It’s a new week but the same old concerns remain – namely regarding how a prolonged period of high interest rates will hamper growth.
As such, yield movements are largely dictating market sentiment from one session to the next.
Risk-assets didn’t much like the sight of the 10-yr treasury yield pushing to 4.5%, and I think this level will again be one to watch this week regarding overall risk sentiment.
Looking ahead this week, data will be assessed in terms of how it may impact the chances of a November hike from the Fed.
US GDP data later in the week could shift the needle for expectations from the Fed come November. Particularly as Jerome Powell has highlighted that the economy has been stronger than forecast thus far, which plays into the inflation picture moving ahead if that growth of the world’s largest economy is sustained.
Elsewhere this week, China PMI data (due for release Saturday) could either build hopes that a turnaround is afoot,or it could douse them. But there is some cautious optimism that the Manufacturing and non-Manufacturing data might show some signs of encouragement this time around.
This week will also reveal the latest Australian CPI data for August (due for release Wednesday), which is expected to show a move higher from the sub-5% monthly print in July.
The Australian Dollar is still struggling in the low-to-mid 0.64 cent level, so any signs of inflation pressures moving to the upside could assist the AUD from a rates expectation perspective.
The USD is still reigning supreme in the currency market thanks to the outlook from the Fed. The greenback is enjoying a healthy yield advantage at this point in time which is standing it in very good stead, with the yuan and yen among a long list of currencies struggling to gain traction against the ‘buck.
Gold had a quiet start to the week due to persistent headwinds from treasury yields.
The 10-year yield is again within shouting distance of the psychological 4.5%, level, which is serving to keep gold in the shadows. Spot gold was trading around $1923 during Asian trading hours on Monday, with resistance awaiting at $1930.
For gold to make moves of any significance to the upside it will likely require some weaker data from the US to ease the USD and yields.
Overall, it was an indifferent start to the week across equity markets, with investors still perturbed by the global interest rate outlook.
Asian bourses were mixed on Monday, with traders awaiting some potential market-moving data later in the week from the likes of China and the US.
Market commentary from Tim Waterer, chief market analyst at KCM Trade.
