Pictet Group
Weekly house view | All that glitters is not gold
The week in review
Federal Reserve Chair Jay Powell struck an unambiguously dovish tone in his Jackson Hole speech on Friday, making clear the Fed is ready to cut rates in September as the upside risks to inflation have diminished. The message delighted markets, with S&P500[i] rising 1.5% (in USD) on the week and the S&P SmallCap 600 Index[ii] up 3% (in USD) as the rally broadened. Treasury 2- and 10-year yields lost 15 and 8 bps respectively. The dollar was the week’s main victim, closing at 1.12 versus the euro. Helped by dollar weakness and safe-haven demand, gold hit record highs before closing at USD2,521. The dollar’s weakness has mainly been against low yielding currencies rather than higher yielding ones like the Mexican peso, which has been hit by investor jitters over a planned judiciary reform. In politics, Kamala Harris, who has raised over USD500 mn since entering the presidential race, accepted the Democrats’ nomination to run. Robert Kennedy Jr quit and endorsed Republican Donald Trump, which may make the race closer. In China, authorities suspended the system for approving new steel plants, responding to overcapacity and weak demand.
Quote of the week
“The time has come for policy to adjust, Powell said in Jackson Hole. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”
Key data
The US Labor Department revised lowered its estimate for total payroll employment for the period from April 2023 to March 2024 by 818,000. The downward revision meant that monthly job gains during the period averaged roughly 174,000, compared to the previously reported figure of 242,000. US new home sales rose 10.6% in July. Euro area flash composite PMI rose to 51.2 in August from 50.2 in July, boosted by a French services upturn that coincided with the Olympic Games, with no manufacturing revival in sight. Euro area negotiated wage growth fell to 3.6% year-on-year in the second quarter vs 4.7% in the first quarter. In Japan, the consumer price index rose by 2.8% year-on-year in July.