Macro Matters – Weekly review, w/c August 21

Macro Matters – Weekly Review, w/c August 21

Macroeconomic / Geopolitical Developments

• China’s economic and real estate woes weigh on global sentiment.

• Rising global bond yields are also a hit to risk appetite.

The focus turns to China’s economic and real estate woes

The lack of progress in China’s economy since reopening post-zero-COVID has raised significant concerns among traders. Despite expectations of strong stimulus measures, China’s response remains muted. The real estate sector, responsible for around 28% of China’s GDP, faces plummeting sales, low investor confidence, and growing defaults. This sector’s crisis raises fears of a broader economic meltdown with global implications.

Record-high bond yields shake market sentiment

Global bond yields have risen sharply, with US Treasury yields nearing 15-year highs. This surge stems from increased US borrowing needs, Fitch’s credit downgrade, and strong economic data. Higher yields have bolstered the USD as a haven asset but turned equity markets corrective, highlighting growing risk aversion.

United States: A sweet spot that will keep US rates higher for longer

Economic resilience in the US, marked by strong retail sales, rising industrial production, and improving GDP forecasts, challenges previous recession concerns. With the Atlanta Fed’s GDPNow projecting 5.8% growth for Q3, expectations of rate cuts in 2024 have reduced, further strengthening the USD and pressuring commodities.

The correction in US index futures

Higher interest rates are taking a toll on US index futures. Notably, Michael Burry has placed significant bets against the market, reflecting broader concerns over overvaluation. Technically, key support levels for S&P 500 and NASDAQ 100 futures could face tests this week as downtrends intensify.

What’s next?

This week, all eyes are on the Jackson Hole Economic Symposium for signals on monetary policy, especially from Fed Chair Powell. Flash PMIs for major economies will also be closely monitored, with improvements in manufacturing potentially stabilizing composite readings.

Europe: Rising BoE pressures and stagnant Eurozone inflation

The Bank of England faces increasing challenges as inflation surprises to the upside, particularly in services. Markets anticipate another rate hike in September, possibly to 5.50%, with the potential for further increases. Meanwhile, Eurozone inflation remains elevated, supporting expectations of another ECB hike in September.

Asia: PBoC rate cut and continued Chinese woes

The People’s Bank of China cut rates last week to boost sentiment, but concerns over the property sector and shadow banking dominate. In Japan, a slight drop in core inflation eases pressure on the BoJ, making further policy tightening unlikely.

Commodities

• Oil futures falter: NYMEX Oil Futures dropped after failing to sustain a breakout above $83.53, with $78.69 as key support.

• Gold futures continue lower: A stronger USD has pushed gold below $1892.50, risking a deeper correction toward $1808.

On the calendar

• Key events include the Jackson Hole Symposium, flash PMIs, and US durable goods orders. With central bank policies under scrutiny, this week’s data and speeches could provide critical market direction.

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