Last Week in Review: After an already turbulent week, with diverging US inflation data, the Reserve Bank of Australia cutting interest rates, and the Trump-Putin summit, the path to a much-anticipated US rate cut seemed clear, particularly after Tuesday's CPI report showed inflation close to the Fed's target (2.5% year-over-year growth and 2.7% core growth). However, Thursday's PPI data significantly altered the narrative: the actual PPI figure came in at 0.9%, significantly exceeding expectations by 0.2% (with core inflation rising to 3.7% year-over-year), and the market was met with bad news about "tariff-driven inflation." Combined with the downward revision to the non-farm payroll data and the fading outlook for US inflation, a significant rate cut in September is far from certain. The Fed will still release non-farm payroll and CPI data before its September 17 meeting.

Meanwhile, tariff concerns weighed on risk assets and market sentiment: cryptocurrencies surged and then retreated; while US stock indices, while hesitant, remained near recent highs. On the other hand, commodities (including precious metals and crude oil) were losers last week, with US data shifting capital flows twice.

Meanwhile, the focus last week was on the first face-to-face meeting between US President Trump and Russian President Vladimir Putin in Alaska last weekend, with both sides issuing separate statements. Both Trump and Putin made vague promises of "progress" in various areas, but initial details remain scarce. President Trump will now turn to personally delivering Russia's peace proposal on Ukraine to Ukrainian and EU government institutions. After meeting with Russian President Putin, President Trump told Fox News that he gave the meeting a 10 out of 10.

Last Week's Market Performance Review:

The three major US stock indices closed mixed last week. The Dow Jones Industrial Average and the S&P 500 both hit record highs during the session, but retreated in late trading, indicating a growing divergence between bulls and bears as they approached their highs. Market sentiment fluctuated between concerns about economic resilience and policy uncertainty. Investors were grappling with inflationary concerns stemming from tariffs and rising prices, while also betting that the Federal Reserve would initiate interest rate cuts this year. The Dow Jones Industrial Average closed up 34.86 points, or 0.08%, at 44,946.12; the S&P 500 fell 18.74 points, or 0.29%, to 6,449.80; and the Nasdaq Composite dropped 87.69 points, or 0.40%, to 21,622.98.

International gold prices remained firmly on track for the week, falling 1.79% to $3,336. They saw a significant drop on August 11 and continued to fluctuate narrowly around low levels from August 12 to 15. COMEX gold futures closed down 0.03% at $3,382.20 per ounce, a weekly decline of 2.16%, marking a decline of over 3% since August 8.

Spot silver closed down 0.1% at $37.960 per ounce, a 1% weekly loss. It still failed to break above $38,000 per ounce as higher-than-expected US producer inflation dampened hopes for a significant Federal Reserve rate cut in September. Geopolitically, US President Donald Trump and Russian President Vladimir Putin plan to meet in Alaska later on Friday to try to end the war in Ukraine.

Last week, the US dollar closed lower on a weekly basis, with markets focused on expectations for a September Fed rate cut and optimistic progress made at the US-Russia summit. The dollar jumped mid-week on data showing a stronger-than-expected increase in US producer prices in July, but gave up most of those gains on Friday, falling 0.4% against a basket of currencies.
The US dollar index has generally declined since August, falling back below 98.00. This decline is primarily due to the market pricing in the prospect of two Fed rate cuts in September and December, as well as a more dovish policy narrative. The dollar briefly rose before retreating. According to OIS pricing, September still incorporates a rate cut of approximately 23 basis points, meaning data would need to be "significantly stronger" to reverse the established narrative; otherwise, the dollar is likely to remain range-bound between 97.00 and 99.00.

The euro would benefit from any ceasefire agreement in Ukraine. The euro rose 0.5% against the dollar to $1.1702. If the Russia-US summit achieves substantial progress in resolving the conflict, the euro and Central and Eastern European currencies could rise. The dollar fell 0.4% against the yen to 147.23 yen after unexpectedly strong Japanese economic growth data showed exports holding up despite new US tariffs.

The pound rose against a weakening dollar, rallying this week following upbeat economic data and a hawkish Bank of England rate cut. It was last up 0.2% at $1.3560, bringing its weekly gains to 0.7%. The Bank of England cut its benchmark interest rate by 25 basis points to 4% last week, but the decision was passed by a narrow 5-4 majority. Last week, the Australian dollar strengthened against the US dollar, rebounding to resistance near 0.6500. A slight dip in the US dollar ahead of the release of retail sales data provided an opportunity for the Australian dollar to rebound, despite weaker-than-expected key economic data from China, Australia's major trading partner. Technical indicators suggest the Australian dollar remains volatile and bearish.

