US earnings

Markets rallied after sell-offs this week, led by Nasdaq. Bond markets steadied, with yields backing off highs. This reversed prior moves this week. After focusing on the Fed and interest rates this week, traders are starting to think about the impact of a Government shutdown next week and an escalating Auto workers strike. Commodities saw buying in oil, as did precious metals and the ag complex. Bottom-line: risk-on.

Vincent Deluard, StoneX global macro strategist, asks: are we at an inflexion point, when higher bond yields and a steeper yield curve could hit the rating of expensive growth stocks? The Magnificent Seven (Mag7) stocks have become synonymous with this bull market: Amazon, Alphabet, Apple, Nvidia, Meta, Microsoft and Tesla. These stocks make up a quarter of the S&P 500 market value.

Nasdaq continued to lead markets down this morning as traders digested a pessimistic assessment of the Fed’s statement yesterday. Jobs data continues to demonstrate that the economy is not slowing. 10-year bond yields spiked to almost 4.5%, rates last seen in 2006, and putting a strain on the valuation of equity markets. Bottom-line: risk-off.

Nasdaq fell sharply on news that while the Fed will pause rates for now, higher rates are possible. Higher bond yields and the risk of another rate hike this year caused a sell-off in equities and bonds. Oil saw profit-taking. The dollar index rallied on hopes that US rates will rise further. Bottom-line: risk-off.

Nasdaq, the R&P 500 and Russell 2000 equity indices were off marginally as markets braced for tomorrow’s Fed interest rate decision. Bitcoin rose 1.2% to $27,177, continuing a recent rally. Ten year bond yields rose to 4.37%, a rate last seen in June 2008. Oil and the dollar, recently strong markets, were unchanged, as were Gold and Silver. Bottom-line: risk-off.

Bullish factors The Federal Reserve is expected to take a firm stance against inflation and release its projections of interest rates higher than the median of market estimates, reinforcing the perception that interest rates will stay higher for longer in the US and strengthening the dollar. The Monetary Policy Committee should reduce the basic interest rate (Selic) by 0.50 p.p., reducing the country's interest differential to other economies and reducing the inflow of investments into the country, weakening the BRL. Bearish factors The Bank of England is expected to raise interest rates even in the face of economic stagnation in the country, increasing concerns about an economic slowdown in Europe and strengthening the dollar. The Bank of Japan is expected to maintain its ultra-loose monetary policy unchanged, contributing to the strengthening of the dollar by contrast.

Higher oil prices continue to be the headline in financial markets, hitting 2-year highs and briefly surpassing $92 per barrel. Nasdaq and the S&P 500 struggled to find direction ahead of the Federal Open Market Committee September meeting today and tomorrow. No one expects another rate hike. Treasury markets saw yields rising, with 10-year yields close to their highest levels in 16 years at 4.32%. The US dollar index paused after a recent run. Bottom-line: risk-hold.

In the short-term gold remains range-bound, and after finding support in mid-July on its dip below $1,900 (some of which was believed to be institutional and some from the official sector), has traded between $1,900 and $1,950. For the time being we can probably expect it to stay in that range as there is plenty of resistance on the charts above $1,950 and the professional markets, at least, are not prepared to commit themselves until the Fed’s and European Central Bank’s interest rate policies become crystallised.

Bullish factors August CPI in the US is expected to accelerate moderately, reinforcing the perception that the Federal Reserve will maintain a firmer stance on inflation and sustain higher interest rates for longer, strengthening the dollar. Economic data in China and Europe are expected to suggest a slowdown in these economies and could dampen foreign investors' risk appetite, weakening the real. Bearish factors August IPCA in Brazil should increase moderately, suggesting that the space for interest rate cuts by the Central Bank may be lower than initially estimated and lower expectations for the fall in the interest differential across the country, contributing to the attraction of financial investments and strengthening the real.

This week’s inflation report is centerstage, with the Nasdaq and S&P 500 rallying on the belief that the report will be benign and the Fed won’t raise interest rates next week. The oil price is hovering around $88 as we await new data on the supply/demand balance. September 11 – 9-11; May the memory linger and may we never forget. This is a somber day in American history as it struck at the heart of Wall Street. Bottom-line: risk-on.

Equity markets rose modestly after recent sell-offs on a low energy day with little news. Tech stocks in the Nasdaq recovered after stock specific news hit big names like Apple. Oil resumed its upward path on news of China’s oil stockpiling. The US dollar held key support levels after its recent rise. The next few weeks will see traders on Fed watch and chatter about (another) budgets showdown which might have a real market impact this time around. Bottom-line: risk-on.

Nasdaq continued to slide this morning, off 1.4%, with key index component Apple off 3.4%, mixing stock specific concerns and the impact of rising bond yields on highly rated stocks. Oil fell back on profit-taking after a recent run and reconsideration of the real impact of production cuts. The dollar index held on to key chart levels with signs of pushing higher. Bottom-line: risk-off.

Equity markets tumbled this morning, led by Nasdaq’s 1.2% decline, with a sell-off in bonds and higher yields the culprit. Bonds were spooked by evidence that the US services sector unexpectedly gained steam in August, with new orders firming and businesses paying higher prices for inputs, both signs of still-elevated inflation pressures. The continued rally in oil prices, hovering around $88, added to inflationary fears, and we review whether this will go much further. Bottom-line: risk-off.

‘Soft landing’ is phrase on trader’s lips after good economic data and no expectation that rates will rise again. Oil prices continued to rise on more production cuts and good economic growth. Nasdaq led stocks morning recovery, back to unchanged on the day. Higher bond yields were a key negative, but the dollar benefitted. Bottom-line: risk-off.

Gold is recovering after its past sell-off but has probably rallied enough, and now needs to consolidate. True to form, silver moved before gold and by a larger percentage. US economic data last week showed a slowing labour market and reduced consumer confidence. European economic confidence is floundering, while China continues to struggle. Core inflation was below expectations but perhaps not enough to satisfy the Fed.

Oil prices rose to a nine month high in a thin holiday trading. For markets which were open, S&P 500 futures fell and Nasdaq futures edged higher. The dollar index and ten year bonds were unchanged. Bottom-line: risk-hold.

Bullish factors Perception of worsening fiscal risks of Brazilian assets may raise investors' requirement of risk premiums and decrease foreign investments in Brazil, weakening the real. Economic data in China and Europe are expected to suggest a slowdown in these economies and could dampen foreign investors' risk appetite, weakening the real. Bearish factors Data for the US economy should suggest that economic growth remains stable, diminishing interpretations that further rate hikes will be needed and contributing to weakening the dollar.