Home › Market News › Interest Rates, Crude Oil, & FX Currency Futures
The Economic Calendar:
MONDAY: Dallas Fed Manufacturing Survey, 6-Month Bill Auction, 2-Yr Note Auction, 3-Month Bill Auction, 5-Yr Note Auction
TUESDAY: Case-Shiller Home Price Index, FHFA House Price Index, Consumer Confidence, JOLTS, 7-Yr Note Auction
WEDNESDAY: MBA Mortgage Applications, ADP Employment Report, GDP, International Trade in Goods, Corporate Profits, Retail Inventories, Wholesale Inventories, Pending Home Sales Index, State Street Investor Confidence Index, EIA Petroleum Status Report, Survey of Business Uncertainty, 4-Month Bill Auction
THURSDAY: Raphael Bostic Speaks, Challenger Job-Cut Report, Jobless Claims, Personal Income and Outlays, Chicago PMI, EIA Natural Gas Report, 4-Week Bill Auction, 8-Week Bill Auction, Farm Prices, Fed Balance Sheet
FRIDAY: Motor Vehicle Sales, Raphael Bostic Speaks, Employment Situation, PMI Manufacturing Final, ISM Manufacturing Index, Construction Spending, Baker Hughes Rig Count
Key Events:
With earnings reports in the rearview mirror, we look to technical setups for guidance. Key price levels, seasonal patterns, CTA flows, and index option gamma levels will dictate our stance in the near term.
The past ten sessions have proven turbulent for short gamma dealers, manifesting in oscillating market conditions. The pronounced sell-off in SPX prompted substantial delta selling during the downturn, only to be swiftly followed by a compelling necessity to reacquire deltas as the market rebounded.
As we traverse into slightly higher territory characterized by long gamma, a scenario is forming wherein dealers will initially be compelled to sell deltas, and further iterations of delta selling might unfold should the market experience renewed downward pressure. This intricate interplay of market forces underscores the intricacies short gamma dealers face.
At the Jackson Hole conference, Fed Chair Jerome Powell said, ‘We will proceed carefully’ on whether to hike again or hold steady.
The Federal Reserve’s future actions regarding the next rate hike are expected to be marked by a cautious approach. Fed Chair Jerome Powell’s statement, which emphasized a deliberate approach in determining whether to implement another rate increase or maintain the current stance, underscores the central bank’s commitment to prudently managing monetary policy.
Powell’s discourse on the critical matter of inflation reflects a nuanced perspective. While acknowledging a favorable decline from its peak, he remains concerned about the persistence of elevated inflation levels.
This rhetoric comes against 11 consecutive interest rate hikes, which have propelled the Federal Reserve’s pivotal interest rate to a targeted range of 5.25% to 5.5%, marking the highest threshold in over two decades.
Amidst these developments, a pertinent viewpoint emerges from Goldman Sachs. The analysis posits that the Federal Reserve’s tightening cycle has likely concluded, with an anticipation that the current Fed funds rate range of 5.25% to 5.5% will be maintained throughout 2024.
The expectation further stipulates that the initial rate reduction could materialize only in the second quarter of 2024, progressing at a gradual pace of 25 basis points per quarter. Ultimately, the projected trajectory envisions the Fed funds rate range stabilizing between 3% to 3.25%.
CURRENT U.S. TREASURY YIELDS:
30-Year yield 4.28% vs. 4.38%
10-Year yield 4.23% vs. 4.25%
5-Year yield 4.44% vs. 4.38%
2-Year yield 5.08% vs. 4.94%
2-10 Yield spread -0.84% vs. -0.69%
The Fed Fund futures are pricing in an 80% probability of no rate change in September and a 48% probability that the central bank will boost its key interest rate by a quarter percentage point in November.
Source: CME GROUP Fedwatch
The jobs report on September 1 will be the last release before the central bank’s FOMC meeting on September 20.
The upcoming Jobs Report scheduled for release this Friday has garnered considerable attention. The consensus among experts anticipates 170,000 nonfarm payrolls to the United States economy during August.
