Federal Reserve Chairman Jerome Powell sent the strongest signal yet of a rate cut in his speech at the Jackson Hole annual symposium on Friday, ending the week on Wall Street with cheers.

As concerns about a possible recession ease and expectations of a rate cut by the Federal Reserve increase, U.S. stocks have recovered from the plunge at the beginning of the month, with major indexes closing higher for the second week in a row this week. The S&P 500 closed just 0.6% below its all-time closing high in mid-July, and the Dow Jones Industrial Average was less than 0.1% away from its all-time closing high. U.S. bond yields plunged across the board, and the U.S. dollar index languished, closing at a one-year low. Gold rose more than 1% and returned above the 2,510 mark. U.S. and Brent crude oil rose for two consecutive days, but still recorded a weekly decline. Bitcoin jumped to around $64,000, its highest level in three weeks.

The market is about to enter a relatively quiet week before the US Labor Day holiday. Although the Fed is almost certain to cut interest rates in September, the extent of the cut is still largely data-dependent, and the September resolution also contains the latest dot plot, so its interest rate path is far from set in stone. The most noteworthy thing to watch in the coming week will be the US personal consumption expenditures (PCE) price index, which is the Fed's favorite inflation indicator.

The following are the key points that the market will focus on in the new week (all in Beijing time):

Central Bank News: Powell turns dovish across the board, has the gold price not yet peaked?

Fed:

At 6:00 on Thursday, 2024 FOMC voting member and Atlanta Fed President Bostic will speak on the economic outlook

At 3:30 on Friday, 2024 FOMC voting member and Atlanta Fed President Bostic will speak on monetary policy and economic outlook

With inflation trending toward 2%, Powell's speech on Friday marked his clearest shift yet from restoring price stability to supporting the economy, especially the labor market. Powell said the U.S. labor market has cooled significantly and policymakers will do "whatever it takes" to support the labor market. He said, "Our current level of policy interest rates provides ample room for us to address any risks we may face, including the risk of an unwelcome further weakening in labor market conditions."

Wall Street interpreted his speech as the Fed not ruling out cutting rates by more than 25 basis points at one of the three remaining meetings this year. After Powell's speech, traders increased their bets on a big rate cut in September, with Fed fund futures currently pricing in a 37% chance of a 50 basis point cut next month, up from about 25% late Thursday. They also expect the Fed to cut a total of 106 basis points in rate cuts at the remaining three meetings by the end of the year.

Other Fed officials also delivered a series of speeches at the Jackson Hole conference, but they did not offer anything new. Atlanta Fed President Bostic, a 2024 voter, said he was close to preparing to cut interest rates and might favor more than one rate cut this year. Philadelphia Fed President Harker said it was time to start cutting rates and the process should be "orderly." Chicago Fed President Goolsbee said there was good reason to believe the Fed's forecast for rate cuts would come true.

As the Federal Reserve prepares to cut interest rates next month, analysts see solid upside potential for gold, and a move above $2,500 could be the start of a bigger move. Despite the high prices, analysts said gold does not appear to be overbought. Eric Strand, founder of AuAg Funds, said Western investors' interest in gold is just beginning, and rate cuts are expected to reduce the opportunity cost of holding precious metals. While Strand is bullish on gold, he added that elevated speculative positions could cause some volatility in the short term.

Adam Button, director of currency strategy at Forexlive.com, said that as interest rates move lower, gold prices will continue to shine as the dollar slides. "This doesn't feel like a market that has topped out," he said. Although Powell hinted that the Fed will be methodical in its upcoming easing cycle, Button noted that expectations can easily shift. He believes that when a series of weak labor data comes out, the Fed will be ready to cut interest rates sharply. Although it's not time yet, the trend of interest rates and the dollar is downward.

Phillip Streible, chief market strategist at Blue Line Futures, believes that he thinks gold could push as high as $2,600 an ounce before the market sees more sustained selling pressure and profit-taking.

Important data: The Fed's favorite inflation indicator is coming, and the US dollar index is on the verge of collapse

At 21:30 on Monday, the monthly rate of durable goods orders in the United States in July

At 21:00 on Tuesday, the monthly rate of the FHFA House Price Index in June and the annual rate of the S&P/CS 20-city House Price Index in June were released.

Tuesday 22:00, US Conference Board Consumer Confidence Index for August

At 1:00 on Wednesday, the US 2-year Treasury bond auction will be held until August 27

At 9:30 on Wednesday, Australia's July weighted CPI annual rate

At 22:30 on Wednesday, EIA crude oil inventories in the United States for the week ending August 23

Thursday 1:00, US 5-year Treasury auction until August 28

At 17:00 on Thursday, the Eurozone August Industrial Climate Index, the Eurozone August Consumer Confidence Index Final Value, and the Eurozone August Economic Climate Index

At 20:30 on Thursday, the number of initial jobless claims in the United States for the week ending August 24 and the revised annualized quarterly rate of real GDP in the second quarter of the United States

Friday 1:00, US 7-year Treasury auction until August 29

At 22:00 on Thursday, the monthly rate of the U.S. existing home sales index in July

7:30 on Friday, Japan's July unemployment rate, Japan's August Tokyo CPI

At 17:00 on Friday, the euro area's August CPI annual rate and monthly rate

At 20:30 on Friday, the annual and monthly rates of the core PCE price index and the monthly rate of personal spending in July in the United States

At 22:00 on Friday, the final value of the University of Michigan Consumer Confidence Index and the final value of the one-year inflation rate forecast for August in the United States

Hawkish members of the Fed still see some upside risks to inflation, and the upcoming data will have to cool down significantly if market expectations for big rate cuts this year are to come true. As a result, Friday's report on US consumer personal income and spending will be in the spotlight again. The report is expected to show that the core PCE price index remained unchanged at 0.2% month-on-month, with the year-on-year growth rate rebounding slightly to 2.7%, and the headline PCE is expected to accelerate slightly both on a monthly and annual basis. Meanwhile, personal spending is expected to rise 0.5% month-on-month in July, which may further ease recession fears but also weaken hopes for big rate cuts, while personal income is expected to rise just 0.2% month-on-month, which may offset some concerns that US consumers are about to splurge again.

