Making sense of the forces driving global markets |
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Investors on Monday wound back some of Friday's sharp market swings sparked by Fed Chair Jerome Powell's dovish pivot, a reversal that saw the dollar spike higher, Wall Street close lower and the U.S. yield curve flatten. More on that below. In my column today, I look at Powell's Jackson Hole speech on Friday, and argue that his opening the door to a rate cut next month is not a sign that he caved to political pressure from President Trump. I'd love to hear from you, so please reach out to me with comments at jamie.mcgeever@thomsonreuters.com. You can also follow me at @ReutersJamie and @reutersjamie.bsky.social. |
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- STOCKS: Chinese stocks hit a 10-year high. Wall Street ends in the red, led by the Dow's 0.8% slide.
- SHARES/SECTORS: Nine of the 11 S&P 500 sectors fall, utilities down 1.6%, health down 1.4%. Keurig Dr Pepper shares slump 11.5% on its $18 billion takeover of JDE Peet's. S&P puts firm on negative credit watch.
- FX: Dollar index +0.8%, its best day this month, recovering some of Friday's steep decline.
- BONDS: 30-year JGB yield up for eighth day in a row to new high of 3.215%. U.S. 2-year yield up 4 bps, curve bear flattens.
- COMMODITIES: Oil spikes nearly 2% to a two-week high. Brent crude pierces $69/bbl, WTI back up to $65/bbl.
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* China stock boom China's equity whoosh accelerated on Monday, with benchmark indexes climbing another 2%. The blue chip CSI 300 index is at a four-year peak, and the Shanghai Composite index is now the highest in over a decade. Hong Kong's benchmark indexes are joining the party too - the Hang Seng hit a near-four year high on Monday and the Hang Seng tech index jumped more than 3% to its highest since March. Optimism around tech, stimulus from Beijing and a US trade deal appears to be fueling the buying frenzy. * High supply The U.S. Treasury auctions a total of $183 billion of coupon debt this week, starting on Tuesday with $69 billion of two-year notes. The sales come at a critical juncture. A resumption of the Fed's easing cycle next month is in the cards even though inflation is above target and sticky. Yield curves have steepened, although the 2s/10s curve has leveled off in recent weeks. But ultra-long yields are firm - the 2s/30s curve is near its steepest since January, 2022. |
Washington has indicated it wants to front-load its rising new issuance and shorten the maturity profile of its debt. This week will be another test of investor demand against a backdrop of high economic, policy and market uncertainty. * Deal me in On the face of it, strong activity in the world of corporate takeovers, deals and M&A is a sign of a healthy economy. But it can also be a warning of excess froth and exuberance in financial markets. Which applies to the US right now? Wall Street is at record highs and financial conditions are the loosest in years. Inflation is above target and tariffs have yet to properly hit. But the labor market is creaking, growth has slowed sharply, and Fed Chair Jerome Powell has just opened the door to a rate cut next month. That's the backdrop to a flurry of M&A activity recently and Wall Street banks hiring dozens of senior bankers to handle the wave of dealmaking. Is this justified or not? The next few months could be crucial. |
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Powell plays best hand he can from a politically stacked deck |
Federal Reserve Chair Jerome Powell is coming under fire for appearing to cave to political pressure in his Jackson Hole speech on Friday, which opened the door to an interest rate cut next month, a shift from his more hawkish stance only a few weeks ago. But the charge is unfair. The heat is based not just on the economic justifications for his apparent about-face, but the politics, namely the accusation that he 'caved' to President Donald Trump's incessant pressure to lower borrowing costs. |
Powell was in a no-win situation. He essentially had three potential avenues to go down when delivering the near-term policy outlook, all of which left him open to charges of political motivation. |
What could move markets tomorrow? |
- Reserve Bank of Australia minutes
- South Korea consumer sentiment (August)
- Hong Kong trade (July)
- Taiwan industrial production (July)
- Bank of England's Catherine Mann speaks
- Bank of Canada Governor Tiff Macklem speaks
- U.S. durable goods (July)
- Richmond Fed President Thomas Barkin speaks
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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias. |
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