Fed hawks are back!

00:00:00: Hi and welcome to Swisscodes, daily market talk.

00:00:03: It's Monday the first of August, markets kick off on a new week under pressure as renewed Middle East tensions between US and Iran push oil prices higher this morning And Federal Reserve Hawks return following Kevin Warsh's Jackson Hole speech on Friday which reiterated the need to tame inflation in the

00:00:22: U.S.,

00:00:23: if it doesn't slow meaningfully Zooming out, accelerating inflation and rising energy prices of course are strengthening the case for further global tightening.

00:00:32: So this week The US Jobs Day that will test affairs hawkish stance.

00:00:35: while BRICOM and Dell earnings we'll put AI spending back in focus.

00:00:40: so We'll talk about what to watch What to expect from the new week and more.

00:00:44: but before we do And as always please keep in mind that opinions on my own This is not financial advice.

00:00:59: Unfortunately, the week starts on a bearish note.

00:01:02: As one oil prices are up again on renewed tensions in the Middle East involving an attack from U.S.

00:01:07: on Iran during this weekend and retaliation from Iran This morning.

00:01:12: And letter comes also as new Fed che Kevin Worsh chose at his much-awaited first Jackson Hole speech On Friday that The US economy remains somehow strong & resilient.

00:01:24: The jobs leg of the economy has been quite resilient While inflation in the US remained high, persistently high, stickily high and if it doesn't so meaningfully he said The Fed will have more work to do.

00:01:38: He didn't say whether that means that he would back a Fed hike in September meeting.

00:01:42: nor did he respond to Treasury's efforts to tame the longer end of U.S.

00:01:47: yield curve by buying back their own bonds.

00:01:50: but he sounded quite harkish indeed at this latest speech.

00:01:54: Now I wouldn't say that Kevin Walsh fully regained his credibility.

00:01:58: in my eyes, he must walk to talk now and at times do things that would displease the White House.

00:02:03: so let's see if.

00:02:06: But after the Jackson Hole speech, expectations for a twenty-five basis point rate hike in September in the US jumped from below forty percent to above sixty percent.

00:02:19: The US dollar gained sharply on hawkish commands from Warsh.

00:02:23: that narrowed gap between Federal Reserve and other major central bank policy outlooks And the U S two year yield best captures the Federal Reserve's rate.

00:02:32: expectations advanced by around fifteen base points in the session just on Friday and it flirted with July high levels, and equities fell as a consequence.

00:02:43: This morning Asian equities followed USPS lower while U.S & European futures are pointing at a moody start to the week as well As data from around the world continues calling for policy action there too Speaking of which On friday latest CPI update from some major euro area economies failed to enchant investors.

00:03:05: inflation numbers accelerated in the month of August.

00:03:08: moving further away from the European Central Bank's two percent inflation target.

00:03:13: In France, CPI now stands near to point four per cent double on a yearly basis while in Spain we are talking about number between four point three to four point five per cent depending which metric you look at today.

00:03:27: Euro traders will also watch the German CPI numbers and on Tuesday they euro area aggregate numbers will be coming percent level in the euro area, while headline inflation may have returned above a three-percent mark of VC due to renewed upside pressure on energy prices.

00:03:48: Now that European gas futures for example spiked by more than thirty per cent compared with August sixth and leather helps explain what's going wrong within your area.

00:03:57: inflation as well For the European Central Bank, while inflation level and more importantly the direction of travel becomes increasingly uncomfortable.

00:04:10: A twenty-five base point rate hike in September's meeting is almost fully baked into market prices.

00:04:16: right now And depending on how the Middle East Ukraine situation impacts energy prices moving forward we could see one more rate hike maybe before this year ends or at least one in early two thousand twenty seven, the latter being the first case scenario giving room for further hawkish pricing.

00:04:36: In my opinion because things are not necessarily going well On the currency front, the euro dollar remains around two percent above the July dip.