It is worth noting that the US dollar index has fallen for the fifth consecutive week, which makes it easy to rebound if the report exceeds expectations. However, Fxstreet analysts pointed out that the US dollar index still faces a long road to recovery. 101.90 is the first level to be recaptured, followed by 103.18, which is about 2% away from the current price. Finally, the resistance near 104 is very large, which is not only a key technical pivot point, but also the 200-day moving average. On the downside, 100.62 (the low of December 28 last year) will be the next important support level to avoid another crash. If it falls below, 99.58 (the low of July 14, 2023) will be the final support level.

The U.S. will also release data on durable goods orders for July, the Conference Board consumer confidence index for August and a second revision to second-quarter GDP growth before key inflation data next Friday. With the Fed's comments expected to be limited, investors will have to follow the tone set by Powell in his Jackson Hole speech, but a large number of Treasury auctions in the coming week could spur some volatility in the bond market as trading volumes recover from a summer slump.

Against the backdrop of a weaker dollar, non-US currencies have fought back. The euro surged to hit 1.12 against the dollar for the first time since July last year. Although it is strongly expected that the European Central Bank will cut interest rates again in September, some policymakers are still holding off. The eurozone's August CPI data released on Friday will play a crucial role in giving the green light to further easing policy in September. The eurozone's headline inflation rate is expected to slow from 2.6% year-on-year in July to 2.3% in August, getting closer to the ECB's 2% target. Core inflation, which excludes all volatile items, is also expected to rise slightly. However, if the inflation data disappoints, this may further boost the euro against the dollar, but it is still unlikely to change the market consensus on a September rate cut.

In the case of the yen, it is actually partly responsible for the dollar’s ​​woes. When the Bank of Japan simultaneously raised interest rates and announced a gradual halving of its asset purchases at its July meeting, the reality that Japan’s years of ultra-loose monetary policy were coming to an end finally struck a nerve with investors. And now it seems likely that the Bank of Japan will raise interest rates for the third time before the end of the year. Although Governor Kazuo Ueda expressed concern about the current market instability, he still hinted that more rate hikes are planned if the economy and inflation remain on track. Therefore, Tokyo CPI data released on Friday will be very important as these data are regarded as a leading indicator of inflation trends across Japan.

Inflation will also be a theme in Australia, where monthly CPI data will be released on Wednesday. Australia's CPI fell back to 3.8% in June, after rising in the previous few months. Policymakers at the Reserve Bank of Australia want to see inflation fall further before abandoning their hawkish stance. If there is no new progress in inflation in July, the RBA will almost certainly continue to rule out the possibility of raising interest rates this year, which will be positive for the Australian dollar, which has risen nearly 3% against the US dollar in August.

Company financial reports: Nvidia’s financial report becomes a key catalyst, can US stocks still rise?

Next week, the stock market's rally faces an important test as chip giant Nvidia reports earnings. The stock is up about 150% year to date, accounting for about a quarter of the S&P 500's 17% gain. The company's earnings, released after the market close on Wednesday, August 28, and its guidance on whether it expects companies to continue investing in artificial intelligence, could be a key turning point for market sentiment heading into the most volatile period of the year. The S&P 500 has fallen an average of 0.78% in September, its worst month since World War II, according to CFRA data.

Some investors are ready for a big shock. According to data from options analysis firm ORATS, traders expect Nvidia's stock price to fluctuate by about 10.3% the day after the company releases its earnings report, which is higher than the expected trend before any of Nvidia's earnings reports in the past three years, and much higher than the average volatility of 8.1% after the stock's earnings announcement during the same period.

Nvidia stock has recovered to the 78.6% Fibonacci retracement level of the July 20 to August 5 decline, which has been acting as resistance for several days. A break above the $130 resistance level could set new highs as resistance is not strong from either an options perspective or a technical perspective. However, given the high expectations created by the massive growth over the past year, anything less than satisfactory could cause the stock to fall quickly and potentially return to the August 5 low.

As this earnings season comes to a close, investors have cooled their optimism about big tech companies as their earnings have failed to justify their lofty valuations or heavy spending on artificial intelligence. Shares of companies like Microsoft, Tesla and Alphabet have been trending down since their earnings reports in July. Matt Stucky, lead portfolio manager of equities at Northwestern Mutual Wealth Management, said Nvidia's "connection to large U.S. companies makes its earnings report a must-watch. The most important thing investors want to know is whether the company's growth is sustainable and what demand will look like in 2025 and 2026."

The trajectory of the U.S. economy and monetary policy and an increasingly heated presidential campaign could also sow market uncertainty in the coming weeks. Even if Nvidia's earnings impress Wall Street, August's big run-up in stocks could make it difficult for the market to make more progress in the near term, said John Belton, portfolio manager at Gabelli Funds. The S&P 500 trades at 21 times expected earnings, well above its long-term average of 15.7 times. "Valuations across the stock market remain high, so the bar for continued gains remains high," Belton said.

Article forwarded from: Jinshi Data