article

Overseas markets saw a reversal in trends overnight, with U.S. stocks ending their rebound and falling alongside U.S. Treasuries and gold, leading to a decline in the Asian market in early trading on Friday.

Specifically, the S&P 500 index fell as much as 1%, and the tech-heavy Nasdaq Composite closed down 1.68%, with technology, chip, and AI concept stocks experiencing the largest declines.

The decline in U.S. stocks led to a drop in early trading in the Asian market, with futures for Japanese, Australian, and Hong Kong stocks falling.

U.S. Treasuries also ended their upward trend, with Treasury yields rising across the board. The yield on the 10-year Treasury note increased by 5 basis points, while the two-year yield, which is more sensitive to policy, climbed 7 basis points.

The U.S. dollar, meanwhile, recorded its largest gain in over a month.

Behind this decline is the Federal Reserve's signaling that was less dovish than the market expected, with expectations for rate cuts receding, and disappointing U.S. economic data reigniting concerns about economic growth.

Advertisement

On the eve of Powell's Jackson Hole speech, Federal Reserve officials successively "set the stage," noting that it is appropriate to start cutting rates soon, but also emphasizing that the pace of rate cuts should be "gradual" and "orderly," rather than as aggressive as the market anticipated.

Currently, market expectations for a significant rate cut by the Federal Reserve have diminished. Swap pricing indicates that there will be three 25-basis-point rate cuts in the remaining three Federal Reserve policy meetings this year, whereas just two days ago, the market was expecting approximately 100 basis points of rate cuts.

This shift means that swap traders no longer anticipate a 50-basis-point rate cut in 2024.

SlateStone Wealth analyst Kenny Polcari stated:We are not currently discussing whether they will cut interest rates, but rather how much they will cut and how many times they will do so before the end of the year. The U.S. economy is not in trouble, so there is no need to imply that it is.

In the meantime, a series of underwhelming economic data was released overnight, with unemployment benefit claims persistently hovering at multi-year highs; existing home sales increased for the first time in five months, while housing prices broke historical lows to reach all-time highs; the Chicago Fed National PMI index plummeted, contracting at the fastest pace this year, and the manufacturing confidence survey results were abysmal...

It is worth mentioning that the market had high expectations for the Jackson Hole conference, aggressively anticipating rate cuts, with warnings that Powell might find it difficult to deliver a more dovish signal than the market expects, and to be wary of a dollar rebound and market selling behavior at the conference.

Furthermore, in terms of the recent trend of the U.S. dollar, Citigroup believes that the U.S. Dollar Index is currently close to the important support level of 100.30-100.82. Coupled with the weak European economic data that relatively boosts the dollar, Powell being less dovish than the market expects, and the possibility of the "Trump trade" reigniting, the dollar will be supported.