Market Commentary: Thursday 1st August

Central banks are dominating the financial headlines and the subsequent market moves. USDJPY opens below 150 here in London. Hopefully, this can explain why.

Firstly, the Fed left rates on hold. Fed Chair Jerome Powell expressed a tone of cautious optimism. He said, “We’re getting closer to the point where the Fed could lower interest rates, but we’re not quite at that point yet,” and yet in the press conference, he mentioned September 18 times.

Now, a BoJ recap: there was a 15-bps rate hike, decided by a 7-2 majority. The bond-buying program will be reduced by about JPY 400 billion each quarter, so that it will be about JPY 3 trillion in Q1 2026. The BoJ’s corresponding policy statement included a fairly optimistic assessment of the Japanese economic outlook, stating that fixed investment is “on a moderate increasing trend” and corporate profits are “improving.” Moreover, it states that wage rises “have been spreading across regions, industries, and firm sizes.” The Bank also states that “if the outlook for economic activity and prices presented in the July Outlook Report will be realized, the Bank will accordingly continue to raise the policy interest rate and adjust the degree of monetary accommodation.” This clearly leaves the door open for further rate hikes, potentially in late 2024 or early 2025. Simply put: US on hold, JPY hiking, USDJPY lower—simple.

Onto today, and welcome to August. We hear from the Bank of England at midday. The dilemma is that core inflation remains at 3.5% in the 12 months to June 2024, and services inflation is at an uncomfortable 5.7%. There was a 10% minimum wage rise in the spring, and we all know doctors' pay is considerably increasing, and yet we require growth. Market expectations are a 60% chance for a cut, but it is very finely balanced.

In other markets, Bitcoin fell 1.2% to $63,785.80, Ether fell 1.9% to $3,159.79, the yield on 10-year Treasuries is at 4.05%, West Texas Intermediate crude rose 1% to $78.69 a barrel, Spot gold opens at $2,445, GBPUSD 1.2830, and EURUSD 1.0825. Away from central banks, we have earnings from Apple and Amazon, and then tomorrow it is back to fundamentals and the NFP number.

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