Weekly Hot Picks: Intense Tug-of-War in the Oil Market! The Dollar Plunges Amid Rate Cut Expectations!
The Dollar Index Faces Its Worst Monthly Performance Since November Last Year Amid Rate Cut Expectations!
Gold prices continue to hover at high levels, with both bulls and bears awaiting a catalyst. The Middle East witnesses a temporary ceasefire, while Ukraine suffers its most severe airstrike by Russia... What exciting market movements did you miss this week?
Market Review
The Dollar Index (DXY) rose overall this week, recording its best weekly performance since early April. However, this month, it is likely to mark the largest monthly decline since November 2023. On Tuesday, the Dollar Index dropped to its lowest point in over a year, only to reverse the decline later. On Wednesday, due to end-of-month buying and technical trading, the DXY posted its largest gain since June 3. The index continued to rise on Thursday and Friday, supported by strong U.S. economic data.
Spot gold saw a volatile week, with significant fluctuations within a range. On Wednesday, it plunged more than $20, barely holding the $2,500 level, due to a stronger dollar and profit-taking by traders. On Thursday, spot gold took a dive after robust U.S. economic data was released but rebounded sharply in a "deep V" recovery.
For non-dollar currencies, the euro fell significantly against the dollar due to the strong dollar. The pound hit a two-and-a-half-year high mid-week against the dollar, the Australian dollar climbed to its highest level this year against the dollar, and the New Zealand dollar also approached its peak for the year. The offshore yuan surged against the dollar, nearing the 7.07 mark.
International oil prices experienced significant volatility this week. Early in the week, oil prices fell due to market expectations of weak demand and oversupply. However, political turmoil in Libya, which led to a halving of its production, and Iraq's announcement that it would reduce its September oil output caused both WTI and Brent crude to surge. However, before the U.S. market opened on Friday, both WTI and Brent crude dropped sharply, falling over 2% intraday, as reports emerged that OPEC+ would proceed with its planned gradual production increase.
In the stock market, Pinduoduo's stock price plummeted 28% in a single day after its earnings report, while Nvidia's stock fell more than 8% following its earnings, dragging down tech stocks and causing the Nasdaq to hit a two-week low. Strong performance from energy stocks helped the Dow reach a new high, with the S&P 500 also nearing historical highs. European stocks surged, with the STOXX Europe 600 Index hitting an intraday all-time high.
Weekly Highlights
1. The Necessity of a 50 Basis Point Rate Cut by the Fed in September Decreases
Friday's data showed that the U.S. Core PCE Price Index for July recorded a 2.6% year-over-year increase, with the monthly rate holding steady at 0.2%. The overall PCE year-over-year rate recorded a 2.5% increase, with the monthly rate rising from 0.1% to 0.2%. Additionally, personal spending for July increased by 0.5%, up from 0.3% the previous month.
PCE inflation met expectations, and household spending remained stable, indicating that policymakers have so far managed to curb price pressures without causing significant pain to consumers, achieving a "soft landing." Previous data also showed that the U.S. second-quarter real GDP annualized quarterly rate was revised up to 3%, indicating that the U.S. economy remains resilient.
Most economists still believe that the Fed will resist cutting rates by 50 basis points, as the economy continues to grow strongly, and despite a significant slowdown in inflation, it remains above the 2% target. This week, Atlanta Fed President Raphael Bostic stated that although inflation has declined, it is still far from the Fed's 2% target.
San Francisco Fed President Mary Daly echoed Fed Chair Jerome Powell's view, stating that while the time for rate cuts has arrived, it's still too early to determine the exact path of monetary policy, and it's premature to judge whether a 25 or 50 basis point rate cut in September is warranted. Richmond Fed President Thomas Barkin mentioned that inflation still poses an upside risk, but with the labor market cooling, he supports a rate cut and hinted at a 25 basis point reduction.
Minutes from the Fed's discount rate meeting revealed that Board members overseeing the Chicago and New York Feds voted in July to lower the discount rate by 25 basis points. In last month's vote, 10 of the 12 regional Feds wanted to keep the discount rate at 5.5%, while the Chicago and New York Feds sought to reduce it to 5.25%.
2. Israel and Hamas Agree to a Temporary Ceasefire for at Least 9 Days
Israel and Hamas have agreed to a temporary ceasefire to vaccinate children against polio. The World Health Organization (WHO) stated that the ceasefire will cover three regions, with vaccinations occurring three times, each lasting three days, starting on September 1. The ceasefire will last from 6 a.m. to 3 p.m. daily. If necessary, all parties have agreed to extend the ceasefire in each region to a fourth day.
A senior WHO official also noted that a second round of polio vaccinations is required four weeks after the first. This could mean a longer ceasefire.
3. Libya's Eastern Government Halts Oil Production and Exports
As OPEC+ considers whether to proceed with its planned production increase in October, the eastern authorities in Libya have shut down some oil production and closed all eastern export terminals due to a power struggle between two rival governments over control of the central bank. It is estimated that around 700,000 barrels per day (bpd) of oil production in Libya has been halted, while July's production was approximately 1.18 million bpd. Analysts estimate that the production stoppage could increase to 900,000 to 1 million bpd and last for several weeks.
The country's central bank manages billions of dollars in oil revenues for the two rival governments. Reports indicate that the central bank governor has fled the country due to concerns for his safety.
Additionally, late on Thursday, sources revealed that Iraq plans to cut its oil production to 3.85-3.9 million bpd in September to compensate for an OPEC+ quota excess of 1.4 million bpd accumulated from January to July. Iraq also canceled 1 million barrels of spot shipments in August to reduce exports.
4. U.S. Labor Department Admits Data Release Error!
On Wednesday, a spokesperson for the U.S. Labor Department admitted that due to a technical glitch, the government failed to timely release critical non-farm payroll revision data last week. He also acknowledged that staff had provided this data to callers before the official release. Moving forward, the Bureau of Labor Statistics, which is overseen by the Labor Department, will publish data across multiple platforms, including social media, to ensure availability at the time of release.
On August 21, local time, the preliminary benchmark revision value of non-farm data from the Bureau of Labor Statistics was delayed by over half an hour, forcing staff to manually upload the data. The spokesperson said that the problem was further complicated by a lack of internal communication on how to respond to public inquiries. After the 10 a.m. embargo was lifted, some employees provided information to those who called for the data.
