Aug

U.S. Consumer Credit, 10-y Bond Auction, EIA Crude Oil Inventories

07/08/2024 - 09:30 UTC

The dollar was almost unchanged against most major currencies on Tuesday, with a mild recovery of 0.17% seen in the dollar index (USDX) after hitting 7-month lows on Monday. While the market has shown signs of steadying, underlying sentiment in regional markets remains cautious due to persistent recession fears in the U.S., which continue to weigh on the dollar. It remains to be seen how the Fed will respond

CME FedWatch data strongly indicates a 50 basis point Federal Reserve rate cut in September, with an 66.5% probability. The market also expects another rate cut in November, with a 58.3% chance.

Buoyed by another strong performance from the Nikkei, Asian stock markets gained early on Wednesday. The yen gave back some of its recent gains after BOJ Deputy Governor Shinichi Uchida said the bank will not hike interest rates when markets are unstable. The Bank of Japan's surprising shift towards a more cautious monetary policy stance amid market turbulence, fueled investor optimism.

Energy markets posted another session of losses on Tuesday, with the two main benchmarks WTI and Brent down by 1.75% and 1.43% respectively despite heightened Middle East tensions, as Chinese trade data showed that its July daily crude oil imports fell to the lowest level since September 2022.

Wall Street posted another negative session on Tuesday, with all three major indices closing in the red as the risk of a bear market still remains if the economic slowdown becomes a recession. Declines were limited by some bottom buying and growing expectations of aggressive Fed stimulus to combat recessionary pressures and rising unemployment. The market is now looking to Fed officials for possible hints on measures like quantitative easing or interest rate cuts to bolster economic activity.

The recent drop in U.S. treasury yields, adds more weight in today’s 10-y Bond Auction while market participants will also be scrutinizing Federal Reserve commentary this week as expectations for substantial interest rate cuts mount. In the week ahead, the focus turns to jobless claims data from the US and unemployment rate from Canada.

USD/JPY

Some recovery was seen in the dollar against most major currencies on Tuesday, while the Japanese yen stabilized near its seven-month high. After the dramatic market swings of recent days, a degree of calm returned as currency markets consolidated.

The USD/JPY pair posted a small decline on Tuesday, only to recover sharply early on Wednesday, following statements from an influential Bank of Japan official who played down the chances of a near-term rate hike if market uncertainty and volatility remains elevated.

Market participants will be watching closely on Federal Reserve commentary this week while some price action could also be observed upon the release of jobless claims data from the US.

Gold

Despite favourable market conditions for Gold such as increased market uncertainty, weakness in the dollar and a tendency of markets to flee from riskier assets, the precious metal took a downturn, trading close to 2% lower so far this week, as stock markets recovery seems to diminish safe-haven demand.

The decline was limited by rising geopolitical tensions in the Middle East, and the prospect of deeper U.S. interest rate cuts, especially amid fears of a recession that helps keep risk appetite in play and act as support for gold.

Focus for this week could be on economic readings from China, particularly trade and inflation data due later in the week.

WTI Oil

Oil prices declined for a second consecutive day on Tuesday, with WTI and Brent crude falling by 1.75% and 1.43%, respectively. Despite escalating tensions in the Middle East, the market was weighed down by disappointing Chinese import data as July’s daily crude oil imports from China hit their lowest point since September 2022.

Contrary to analysts’ expectations of a 700,000 barrel decline, the American Petroleum Institute reported an unexpected 176,000 barrel increase in crude oil inventories for the week ending August 2nd.

The focus now turns to a U.S. weekly inventory report from the Energy information administration where a decline of 1.6 million barrels is expected, following a draw of 3.4 million last week.

US 500

Pressured by persistent recession fears US 500 finished lower on Tuesday, only to recover sharply early on Wednesday as investors are seen taking advantage of recent declines to buy tech stocks at discounted prices.

Tech stocks saw some gains on Tuesday, driven by a resurgence in Nvidia shares. Low prices triggered buying support in the chipmaker's stock after the previous day's decline, despite reports of delays in the Blackwell chip rollout.

In contrast, Apple struggled to join the broader market upswing as investor confidence waned following Warren Buffett's significant reduction in his stake.

The tech sector remains in focus, with Super Micro Computer's earnings release later today offering insights into AI demand. In addition, Fed comments will also be closely watched as investors wait for a response to the current economic situation that would ease recession concerns.

U.S. Consumer Credit, 10-y Bond Auction, EIA Crude Oil Inventories

USD/JPY

Gold

WTI Oil

US 500

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