08/08/2024 - 08:15 UTCThe dollar gained against most major currencies on Wednesday, with a mild recovery of 0.26% seen in the dollar index (USDX) which is hovering close to the 103.0 mark. While markets have shown signs of resilience, underlying concerns about a U.S. recession are continuing to dampen sentiment and weigh on the dollar. Investors are closely watching for clues about the Federal Reserve's policy direction.
U.S. Treasury yields climbed on Wednesday after a lackluster auction of $42 billion in 10-year notes. The notes sold at a higher-than-expected yield of 3.960% due to weak demand, pushing benchmark 10-year yields up 6 basis points to 3.951%.
CME FedWatch data strongly indicates a 50 basis point Federal Reserve rate cut in September, with an 70.5% probability. The market also expects another rate cut in November, with a 54.7% chance.
The Japan 225 is seen moving higher early on Thursday, sustaining the gains seen in the previous session. After a sharp decline earlier this week, the index recovered much of its losses after attempts from some BOJ officials to temper expectations of aggressive rate hikes. However, the release of the BOJ's policy meeting summary dashed these hopes, as policymakers indicated a need for further rate increases to reach a neutral stance.
Energy markets gained on Wednesday, with the two main benchmarks WTI and Brent surging by 3.65% and 3.21% respectively supported by escalating geopolitical risks in the Middle East and a significant drawdown in U.S. crude stocks.
Wall Street posted another negative session on Wednesday, 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. The technology sector took another hit by Super Micro Computer after the data center operator's June quarter earnings missed estimates, raising more concerns over just how much demand the artificial intelligence industry was generating.
For the week ahead market participants will be scrutinizing Federal Reserve commentary as expectations for substantial interest rate cuts mount. Some price action could be observed upon the release of unemployment claims and a 30-year bond auction later today.
The yen strengthened by more than 1% against the dollar on Wednesday, recovering from a sharp plunge the previous day. Investor sentiment remains fragile amid a volatile week marked by concerns over the Bank of Japan's rate path.
The Japanese currency had soared to a seven-month high of 141.70 per dollar earlier in the week, a dramatic reversal from its 38-year lows in early July. This volatility was triggered by a combination of factors, including weak U.S. jobs data, a surprise rate hike by the BOJ, and the subsequent unwinding of carry trades.
Minutes from the BOJ's July policy meeting released today revealed that some board members advocated for further interest rate increases, with one member suggesting a potential target of around 1%.
Gold recovered some of its recent losses on Wednesday, as heightened volatility in equities markets boosted safe-haven demand for the precious metal. Gold hovered near the crucial $2,400 per ounce level, just shy of record highs. The yellow metal's appeal as a safe haven was reinforced by market turbulence, although it faced selling pressure during a brief equity market rally earlier in the week.
Copper prices also edged higher but remained under pressure from weak Chinese import data. Broader metal markets traded in a narrow range amid economic and interest rate uncertainties.
Anticipations of deeper Federal Reserve interest rate cuts to combat a potential economic downturn have also supported gold prices.
Oil prices gained on Wednesday, with the two main benchmarks WTI and Brent surging by 3.65% and 3.21% respectively supported by escalating geopolitical risks in the Middle East and a significant drawdown in U.S. crude stocks.
U.S. oil inventories dropped by 3.7 million barrels in the week to August 2, down for a sixth straight month and also falling more than expectations for a draw of 1.6 million barrels. The reading sparked some hopes of tighter U.S. markets, especially as demand picked up over the past two months in the travel-heavy summer season.
Middle East tensions are now in focus with Hamas set to potentially retaliate against Israel over the killing of its leader last week.
Early gains in the US 500 evaporated on Wednesday after Super Micro Computer's decline dragged down the semiconductor sector, pressuring the broader market.
Shares of Super Micro Computer (SMCI) plummeted by 20% following a disappointing June quarter earnings report. The data center operator's results intensified concerns about the actual strength of demand from the artificial intelligence industry.
Investors focus will be on the upcoming July Consumer Price Index (CPI) report next week and whether it will reinforce the trend of slowing inflation hence allowing the Fed to proceed with more aggressive rate cuts.
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