inflation.
• Swiss National Bank lowers cap on banks earning full interest on cash deposits
• Canadian CPI Headlines for July: 0.4% m/m (0.4% expected, -0.1% prior) but y/y down from 2.7% to 2.5%; core CPI at 0.3% (-0.1% prior) with y/y increase slowing from 1.9% to 1.7%
• New Zealand World Dairy Auction sees 5.5% price increase (previously 0.5%)

Price movement in the broad market:

The week has started off well! US stocks ended their winning streak, with the S&P 500 closing down 0.20% while the Nasdaq ended Tuesday down 0.24%.

Crude oil prices also saw high risk flows, with the commodity in a sell-off throughout the Asian session, likely driven by concerns over supply tightening in the Middle East and worries about weak demand from China.

On the other hand, gold has managed to flex its muscles as a safe haven, as the precious metal has taken advantage of deflationary issues and touched record highs just above the $2,500 level.

Although oil found its way back into positive territory during the London session, it eventually joined the rest of the risk assets that declined during the US market hours.

Interestingly, the US dollar and Treasury yields failed to benefit from the risk aversion, as market participants are nervous ahead of Fed Chairman Jerome Powell’s speeches at the Jackson Hole Symposium later this week.

Forex Market Behavior: US Dollar vs Major Currencies:

Comparison between the US dollar and major currencies Chart by TradingView

The US dollar posted another day in the red against its foreign exchange counterparts, falling to levels not seen since early January, as traders appeared to be waiting for Federal Reserve Chairman Jerome Powell to confirm expectations of a September interest rate cut.

While the Australian dollar took some hits after the People’s Bank of China kept key lending rates unchanged, and RBA minutes suggested rates could remain unchanged for much longer, it eventually joined other major currencies in banking on dollar weakness.

Meanwhile, a downbeat Canadian CPI report for July sent the Canadian dollar lower and allowed the USD/CAD pair to keep its losses under control for the rest of the New York session.

The US dollar posted its biggest losses against its lower-yielding rivals, the yen and the Swiss franc, with the latter appearing to get an extra boost from comments by Swiss National Bank President Jordan welcoming the strength of the Swiss franc.

Potential catalysts coming up on the economic calendar:

• International Producer Price Index and Canadian Producer Price Index at 12:30 PM GMT
• US Energy Information Administration Crude Oil Inventories at 2:00 PM GMT
• Federal Open Market Committee Meeting Minutes 6:00 PM GMT
• Australia’s preliminary PMI readings at 11:00pm GMT

All eyes and ears are likely to be on Federal Open Market Committee Meeting MinutesWhile traders continue to be wary of the prospect of a September rate cut, while the announcement of monetary policy easing appears to have been priced in, hints about the magnitude of the reduction in borrowing costs could weigh on the direction of the US dollar and overall market volatility.