Headlines

* Dow Jones closed at a record high, tech lags amid pre-Nvidia jitters

* Dollar recovers as selling pressures ease for now

* Gold nears record high on US rate cut optimism, geopolitical risks

* Canada imposes 100% tariffs on China-made EVs, 25% levy on steel, aluminium matching US

FX: USD rebounded off major support from the late December low at 100.61. This comes after five straight weeks of selling, with the 200-week SMA just below at 100.33. Durable goods data rebounded more than expected in July as defence and civilian aircraft returned to positive territory.

EUR paused for breath under 1.12, after Friday’s sharp move higher to levels last seen in July 2023. Notably, EZ/US spreads are the narrowest since mid-2023 too, so that provides support for this bullish euro move. German IFO data was down from July but marginally better than expectations. Key support is around 1.1139.

GBP also took a breather after its recent move to a high at 1.3230, last seen in March 2023. Prices are overextended on various momentum indicators. BoE Governor Bailey appeared at Jackson Hole on Friday. He said it was too early to declare victory over inflation with price growth not sustainably back to target. That’s in line with market pricing that points to policymakers wanting to wait for more data before easing rates again, likely in November.

USD/JPY once more found some buyers around a long-term retracement level (50%) of the 2023 low and 2024 high at 144.58. The yen had initially strengthened to kick off the week on haven demand.  

AUD pulled back after finding resistance just below 0.68. Focus is on the inflation data released midweek. USD/CAD outperformed as oil went bid and stocks were relatively strong. Support sits at 1.3471.

US Stocks: US markets closed mixed with tech getting sold while the Dow hit an all-time close. The benchmark S&P 500 settled down 0.31% at 5,616. The tech-laden Nasdaq 100 finished lower by 1.04% at 19,516. The Dow Jones closed 0.16% up at 41,240. Energy, utilities and consumer staples outperformed while tech, consumer discretionary and healthcare were the leading laggards. Tech selling stemmed from semiconductor weakness with the SOXX index off 2%. Naturally, all eyes are closing in on Nvidia’s earnings released after the US closing bell on Wednesday.

Asian stock futures are in the red. Asian stocks were mixed after the decent handover Stateside after Powell’s pivot, but geopolitical concerns over the weekend with heavy fire between Israel and Hezbollah. The ASX 200 traded firm helped by real estate and tech but hindered by healthcare. The Nikkei 225 struggled due to yen strength amid BoJ Governor Ueda’s hawkish stance on Friday, who kept rate hikes on the table. The Hang Seng was supported by real estate. But the Shanghai Composite remained subdued in a tight range.

Gold had a quiet day though still settled at a record high. The Middle East tensions are boosting haven buying.

Market thoughts – Powell at Jackson Hole

Our comments on the possible market reaction to Powell’s speech on Friday were on point. We saw a natural retracement of the technical oversold conditions. We thought short positions in the dollar are eventually likely to prevail, which is still to be answered. We also posed a question – does Powell ean back against calls for a larger cut or does he appease those who say the Fed is behind the curve?  

He effectively did the latter as his speech ‘outdoved’ the markets, which was a relative surprise. The Fed Chair had a clear focus on the weakening labour market and the omission of any reference to gradualism potentially sets a lower bar for a 50bps rate cut. It all now very much depends on the data, and specifically the August NFP figures released on the first Friday of September. Markets may even look through the inflation data on Friday, as policymakers zero in on the other part of their mandate – full employment.