The Jackson Hole speech indicated that it is too early for the Fed Reserve (Fed) to declare victory against inflation. The markets reacted to that news, and what a reaction it was!
Forex
Source: Bloomberg. Click to see full size.
Last week, EUR/USD plummeted to its lowest level since 2002, reaching $0.9901. But the pair recovered to close the week at $0.9965.
Russia’s refusal to give up on its energy supplies has worsened the energy situation in Europe, posing a threat of shortage for the upcoming winter. Prices are rising, and inflation is rapidly increasing, causing the pair to fall below parity.
On the other hand, Fed Chairman, Jerome Powell, said that the Fed remains committed to price stability. According to the Fed, “reducing inflation is likely to require a sustained period of below-trend growth” and a restrictive policy stance for “some time”.
Powell’s remarks caused the greenback to decline and EUR/USD to rise marginally, thereby increasing the chance of a 75 bps rate rise in September. While the US dollar rose at the start of the week, it lost momentum as the central bank indicated that its primary objective was to control inflation, regardless of the economic consequences.
Meanwhile, GBP/USD continued to fall just below the $1,800 mark. According to the British energy regulator, energy costs in the UK may increase by 80% to £3,549 per year from the beginning of October, which is a concern that will contribute to the UK’s economic downturn.
This week, the focus will be on the non-farm payroll figures, which are critical to the September Fed rate hike decision.
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Commodities
Source: Bloomberg. Click to see full size.
Last week, gold fluctuated between gains and losses before ending the week below $1,740.
Gold prices were reasonably calm despite the Fed’s Economic Policy Symposium, which caused volatility across the markets. However, the yellow metal suffered losses as a result of the second quarter GDP declining less than expected and traders shifting to stocks instead of safe havens such as gold.
Furthermore, the rise in yellow metal prices was restrained by the rise in sovereign bond yields and after Fed Chairman Jerome Powell warned that rate increases would continue over the following months.
On the other hand, oil rallied this week mainly due to Saudi Arabia’s warning about supply limitations. Prices have risen since Saudi Arabia’s oil minister suggested reducing production by the OPEC+ (Organization of the Petroleum Exporting Countries Plus). Meanwhile, Fed Chairman Jerome Powell indicated that the US central bank is likely to continue raising interest rates to battle inflation. Energy consumption is often viewed negatively when rates are higher.
This week’s main focus will be on the non-farm payroll and unemployment rate statistics, which traders will closely follow to gauge the US economy.
Cryptocurrencies
Source: Bloomberg. Click to see full size.
The cryptocurrency market had an anticlimactic week due to a significant drop in the prices of major cryptocurrencies. Following a period of stabilisation, the market suffered a substantial drop, much to traders’ surprise.
Bitcoin was trading at around the mid-$21,000 level for most of the week. However, over the weekend, Bitcoin was at the forefront of all the occurrences as the coin plummeted below the $20,000 mark for the first time since mid-July. This significant drop may have occurred due to concerns about the Fed’s rate-hike path post the Jackson Hole speech.
Earlier this month, the $20,000 level acted as a support level for Bitcoin, and the cryptocurrency even went on to surpass the $25,000 mark. However, at the time of writing, Bitcoin dropped below that support level and is trading at $19,992.04.
Other major cryptocurrencies followed Bitcoin’s footsteps as the market experienced a wider retreat. Ethereum dropped below the $1,435 mark – its lowest since the last week of July.
Among other cryptocurrencies, Dogecoin fell to $0.06, Cardano to $0.42, and Solana to $30.15, each getting a taste of the bearish movement.
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US stock markets
|
Name of the index |
Friday’s close |
*Net change |
*Net change (%) |
|
Dow Jones Industrial Avg (Wall Street 30) |
32,283.40 |
-1,423.34 |
-4.22% |
|
Nasdaq (US Tech 100) |
12,605.17 |
-637.73 |
-4.82% |
|
S&P 500 (US 500) |
4,057.66 |
-170.82 |
-4.04% |
Source: Bloomberg
*Net change and net change (%) are based on the weekly closing price change from Friday to Friday.
For the second week in a row, the major averages declined. Stocks collapsed on Friday, 26 August 2022, after Fed Chairman Jerome Powell said the central bank would not back off from its fight against rapid inflation.
For the week, the Dow tumbled by 4.22%, the S&P 500 dropped by 4.04%, and the Nasdaq fell by 4.82%.
The Federal Reserve’s Chairman Jerome Powell was more hawkish than anticipated in his speech on Friday, which weighed down on the stock market. With Powell’s continued stance against inflation, traders have been considering the implications of higher interest rates being kept in place for longer.
The core index, which excludes food and energy, is at 4.6%, which is currently more than double the Fed’s 2% target.
This week, traders are looking forward to Friday, 2 September 2022, as the Bureau of Labor Statistics (BLS) will release its monthly report on non-farm payrolls.
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