Last week, international oil prices closed down nearly $1 as traders awaited a meeting between US President Trump and Russian President Vladimir Putin, which could lead to an easing of sanctions against Moscow over the war in Ukraine. Brent crude futures closed lower at $65.85 per barrel, while US West Texas Intermediate (WTI) spot prices fell to $62.30 per barrel. WTI fell 0.65% last week, while Brent crude fell 1.1%. Meanwhile, weak economic data from China raised concerns about fuel demand.

In pre-weekend trading, Bitcoin rose slightly by 3% to around $119,000, while Ethereum rebounded back above $4,600. Bitcoin fell over 3% from its all-time high after higher-than-expected US inflation dampened hopes for rate cuts and the US Treasury stated it would not expand its purchases of Bitcoin from its strategic reserve. Ethereum (ETH) fell 3.3% as traders took profits after a record rally. After hitting a record high of $124,000 overnight, Bitcoin fell sharply to $118,000, a significant drop from the previous high reached just hours earlier.

The recent rise in US Treasury yields, following Moody's downgrade of US sovereign debt, has had a significant impact on financial markets. The 30-year and 15-year fixed-rate bonds have risen to 6.99% and 6.35%, respectively. The 10-year US Treasury yield remained around 4.3% on Friday, rebounding from 4.2% the previous session, as new economic data offset market expectations for multiple Federal Reserve rate cuts. Tariffs and higher deficit spending have already led to lower intermediary bids at the latest 10-year Treasury auction.

Market Outlook for This Week:

This week features several events that will influence market sentiment regarding global interest rate developments this year. Central bank policymakers will speak at the Federal Reserve's Jackson Hole Symposium, including Chairman Powell, who is likely to comment on the current US economic backdrop and call on the White House to lower interest rates. Furthermore, the minutes from the last Fed meeting will provide insights into dissenting members Waller and Bowman, who will speak this week. Housing data will also be in focus, including NAHB home prices, construction starts, and new and existing home sales. Meanwhile, the S&P Purchasing Managers' Index will be released from the US, Eurozone, UK, Japan, Australia, and India. Furthermore, key price data will be released from the UK, Canada, Japan, and South Africa. Among major monetary authorities, interest rate decisions from China, Sweden, New Zealand, and Indonesia are awaited.

Trend "Judgment Day" Approaches; US Dollar Index Bears Take Control

The US dollar index continued its recent weakness. Market sentiment was influenced by the latest US inflation data and Fed policy expectations. Coupled with external uncertainties, the US dollar index showed further downward pressure after fluctuating at a high level. The US dollar index failed to break through key resistance levels during the day, indicating that market trends are being driven by heightened expectations of a Federal Reserve rate cut and concerns about the independence of US institutions. Furthermore, uncertainty in the global economic environment and the dynamics of non-US currencies complicate the dollar index's movements.

The dollar index's movements are also influenced by the US domestic policy environment. Recent Trump's tariff rhetoric and public criticism of Federal Reserve Chairman Powell have fueled market concerns about the Fed's independence, potentially further weakening the dollar's safe-haven appeal.

The global economic environment has added further uncertainty to the dollar's trajectory. The International Monetary Fund (IMF) recently raised its global economic growth forecast for 2025, projecting growth of 4.1% for emerging market and developing economies and 4.8% for China. This optimistic outlook has boosted the appeal of non-US currencies, particularly the euro and the renminbi.

Looking ahead, the dollar index will continue to face pressure from both fundamental and technical factors. From a fundamental perspective, the continued rise in expectations for a September Fed rate cut will be the primary suppressive factor for the dollar index. If US economic data continues to show signs of slowing inflation or weak employment data, market bets on rate cuts could intensify, pushing the US dollar index further towards support levels of 96.37 or even 95.00. Meanwhile, Trump's tariff rhetoric and potential interference with the Federal Reserve's independence are likely to continue to create uncertainty for the US dollar, and rising market risk premiums will weaken its safe-haven appeal. Growing expectations for a global economic recovery, particularly the resilience of emerging market currencies, could further divert capital inflows away from the US dollar.

Gold prices fell to a two-week low; has the foundation of the gold bull market been shaken?

Last week, under the dual pressure of rising US inflation expectations and fading expectations for rate cuts, the US dollar index rose 0.5% to 98.25 before the weekend, its largest single-day gain in over two weeks. The strengthening dollar directly weakened gold's appeal to overseas buyers, becoming another straw that broke the camel's back.

Meanwhile, US Treasury yields rose across the board. The 10-year Treasury yield rose 5.3 basis points to 4.293%, while the two-year yield soared 5.4 basis points to 3.741%. Rising real interest rates further weakened the appeal of gold, an interest-free asset.

