Hawkish Fed expectations rock the market

00:00:00: Strong PMI data has been bad news for the markets yesterday.

00:00:03: Surprising, this strong US and European PMI Data released yesterday boosted confidence in economic resilience but by doing so also filled expectations of further monetary policy tightening.

00:00:16: So the U.S.

00:00:16: yields surged The U. S. dollar strengthened against most majors And technology stocks came under pressure as investors reassessed their rate outlook.

00:00:29: on the other hand, are also feeling the pressure today from higher US sales and a stronger U.S.

00:00:35: dollar.

00:00:35: And broadly in the FX markets, the euro-dollar and cable those two major currency pairs that are now approaching key technical levels while intervention risk kind of complicate out the forwarded dollar yen.

00:00:49: So welcome to Swisscoats.

00:00:50: daily Market Talk is Thursday, the twenty-fourth of September.

00:00:55: I'm Ipeko Scaradeschke and today we will be talking about the macroeconomic data The impact on market prices And what could happen next.

00:01:04: but before we do as always please keep in mind that opinions are my own.

00:01:09: This

00:01:17: show brought to you by SwissQuote.

00:01:19: Oops, right.

00:01:20: Unexpected.

00:01:21: the strong PMI data from Europe and US yesterday rattled markets!

00:01:25: In the West flash PMI figures for September printed the fastest pace in activity expansion in last five years.

00:01:33: New orders grew at a faster speed since April of two thousand twenty-two while hiring in the west was strongest since February.

00:01:40: Two Thousand Twenty One As you imagine.

00:01:43: massive AI investment and resilient consumer spending somehow outweighed the energy price.

00:01:50: that worries, though supplier delivery times stretch according to same data while input costs remain elevated in US due to high energy prices and of course supply chain pressures.

00:02:00: If we summarize it just one sentence, economic activity expanded strongly on the first half September in the

00:02:07: U.S.,

00:02:07: while price pressure remained elevated.

00:02:10: That's a perfect combination for fueling further rate hike expectations for the Fed.

00:02:16: So, the US two-year yield that best captures the Fed's rate expectation spiked yesterday past a four point ninety-four percent level as the highest level since June twenty-four.

00:02:27: The five year yield spike passed a five per cent mark from the very first time ever since.

00:02:32: two thousand seven also hammered by weak five-year bond auctioneer yesterday.

00:02:37: and then ten year yield spikes pass to five point ten percent mark.

00:03:06: If it's any relief, Korean oil is down this morning retracing some of yesterdays rebound.

00:03:12: US diesel features fell sharply too yesterday, though the relief at the pump was negligible.

00:03:18: Retail diesel remains essentially at record high levels in the

00:03:21: U.S.,

00:03:22: and to surprising strong data from the U S. And the hawkish Fed expectations will likely keep investors kind of resilient take more risk on their shoulders.

00:03:32: today And beyond the US, Australian and Japanese PMI numbers looked actually kind of soft.

00:03:37: Especially in Australia where the manufacturing PMI fell below the fifty mark hinting at contraction in the beginning of september while in europe, the picture was surprisingly strong as well here.

00:03:52: The improvement was driven particularly by services which expanded faster than expected by analysts In the first half of September While manufacturing conditions also shown size of stabilization and that despite rising fears over heated energy prices in Europe.

00:04:10: So overall data suggested that the euro area economy is holding up much better feared by analysts and that despite elevated energy costs, and tighter financial conditions due to higher European central bank rates.

00:04:25: Now no one knows for how long the sign will continue to shine but what's clear is that strong data today gives the European Central Bank room for further policy tightening heavier.

00:04:46: As such this morning, the U.S.

00:04:48: dollar is stronger against most majors in the US dollar indexes.

00:04:52: Appreciation as gathering momentum above a hundred psychological mark.

00:04:57: we are near one-hundred and one level today has hawkish Fed expectations and elevated US yields continue to support the

00:05:04: greenback.".

00:05:05: And with strong data in hand it's clearer that the Fed's latest hype was just beginning of new tightening cycle.

00:05:14: As such, the year dollar steps below the one-fourteen mark right now.

