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London Quick Take - 24 Aug - Gold soars as markets face key week with Kevin Warsh at Jackson Hole, PCE inflation and Nvidia earnings
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
Will bond markets play ball? The biggest threat to the bull market is a major shift in the macro...bond markets have started to show concern. Last week’s efforts by Treasury to shore up the long end of the curve indicated policymakers are worried also. The intervention suggested Treasury was unhappy with not just where rates have reached – 19-year highs on the long end – but also where they are headed. It amounts to financial repression – suppression of real rates – while doing nothing to sort out fundamentals. In the US case, massive pro-cyclical easing with the Federal government running a 6% deficit with an economy at full employment and a once-in-a-generation capex flood from AI pushing up prices. In the absence of tighter fiscal policy – and the intervention suggests it’s looking at short-term fixes rather than a durable solution to paradox – monetary policy ought to be a lot tighter. Yields moved lower after the announcement but quickly backed up again, with the 10yr yield +6bps and 30yr yield +2bps for the week. More on the outlook for the Fed's Jackson Hole meeting and the rest of the week ahead.
We may get to hear what the Federal Reserve makes of all this at its annua Jackson Hole symposium later this week. Fed chair Kevin Warsh has been at pains not to say anything at all to the market. He won’t give anything away on the central bank’s reaction to persistently too-high inflation, let alone a nearer-term market steer by way of forward guidance. Warsh speaks on Friday but don't expect anything other than his usual Delphic utterances. Ahead of this speech things might be made a little clearer with the release of the PCE inflation report, still the Fed's preferred gauge of price dynamics. Headline PCE inflation is expected to decline slightly to +3.6% YoY, while core PCE is seen holding steady at +3.3%. The chief concern for the market is too high inflation and fiscal dominance, with the central bank acting to repress yields to finance ever-higher debt, stoking inflation further - nothing last week particularly eased those worries. Warsh has a chance this week to show resolve - will he take it? Hiking front end rates would do a lot more to control the long end - it's not a silver bullet, but the most important step.
The situation shows how contested the yield move is - Treasury wants lower yields, the Fed is keeping quiet, deficits are rising and AI spend is through the roof...the only thing that seems clear is the unrest is good for good for 'hard' assets like gold and Bitcoin. The timing of the Treasury move - announced out of step with its usual schedule, may reduce credibility. The market already, in the absence of a clear steer from new chair Warsh, doubts the credibility of the Fed. The comms strategy needs an urgent rethink. Gold hit a 3+ month high as the US Treasury's bond-market intervention stoked weaker-dollar fears, boosting haven demand. Spot gold rose up to 1% above $4,650/oz, the highest since mid-May, after logging a third straight weekly gain and at +15% for August could be set for its best monthly advance ever. Bitcoin soared about +20% on the week following the Treasury announcement, which coincided with some positive signals from the administration via President Trump.
Economic D-Day: Oil prices fell ahead of a sanctions announcement from the US on Iran. Treasury Secretary Scott Bessent said the US will create “the greatest coordinated economic isolation in the history of the world” against Iran. Trump called it economic D-Day. We've had Liberation Day now we get D-Day. Bessent will hold a news conference on Monday to “talk about exactly what we’re going to do.” After touching one-month highs on Friday Brent has cooled a bit back to the area around $92. Meanwhile, talking about Trump's economic warmongering, Canada's dollar fell after trade talks collapsed between the US and Canada.
Stocks came under pressure with Alibaba and Samsung weighing on Asian tech shares overnight Monday. Alibaba fell -8.7% after it announced a monster capital raise, which helped drive the Hang Seng down around -2%, while Samsung were off a similar level as a shareholder returns package disappointed, helping push the Kospi -3% lower. All eyes are on the Nvidia earnings update later this week for the next guide on the health and durability of AI demand. Salesforce, Marvell, IREN, Workday and others make for an interesting mix of AI disrupter and AI disruption trades.
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