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Major sell-off in Oil, Nasdaq rallies as bond yields fall

Oil prices saw a significant sell-off, down 4.6% to $85.3 on fears of slower economic growth and signs that supply will soon pick up. Nasdaq took its cue from a modest bond rally, with 10-year yields back at 4.74%. The dollar weakened. But for how long? Higher bond yields are becoming widely anticipated. Bottom line: risk-on.

Research

Rising bond yields boost the dollar

Wall Street adopted a significant "risk off" sentiment this morning as Treasury yields continued to rocket, now 4.78% at ten years, pushing the dollar to new highs over 107. Nasdaq fell hardest, off 1.6%. Oil prices passed the $90 mark. The VIX traded above 20 for the first time since May in morning trade, reflecting elevated fear levels on Wall Street. Bottom line: risk-off.

Brazil Flag

USDBRL should reflect data for the US economy, and economic agenda in the Brazilian Congress

Bullish factors Data for the American economy should reinforce the perception that productive activity and the labor market remain strong, which, in turn, corroborates the interpretations that interest rates in the country will remain higher for longer and contribute to strengthening the USDBRL. Bearish factors Possible approval of government economic agendas by Congress can reduce the perception of political risks of Brazilian assets, contributing to the attraction of investments and thus strengthening the BRL. A lack of consensus among members of Congress for a new Budget may promote a cautious and risk-averse environment among investors, harming the performance of risky assets, such as the BRL.

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A roller-coaster week for Gold and Silver

Gold was on a roller-coaster last week and has shed over $100 or 5.5% over eight trading days. Silver has lost just over $2 or 9%, and the Friday fall was precipitous. The long Chinese holiday and the implosion of the Shanghai premium were a partial trigger for the late falls last week, but the main influence was a surge in bond yields midweek. Support has developed at the start of this week, but potential professional buyers stood well back last week. Global bond markets finally turn tail and intensify pressure on gold; gold is potentially ripe for a short-covering rally, but with China closed and the bond markets firmly on the defensive now, this may take time to develop. We start the final quarter of the year with gold and silver licking their wounds after a hefty wash-out, and caution looks likely to be the watchword for now.

Research

Bond yields rise sharply, putting financial assets under pressure, aside from Nasdaq

Inexorably rising bond yields kept pressure on equity markets this morning, with the S&P 500 off 0.6% and, to the contrary, Nasdaq up 0.3%. Ten-year bond yields rose 12 basis points to 4.7%, a significant move. The dollar index rose close to one percent, a significant move. Commodities sold off, notably silver down 4.3% and gold off 1.0% Bottom line: risk-off.

China flag

China’s equity markets up, yuan unchanged

There was some good news last week out of China last week, despite bad news from the struggling property sector, and record low US confidence in doing business in China. The decline in industrial sector profits slowed, a state-owned fund was set up to invest in emerging industries, and the country plans to double power generation from nuclear by 2035.

Research

Nasdaq, S&P 500 turn down after early rally on better inflation news

Equity markets erased early morning gains, notably the Nasdaq being unchanged by lunchtime after a 0.6% rally. Traders cheered better than expected inflation data and less weakness than expected in a consumer sentiment survey. Bond yields fell marginally. The dollar was unchanged. Oil saw continued profit-taking. Bottom-line: risk-off.

Research

Bond yields fall back, Nasdaq rallies

Rising bond yields threaten equity market valuations, notably tech stocks, but benefit the US dollar’s attractiveness – themes which continue to play out in markets. Lower bond yields benefited the equity market today, notably the Nasdaq, but for how long? Housing sales data was very weak, unsurprisingly given record high mortgage rates. Bottom-line: risk-on.

Research

Nasdaq and S&P 500 slump continues, Oil hits year highs

Rising bond yields are the main story driving financial markets, with the S&P 500 and Nasdaq continuing to fall. Bond yields saw major yield increases. Durable goods order data was stronger than expected. The dollar continues to rise against most major cross-rates. Gold fell below the key $1,900 level. Oil was up almost 4%, driven by low supply levels and the continued impact of Saudi and Russian production cuts. Bottom-line: risk-off.

Research

Nasdaq and S&P 500 tumble on higher bond yields, fears of government shutdown

Rising bond yields and declining consumer confidence both indicate that the Fed’s ‘higher for longer’ interest rate policies are impacting the real economy. One measure in today’s Consumer Confidence Index data pointed to recession. Nasdaq and the S&P 500 were off sharply. Dollar strength and a rising oil price were the standout performances. Bottom-line: risk-off.

Brazil Flag

USDBRL should reflect Copom's minutes, Inflation report, inflation in the US, and speeches by Fed members

Bullish factors Speeches by Fed members should reinforce the perspective of higher interest rates for a longer period in the United States. PCE can reinforce concern about the new acceleration of American inflation. Bearish factors Minutes of the Copom meeting may signal limitations for more intense cuts in the Selic rate or a slowdown in the expected pace of adjustments for 2024. Revision of the output gap calculation in the Quarterly Inflation Report (RTI in the acronym in Portuguese) may raise inflation expectations and reinforce the Central Bank's cautious tone in conducting monetary policy. If the PMIs for China confirm a trend of stabilization and recovery of economic activity in September, their effect can be bearish for the real/dollar pair.