Despite short-term setbacks, the market remains optimistic about gold's medium- to long-term prospects. The Federal Reserve will ultimately have to make a difficult choice between fighting inflation and supporting the economy. The 10-year Treasury yield may form a "death cross," suggesting a continuation of the downward trend in long-term interest rates, which could provide potential support for gold.

In the short term, technical signals have turned slightly bearish. Expectations of aggressive Fed rate cuts have cooled, and the Russia-Ukraine conflict is expected to end. Gold prices may continue to face pressure, but in the medium to long term, uncertainties in the global economy and geopolitical situation will continue to support gold. Investors should also closely monitor the upcoming US core PCE data, the Jackson Hole meeting, and the August employment report, all of which will determine whether gold can resume its upward trend.

With rising crude oil production and weak demand, can prices hold the $60 floor?

The oil market focused on the IEA (International Energy Agency) oil market report this week. The report indicates that global oil supply is expected to increase further between now and 2026, while demand is likely to slow. The IEA cites increased production by OPEC (Organization of the Petroleum Exporting Countries) as the primary driver of the potential oversupply.

OPEC member countries have recently increased production, indicating the group's intention to stabilize oil prices through increased output. Meanwhile, signs of weakening global manufacturing activity, particularly in the United States, could further negatively impact oil demand. If the market continues to anticipate further increases in OPEC production this year and next, this expectation could exert downward pressure on oil prices.

On the geopolitical front, it is worth noting that US President Trump will meet with Russian President Vladimir Putin in Alaska this Friday. If this meeting helps ease geopolitical tensions, it could exert downward pressure on oil prices; conversely, if tensions escalate, oil prices could find support.

Market sentiment remains bearish, particularly amid concerns about the demand outlook for crude oil amidst OPEC's production increases and slowing global demand. Although inventory increases in the US market have not matched expected consumption growth, market concerns about oversupply remain strong. The prevailing market sentiment is that crude oil prices will remain under pressure until demand rebounds or expectations of increased supply ease.

Overall, the market currently faces two main risks: weak demand and oversupply. Analysts predict that oil prices will face some downward pressure in the short term, but a rebound due to geopolitical factors or shifts in market sentiment is not ruled out.

Conclusion:

One of the most anticipated events this week will be the annual Jackson Hole Economic Policy Symposium. Market focus will be on the Jackson Hole meeting and central bank interest rate and inflation data. Amid inflation concerns stemming from trade tariffs, uncertainty over the central bank's policy path will determine market direction.

This annual conference, hosted by the Federal Reserve Bank of Kansas City, brings together global central bank officials, policymakers, academics, and market participants to discuss key economic issues. Its influence lies in the potential for central banks to convey their policy outlook. The most classic example occurred in 2010, when then-Federal Reserve Chairman Ben Bernanke hinted at launching a second round of quantitative easing (QE2) at a conference. This triggered a surge in risk assets and a drop in US Treasury yields, solidifying Jackson Hole’s status as a policy bellwether.

Overview of Important Overseas Economic Events and Events This Week:

Monday (August 18): Eurozone June Seasonally Adjusted Trade Balance (€600 million); US August NAHB Housing Market Index

Tuesday (September 19): US July Preliminary Building Permits Monthly Rate (%); US July New Housing Starts Annualized Monthly Rate (%)

Wednesday (August 20): Japan July Goods Trade Balance (Unadjusted) (¥100 million); New Zealand Official Cash Rate Decision on August 20 (%); UK July CPI Annual Rate (%); UK July Retail Price Index Annual Rate (%); Eurozone July Harmonized CPI Annual Rate (Unadjusted) Final Value (%); US EIA Crude Oil Inventory Change for the Week Ending August 15 (10,000 barrels)

Thursday (August 21): Eurozone August Preliminary SPGI Manufacturing PMI; UK August Preliminary SPGI Manufacturing PMI; US Initial Jobless Claims for the Week Ending August 16 (10,000); US August Philadelphia Fed Manufacturing Index US August SPGI Manufacturing PMI Preliminary Value; Eurozone August Consumer Confidence Index Preliminary Value; Federal Reserve Releases Monetary Policy Meeting Minutes

Friday (August 22): Japan's July National CPI Annual Rate (%); UK August GfK Consumer Confidence Index; UK July Seasonally Adjusted Retail Sales Monthly Rate (%); Canada June Retail Sales Monthly Rate (%); Federal Reserve Chairman Powell Delivers Speech at the Jackson Hole Global Central Bank Annual Meeting

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