Macro Wrap

Fed Chair Powell’s comments at the Jackson Hole conference indicated that a September rate cut is coming as he said that "the time has come for policy to adjust", and he did not close the door to a 50bps cut either. He avoided words that other Fed committee members used earlier in the week, like “gradual” and “methodical” for the rate cut cycle. Moreover, Powell’s comment that he does not seek, or welcome further labour market cooling also emphasized that focus has shifted from inflation to unemployment and the Fed remains open to act bigger if August payrolls data showed deterioration. Sentimentally Negative for USD.

The US dollar continued its decline, with the US dollar index down 0.8%, reaching a low of 100.602 -the lowest level since July 2023. US bond yields were lower across the curve. The US 2-year bond yield declined 9 basis points to below 4.0% - at 3.92%. The 10-year treasury yield declined 5 basis points to 3.80%.

Bank of Japan’s Ueda spoke in the parliament on Friday and indicated that the central bank could hike rates again if inflation and economic data performed as expected. He played down the significance of BOJ’s July rate hike in the market turmoil that ensued after the decision and said that concerns over the health of the US economy was the key catalyst. Sentimentally Negative for risk assets and positive for JPY

Oil advanced as the Middle East braced for escalating conflict after an Israeli strike on Hezbollah targets in southern Lebanon. Global benchmark Brent rose above $79 a barrel, while US marker West Texas Intermediate climbed to near $75. Oil is now marginally higher for the year, aided by geopolitical risks, and a likely US interest-rate cut next month.