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Gold consolidation continues, potential for upside later in the year

Gold rallied ahead of last week’s FOMC meeting but then gave back the gains to end unchanged over the week. Silver, by contrast, gained almost 3% over the period and is bucking external influences. This is how we closed last week’s note: “There is currently little in the market environment, barring exogenous shocks, to stimulate fresh activity in this arena so we should continue to expect consolidation for the time being, with the potential for upside later in the year”. There is no reason to change the view, beyond some possible support from silver.

Research

Dollar continues to rise, tracking bond yields higher

he dollar continued to surge against all major cross-rates, with the dollar index hitting a year-to-date high. Bond yields continued their seemingly relentless climb to new decade highs. Fixed income markets seem more concerned than equities about the Fed’s recent "higher for longer" interest rate strategy and fears of a US government shutdown. The broadly based Russell 2000 was the equity market leader at midday. Bottom-line: risk-on.

China flag

Chinese equity markets and yuan hold firm on no change in rates

China’s central bank kept its benchmark lending rates unchanged this week, walking a fine line between supporting the domestic property sector and consumption while not undermining the yuan. China’s main stock markets rallied on Friday on bargain hunting, to end level on the week, somewhat surprising given no signs of improvement in the key property sector.

Research

Nasdaq rallies on lower bond yields in see-saw markets

Markets rallied after sell-offs this week, led by Nasdaq. Bond markets steadied, with yields backing off highs. This reversed prior moves this week. After focusing on the Fed and interest rates this week, traders are starting to think about the impact of a Government shutdown next week and an escalating Auto workers strike. Commodities saw buying in oil, as did precious metals and the ag complex. Bottom-line: risk-on.

Downwards trend with red arrow

Problems with the Magnificent Seven Stocks

Vincent Deluard, StoneX global macro strategist, asks: are we at an inflexion point, when higher bond yields and a steeper yield curve could hit the rating of expensive growth stocks? The Magnificent Seven (Mag7) stocks have become synonymous with this bull market: Amazon, Alphabet, Apple, Nvidia, Meta, Microsoft and Tesla. These stocks make up a quarter of the S&P 500 market value.

Research

Nasdaq tumbles on higher bond yields

Nasdaq continued to lead markets down this morning as traders digested a pessimistic assessment of the Fed’s statement yesterday. Jobs data continues to demonstrate that the economy is not slowing. 10-year bond yields spiked to almost 4.5%, rates last seen in 2006, and putting a strain on the valuation of equity markets. Bottom-line: risk-off.

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Research

Fed pauses rates, but Nasdaq fell on fears that interest rates will still rise

Nasdaq fell sharply on news that while the Fed will pause rates for now, higher rates are possible. Higher bond yields and the risk of another rate hike this year caused a sell-off in equities and bonds. Oil saw profit-taking. The dollar index rallied on hopes that US rates will rise further. Bottom-line: risk-off.

Research

Bitcoin leadership and record high bond yields ahead of Fed’s rate decision

Nasdaq, the R&P 500 and Russell 2000 equity indices were off marginally as markets braced for tomorrow’s Fed interest rate decision. Bitcoin rose 1.2% to $27,177, continuing a recent rally. Ten year bond yields rose to 4.37%, a rate last seen in June 2008. Oil and the dollar, recently strong markets, were unchanged, as were Gold and Silver. Bottom-line: risk-off.

Brazil Flag

USDBRL should reflect interest rate decisions in Brazil, the United States, England and Japan

Bullish factors The Federal Reserve is expected to take a firm stance against inflation and release its projections of interest rates higher than the median of market estimates, reinforcing the perception that interest rates will stay higher for longer in the US and strengthening the dollar. The Monetary Policy Committee should reduce the basic interest rate (Selic) by 0.50 p.p., reducing the country's interest differential to other economies and reducing the inflow of investments into the country, weakening the BRL. Bearish factors The Bank of England is expected to raise interest rates even in the face of economic stagnation in the country, increasing concerns about an economic slowdown in Europe and strengthening the dollar. The Bank of Japan is expected to maintain its ultra-loose monetary policy unchanged, contributing to the strengthening of the dollar by contrast.

Research

S&P 500 stalled ahead of Fed meeting, Oil price hits 2-year high

Higher oil prices continue to be the headline in financial markets, hitting 2-year highs and briefly surpassing $92 per barrel. Nasdaq and the S&P 500 struggled to find direction ahead of the Federal Open Market Committee September meeting today and tomorrow. No one expects another rate hike. Treasury markets saw yields rising, with 10-year yields close to their highest levels in 16 years at 4.32%. The US dollar index paused after a recent run. Bottom-line: risk-hold.

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Gold remains range-bound

In the short-term gold remains range-bound, and after finding support in mid-July on its dip below $1,900 (some of which was believed to be institutional and some from the official sector), has traded between $1,900 and $1,950. For the time being we can probably expect it to stay in that range as there is plenty of resistance on the charts above $1,950 and the professional markets, at least, are not prepared to commit themselves until the Fed’s and European Central Bank’s interest rate policies become crystallised.

China flag

China showing signs of recovery, Yuan rallies

Global attention is focused on Chinese economic data and financial market conditions after weakness in the first half of the year, with a troubled property sector, and official action to cautiously lower interest rates and increase domestic bank liquidity. Generally, the flow of economic data was more positive than expected last week with signs of economic momentum gathering –better-than-expected retail sales, stronger loan demand and signs that inflation is rising. The Central Bank is still fine-tuning monetary policy to promote that growth and offset property-sector weakness while trying to avoid a sharp sell-off in the Yuan, and last week showed some signs that this is working.