PBoC expectedly left rates unchanged. Bitcoin returned to the $60,000 mark :: InvestMacro

By JustMarkets

At Monday’s close, the Dow Jones (US30) Index was up 0.58%, while the S&P 500 (US500) Index increased by 0.97%. The NASDAQ Technology Index (US100) closed positive 1.39%. That day, dovish Fed comments drove bond yields lower and supported equities. San Francisco Fed President Daly said that recent US economic data has given the Fed “more confidence” that inflation is under control and it is time to consider adjusting the underlying cost of borrowing. In addition, Minneapolis FRB President Kashkari signaled that he would be open to a Fed rate cut at the September FOMC meeting. Positive corporate news also supported stocks on Monday, with Advanced Micro Devices (AMD) rising more than 4% and leading chip maker stocks higher after acquiring server maker ZT Systems in a deal valued at $4.9 billion.

The US leading indicators for July fell by 0.6% m/m, weaker than expectations of 0.4% m/m.

Markets rate the odds of a 25bp rate cut at the September 17–18 FOMC meeting at 100% and a 50bp rate cut at 24%. Investor optimism is high as they anticipate a possible interest rate cut by the Federal Reserve, with Fed Chairman Jerome Powell’s speech at the upcoming symposium in Jackson Hole taking center stage.

Canada will release its inflation report today. Inflation is expected to remain at 2.9% y/y, and core inflation (excluding food and energy prices) is expected to remain at 1.9% y/y. However, it is important to remember that the Bank of Canada (BoC) also targets median rates. According to the median estimate, inflationary pressures are expected to ease slightly from 2.6% y/y to 2.5% y/y. Overall, lower inflation will increase the likelihood of further rate cuts by the Bank of Canada, which will hurt the Canadian dollar. If the data shows a surprise in the form of rising inflation, it will increase the likelihood that the BoC will not be in a hurry to cut rates further and will support the Canadian dollar.

Bitcoin rose above the $60,000 mark on Tuesday, hitting a one-week-high amid improving risk sentiment and a steady increase in global liquidity. Traders also argued that cryptocurrencies could now resume their rally on the back of seasonality.

Equity markets in Europe mostly went up yesterday. Germany’s DAX (DE40) rose by 0.54%, France’s CAC 40 (FR40) closed higher by 0.70%, Spain’s IBEX 35 (ES35) added 1.40%, and the UK’s FTSE 100 (UK100) closed up 0.55%. In Europe today, investors will be evaluating German producer inflation data and the latest decision by Sweden’s Central Bank.

On Monday, WTI crude oil prices fell more than 2.5% below $75 per barrel, extending a 1.9% decline from the previous session amid ongoing Gaza ceasefire talks and concerns about weakening demand, especially from China. US Secretary of State Antony Blinken is in Israel emphasizing the urgency of achieving a ceasefire and hostage release, with further talks scheduled in Cairo this week. This desire for peace could ease geopolitical tensions and lower the risk premium for oil. In addition, China’s recent economic data has been disappointing, with slowing growth, falling house prices, and rising unemployment. This has forced Chinese refineries to cut back on crude oil processing, further reducing demand.

The US natural gas (XNG/USD) prices rose by 5% to over $2.20/MMBtu, nearing a one-month high amid tightening supply and demand. Estimates predict a heat wave across much of the western, central, and southern US this week, which is expected to increase cooling demand and boost natural gas consumption.

Asian markets were mostly up yesterday. Japan’s Nikkei 225 (JP225) was down 1.77%, China’s FTSE China A50 (CHA50) added 0.51%, Hong Kong’s Hang Seng (HK50) was up 0.80%, and Australia’s ASX 200 (AU200) was positive 0.12%.

Minutes of the Reserve Bank of Australia’s August meeting showed that board officials discussed further tightening but decided that keeping the current rate would better balance risks. The Central Bank also indicated that the money rate might need to remain stable for an extended period, saying the risks that inflation will not return to the 2–3% target within a reasonable time frame have increased. Governor Michele Bullock recently said the Central Bank still has a long way to go in easing monetary policy as core inflation remains too high.

The People’s Bank of China (PBoC) kept key lending rates at record lows, which was in line with market expectations. The one-year prime rate (LPR), the benchmark for most corporate and household loans, remained unchanged at 3.45%, while the five-year rate, the key benchmark for mortgages, remained at 3.85%. The decision underscores the Central Bank’s commitment to avoiding “radical” economic measures.

S&P 500 (US500) 5,608.25 +54.00 (+0.97%)

Dow Jones (US30) 40,896.53 +236.77 (+0.58%)

DAX (DE40) 18,421.69 +99.29 (+0.54%)

FTSE 100 (UK100) 8,356.94 +45.53 (+0.55%)

USD index 101.87 −0.59 (−0.58%)

Important events today:

• – New Zealand Trade Balance (q/q) at 01:45 (GMT+3);
• – China PBoC Loan Prime Rate at 03:15 (GMT+3);
• – Australia Monetary Policy Meeting Minutes (m/m) at 04:30 (GMT+3);
• – Switzerland Trade Balance (m/m) at 09:00 (GMT+3);
• – Eurozone Consumer Price Index (m/m) at 12:00 (GMT+3);
• – Switzerland SNB Chairman Jordan Speaks at 12:30 (GMT+3);
• – Canada Consumer Price Index (m/m) at 15:30 (GMT+3);
• – US FOMC Member Bostic Speaks at 20:35 (GMT+3);
• – US FOMC Member Barr Speaks at 21:45 (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.