Global Market Quick Take: Europe
Saxo Market Call podcast
The mood across financial markets and commodities soured this past week after traders and investors responded negatively to minutes from the latest FOMC meeting suggesting the Fed has not yet done enough to combat sticky inflation. In addition, the Chinese economy which has struggled for months to rebound from the end of strict pandemic controls last year, continued to deteriorate on renewed fears of a further slowdown in the property sector, which typically drives more than a quarter of China’s economic activity. China-centric commodities sold off as the offshore yuan tumbled toward a multi-year low before large state-owned banks and the People’s Bank of China (PBoC) stepped up their efforts to arrest the slide.
These developments helped drive broad dollar strength while bond yields approached levels last seen before the financial crisis. Rising yields hurt the prospect for investment metals with gold falling below $1900 while industrial metals, led by copper, took most of their directional inspiration from the ebb and flow of the Chinese yuan. The energy sector lost momentum following a two-month rally, but the current tight supply outlook supported by OPEC+ production cuts will prevent a deeper correction at this stage.
Meanwhile, the agriculture sector stabilized following weeks of weakness with Black Sea supplies still a concern. In the US, expectations for hot weather in late August may still impact the final harvest result. In addition, export restrictions of rice and sugar from India, a major shipper, continue to underpin prices of these two important food items, despite a small setback this past week.
Short-term focus shifting to Jackson Hole
The Federal Reserve’s Economic Policy Symposium in Jackson Hole, Wyoming, is scheduled for August 24-26. This year’s theme "Structural Shifts in the Global Economy" and Fed Chair Jerome Powell is expected to speak on August 25 at 10am ET. Other central bank heads will also be speaking, and from recent commentaries, it appears that central bankers will keep the flexibility to hike rates further, while clearly avoiding committing to cutting rates soon. Still, thoughts on economic momentum, especially the current headwinds, could be key and rising credit risks may warrant some dovishness.