This projection marks a notable decline from the preceding figure of 187,000. Concurrently, the unemployment rate is foreseen to maintain its existing level of 3.5%. Additionally, the prevailing sentiment suggests that average hourly earnings will exhibit a 0.3% increase.
A discernible trend has emerged among analysts, with a shared expectation that the pace of job incorporations will gradually decelerate as we navigate closer to the year’s culmination. This viewpoint resonates with the Federal Reserve’s projections, which indicate an ascent in the jobless rate to approximately 4.1% by the conclusion of the ongoing year.
Crude oil prices embarked on Friday’s trading session with an initial uptick. However, they registered yet another weekly decline due to the ongoing ascent of the U.S. dollar and a mitigated sense of supply apprehensions.
As of the time of composing, Brent crude was trading at $84.88 per barrel, while West Texas Intermediate was exchanging hands at an approximate value of $80.19 per barrel. However, both benchmarks concluded last week with a decline ranging from 1.5% to 2.5%.
The strengthening trajectory of the US Dollar is attributed to a sense of cautiousness among energy investors.
On the supply side, the possibility of more oil entering the market from Venezuela, Kurdistan, and Iran is easing some concerns. It’s unbelievable that the Biden administration is considering dealing with Iran or Venezuela, which have historically been off-limits.
The recent downtrend observed in the cryptocurrency market appears to be reaching a point of resolution, as indicated by the latest findings from JPMorgan’s research. Their analysis suggests that the substantial liquidation of long positions, a notable feature of the market downturn, is approaching its conclusion.
This informed projection hinges upon examining the open interest in Bitcoin (BTC) futures contracts listed on the Chicago Mercantile Exchange (CME), where the prevailing market disposition indicates a deceleration in the selling pressure.
The concept of open interest, denoting the total active futures contracts, is a pivotal barometer for gauging market sentiment and the prevailing robustness of price trajectories.
To provide context, on August 26th, the valuation of Bitcoin hovered around the $26,000 mark, delineating a notable decline of 11.27% over the preceding 30-day period.
The PCE deflator is the Fed’s preferred measure of inflation and is likely to confirm the disinflation already evident in July’s CPI report.
Headline PCE prices are expected to rise 0.2% M/M in July (prev. 0.2%), while the core rate is seen increasing by the same magnitude and also matching the prior; the annual rate of core inflation is likely to move up to 4.3% YoY from 4.1%.
The EUR/USD currency futures experienced a pronounced decline, plummeting to its lowest point in a span exceeding two months. This notable depreciation amounted to an impressive 4.5% descent from the pinnacle attained in July.
This dramatic shift in the exchange rate dynamics transpired in response to the resumption of an upward trajectory in U.S. long-term bond yields throughout August. The repercussions of this development have presented a challenging scenario for European Central Bank (ECB) President Christine Lagarde, who finds herself confronted with a task potentially more formidable than her U.S. counterpart.
Drawing from recent economic indicators, the latest Purchasing Managers’ Index (PMI) readings have reaffirmed a trajectory of lackluster growth within the eurozone economy. This prevailing economic narrative now renders overtly hawkish policy statements more challenging.
Simultaneously, Lagarde and her colleagues within the ECB are likely attuned to the evolving reality that the opportunity for a final interest rate hike, aimed at containing persistently non-trivial service inflation, is swiftly narrowing.
Conversely, the U.S. dollar’s index against a basket of major currencies surged to its loftiest level since June 7, concurrently prompting a substantial retreat in the value of the British pound.
The latter descended markedly, mirroring levels observed in June, predominantly attributed to the gathering economic uncertainties prevailing within the United Kingdom. This constellation of dynamics adds further complexity to the broader global currency landscape.
An insightful 30-minute documentary titled “A Thousand Casts” delves into the profound parallels between life’s journey. This film chronicles the captivating narrative of how hedge fund manager Bill Ackman transitioned from a skilled fly fishing guide from the serene streams to the bustling environs of Wall Street, where he spent a two-year tenure and then back to streams.
