Stocks were down a touch early on Monday in a pretty lacklustre start to the week, with the FTSE 100 falling around a quarter of a per cent and Dax down 0.6 per cent. Indian shares fell on US President Donald Trump raising the fee on H-1B visas to $100,000: watch tech and finance stocks as this could be tricky for them. Amazon employs 14,000 people on these visas.
Apple supplier Luxshare jumped in Shenzhen on reports of a deal with OpenAI. Other companies affiliated with Apple rose on reports of robust iPhone demand, with Sunny Optical advancing 7 per cent and FIT Hon Teng climbing 14 per cent. JPM noted strong demand for the new iPhone.
Gold surged to a record high of $3,720 as it continues to relentlessly drive higher, while silver climbed 1.5 per cent to a new 14-year peak of $43.77. The August 2011 top at $44.22 is the next level to look for. The Nikkei 225 advanced 1.5 per cent, surpassing 45,700, before paring gains to about a 1 per cent rally, as the Bank of Japan revealed a 100-year strategy to reduce its extensive ETF holdings. The People’s Bank of China kept the one-year loan prime rate unchanged at 3.0 per cent and the five-year benchmark rate at 3.5 per cent.
Wall Street closed at fresh record highs on Friday following last week’s rate cut by the Federal Reserve, which was everything the market needed, just about. Bond yields rose following the cut, which indicates that the market does not think a cut is justified. And it’s hard to argue with that – even the Fed lowered its unemployment forecast, while raising inflation and growth forecasts at the same time, as it implied more cuts than it did in June. Something doesn’t stack up.
Governor Stephen Miran, the Trump appointee and lone dissenter on the FOMC last week, will speak to the Economic Club of New York today. Fed chair Jerome Powell speaks tomorrow. Between them, we may hear a little more about what is going on.
The highlight of the week is the US core PCE inflation report – the Fed’s preferred gauge of inflation. The index showed that core inflation ran at a 2.9 per cent annual rate in July, meeting estimates but higher than the 2.7 per cent in June. Core PCE rose 0.3 per cent on the month, in line with expectations. Consumer spending increased 0.5 per cent on the month. The report comes after the Fed last week cut rates despite forecasting higher inflation over the coming years. A slower pace of inflation is likely needed to cement expectations for further cuts this year. The Cleveland Fed’s Inflation Nowcasting model shows 3.0 per cent on the PCE inflation rate. I think we might find out that the rate cut was not a great idea.
Over here, sterling got the treatment last week on renewed concerns about the fiscal position of the government. GBPUSD tanked after its initial pop following the Fed cut and broke down below its 50-day moving average around 1.3460, where it’s found some support again this morning as the pound bulls try to recapture the support level, which is also on the 50 per cent retracement of the July slump.
For everything else you need to know, click here
By Neil Wilson, investor strategist at Saxo UK