00:04:46: The European Central Bank's determination to fight inflation with higher rates versus the Fed's quite unclear signals continues to favor a positive euro-dollar outlook in the medium run.

00:04:57: yet depressing offer more hawkish federal reserve and rapidly rising energy prices could further pressure.

00:05:13: that includes a thirty-eight point two percent Fibonacci retracement on the July rebound and hundred day moving average.

00:05:19: Elsewhere, the Reserve Bank of New Zealand and the Bank of Canada will announce their latest rate decisions this week.

00:05:25: The RBNZ is expected to hike by twenty five basis points while the bank of canada we'll likely hold.

00:05:30: let's see what they say.

00:05:32: but in both cases inflationary pressures remain high there as well.

00:05:36: And throughout Zeta to see whether it remains as resilient, because last month's NFP figure had actually shocked investors with a announced during the month of July and according to the consensus of analysts estimates on Bloomberg, The US economy may have added around fifty eight thousand new non-farm jobs in August.

00:06:05: Now that's in line with a past twelve months average for around fifty seven thousand monthly job additions.

00:06:11: but wages growth may have accelerated slightly.

00:06:15: Good news for inflation.

00:06:16: So from the market perspective, stronger than expected figures should continue back to Federal Reserve Hawks in the short run pressure the short yields higher and that would further weigh on equity appetite obviously while on other hand softer than expected jobs data this week especially on wages front I'd say could tame a part of the latest hawkishness around the Fed help easing the short end and that would back equity valuations.

00:06:47: But what's happening on the individual front is also important because a second quarter earnings from BRICOM and Dell will give investors another read-on AI infrastructure demand this week, obviously there's no doubt whatsoever regarding how strong an AI demand still is And how roughly the big technology companies will continue throwing money building their AI infrastructure.

00:07:11: The real question is how investors feel about financing that spending, knowing that over the past three years and so these big technology companies.

00:07:21: So these companies that spend so big on AI infrastructure went from a cash-rich capital light business model to low or even negative cash to capital intensive models.

00:07:33: That means that big technology, the big buyers of chips and equipment are putting leverage on their shoulders today to continue spending.

00:07:39: And they started issuing bonds.

00:07:41: do so!

00:08:02: that some journalists wouldn't be attending Bessin's GD-II summit.

00:08:07: And that smells bad!

00:08:08: So all of this is making the bargain cost higher across the US economy and will also be waiting on profit expectations in the profit outlooks, when the Fed expectations get tougher at the rate front as well.

00:08:21: so that to me means more volatility could be ahead.

00:08:26: Now here s an interesting question that Reuters reporter asked recently.

00:08:29: I wanted bring it up Here.

00:08:31: The Question was Given the high volatility that we see on index level, especially for some indices That has Cosmos up or down to ten percent within a single session in the Korean Cosby Index For example He said Could We Still Rely On Traditional Levels To Call For A Correction Or A Trend Reverse?

00:08:50: So he was asking More Specifically Is Ten Percent Fall In Index Level Enough To Conclude That That Index Has Entered Correction?

00:08:58: Or Does The Twenty Percent Decline Mean a trend reversal?

00:09:02: has just happened or do we need more adoptive matrix to draw conclusions than Now?

00:09:08: my answer was obviously no, we cannot use a fixed number when volatility is so high.

00:09:13: If an index moves five to ten percent in the single day and does it quite often you must adopt your reasoning for volatility.

00:09:21: So one of great ways of doing so is Fibonacci retracement.

00:09:24: To me It's actually tool that I used very often to analyze And understand amplitude of price action on a chart a while ago, you can go and have a look.

00:09:39: I will be leaving the link below but it's certain thing that we need to adopt or volatility measures are ten twenty percent benchmarks in order to understand what is really going on today because volatility levels has simply gone ballistic.

00:09:56: So the link is below.

00:09:57: This is all for this Monday, I'm Ipe Gosgar Deshkaya and thank you for joining me!

00:10:02: And Thank You For All Your Beautiful And Supportive

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00:10:39: Until then Good day.

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