00:05:18: The pair is approaching an important technical level near a one point thirteen fifty which is the major.

00:05:25: third.

00:05:25: eight point two percent Fibonacci retracement since Donald Trump's return to the White House.

00:05:31: hence critical support of so called debasement trade.

00:05:35: and same is true for cable margin.

00:05:37: the pair it's also approaching its own third.

00:05:40: eight point two percent retracement on two thousand twenty five to two thousand and twenty six.

00:05:46: really a further appreciation of the US dollar will therefore come to challenge that debaseman trade in this short one Without, however, justifying a sustainable return to the US dollar in the longer run because appetite for the U.S.

00:06:01: dollar and U. S. Treasuries have been weakening structurally.

00:06:05: on one hand Yes us feels above five percent level appealing for locking it at five percent return only of five ten.

00:06:14: The latter could encourage capital flows from equities to sovereign bonds, especially private investors.

00:06:19: But on the other hand major foreign buyers such as governments and central banks are much less sensitive to price changes.

00:06:27: They want safety overpriced And they would not necessarily return to US treasuries when U.S debt levels are exploding along with inflation expectations And geopolitical outlook also looks very uncertain right now.

00:06:41: And because we discussed earlier this week, gold and bitcoin are both down today on stronger US dollar.

00:06:48: It looks like the reverse debasement trade is in play right now.

00:06:51: Bitscoin could further retreat as the U.S.

00:06:53: dollar rebounds and technology stocks also pull back while Gold will remain under pressure of a stronger U. S. Dollar and stronger U-S.

00:07:02: Heals in short run because stronger U.-S.

00:07:05: heels increase opportunity cost non-interest bearing gold.

00:07:10: But as I keep repeating, the yellow metal will certainly find support in the medium to long run with strong institutional demand.

00:07:18: but strong institutional appetite because the Yellow Metal's latest behavior actually suggests that Gold has become much less sensitive to changes in U.S.

00:07:28: ten year yields since two thousand twenty-two.

00:07:31: then it used to be a gold gain as US yields rose over the past years and its gains as real yields turned positive.

00:07:37: Well, suggesting that many investors have been looking past the lost interest for not holding U.S.

00:07:44: Treasuries since two thousand and twenty-two What happened in Two Thousand and Twenty-Two?

00:07:49: Russia invaded Ukraine And their assets were frozen.

00:07:52: As such.

00:07:52: it also marked a beginning of migration from US treasuries to alternative assets Such as gold And that trend is still in play for medium To long run.

00:08:02: Now coming back to FX, the divergence between US strength versus Australian and Japanese PMIs is reflected in its software Aussie dollar right now.

00:08:11: The pair are testing a two-hundred day moving average TD downside while the dollar yet it's moving towards opposite direction.

00:08:18: this morning but that move was supported by the Japanese Finance Minister Madame Satsuki Katayama warning that the principles established during July Japan-US Coordinated FX Intervention remain alive, hence reminding markets and investors that joint intervention remains an option.

00:08:40: wash the short yen positions away in a fraction of a minute.

00:08:44: Looking at recent past however, we may still be at least two figures from an intervention and even more!

00:08:50: The latest intervention happened around the one hundred sixty-four level for the dollar yen.

00:08:56: Last but not least there are news that US & China agreed to extend trade truce for two months on the wire this morning.

00:09:03: Donald Trump & President Xi Jinping will meet today.

00:09:07: I actually don't expect any major shake up that meeting between the two leaders.

00:09:11: But both are willing to fight AI war, and both will win!

00:09:17: And Lerak could eventually counter with AI brain's warnings lately.

00:09:22: we must slow down development of the AI Frontier model.

00:09:25: So this is all for today.

00:09:27: I'm Ipeko Skardishkaya.

00:09:29: Thank you so much for joining me and thank you for your beautiful comments.

00:09:35: This episode of Market Talk has been helpful and it's been insightful to you.

00:09:40: So please do not hesitate leave your comments, reactions or questions below.

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00:10:05: So I will meet you again tomorrow and until then, good day

00:10:23: trading!