Market Review and Analysis: International Finance - Interest Rate Expectation Repricing and Macro Data Readings Drive Markets

Market Overview: A Comprehensive Analysis

The past week witnessed significant volatility in global financial markets, primarily driven by the repricing of the US Federal Reserve's interest rate path and the ensuing impact on various asset classes. From a resurgent dollar to fluctuating gold and oil prices, and a cryptocurrency slump, this analysis provides an in-depth look at key events and market trends.

Dollar Index: A Tale of Two Halves

The Dollar Index reversed course to a "weak-then-strong" pattern this week. Initially, the index declined due to a repricing of Federal Reserve rate cut expectations. However, starting Wednesday, US Treasury yields stabilized, and the Q2 GDP figure showed a substantial upward revision. Additionally, initial jobless claims saw a sharp drop, leading to a steady dollar rally, peaking Thursday at a three-week high, before settling at 98.18 on Friday.

Gold and Silver: Shimmer Amidst Volatility

Gold prices experienced notable volatility throughout the week. Despite subsequent setbacks, spot gold remained robust above the $3700 level. Prices briefly peaked above the $3790 mark before a sharp dip on Wednesday due to dollar strength. In contrast, spot silver witnessed a standout performance, surpassing the $46 per ounce level. Both precious metals continued to post gains for the sixth consecutive week, with spot gold settling at $3760.53 per ounce, up 2.05%, and silver at $46.07 per ounce, a significant 7.04% increase.

Non-US Currencies: At the Mercy of a Strong Dollar

Major non-US currencies were adversely affected by dollar strength, with the Euro, Pound Sterling, Australian Dollar, and Japanese Yen all recording weekly declines against the US dollar. The EUR/USD ended a four-week winning streak, while the GBP/USD and AUD/USD declined for the second consecutive week. The USD/JPY continued its upward trend for the second week running.

Oil: Surge Fueled by Geopolitical Tensions and Inventory Drawdowns

International crude oil is projected to record its largest weekly gain in nearly three months, with both WTI and Brent crude up over 4%. This surge is attributed to Ukrainian attacks on Russian energy infrastructure and an unexpected drawdown in US oil inventories. Additionally, strong US economic data and the resumption of oil exports from the Iraqi Kurdistan region slightly influenced oil prices.

Risk Assets: A Tale of Two Trends

US stock markets initially saw a rally, with the three major indices reaching new record highs early in the week, driven by tech stocks, particularly Apple and Nvidia. However, starting Tuesday, profit-taking pressures increased, coupled with macro data disruptions, leading to a series of corrections. For the week, the Dow Jones Industrial Average fell 0.15%, the S&P 500 Index declined 0.31%, and the Nasdaq Composite Index dropped 0.65%.

Cryptocurrencies: A Sharp Reversal

The cryptocurrency market experienced a significant downturn during the week, with Ethereum falling below $4000 on Thursday, officially entering a technical bear market, down more than 20% from its August all-time high. Bitcoin also lost ground, temporarily falling below $110,000.

Investment Bank Perspectives:

• Citi believes the gold bull market may persist in the short term, believing the de-dollarization narrative is merely a "mirage" unsupported by economic data.
• Deutsche Bank suggests that gold's continued rise to new highs indicates underlying fear within the stock market.
• Swissquote Bank points out that the impact of Milan's "150 basis point rate cut" comments was minimal, with the market voting with its feet.
• Barclays analyzes that despite headwinds, the US dollar has maintained resilience. ING has a neutral view on US Treasuries in the near term, noting that it will seek opportunities to short 10-year US Treasuries.
• JPMorgan asserts that foreign investors in Japanese stocks may increase foreign exchange hedging, potentially leading to increased JPY sell-offs.

Key Events:

1. Powell Reissues Policy Signals, Disagreements Emerge Over Interest Rate Cuts by the Federal Reserve: Fed Chair Jerome Powell's remarks highlighted the two-way risks in monetary policy, sparking discussions about the optimal interest rate path.
2. US Government Shutdown Risk Looms, Potentially Affecting Data Releases Such as Non-Farm Payrolls and CPI: Political gridlock over appropriations agreements has increased the likelihood of a government shutdown, potentially with significant economic implications.
3. Trump Unleashes a Barrage of Tariffs, with the Highest Rate Reaching 100%: The Trump administration expanded trade protectionist measures, imposing high tariffs on a variety of imported goods.
4. Ministry of Commerce Takes Multifaceted Measures, Upholds Fair Trade: China announced a series of measures to safeguard a fair trade environment, including adding US entities to unreliable lists and conducting anti-dumping investigations.
5. Sharp Turn in Stance! Trump Shouts: Ukraine Can Recover All Territory: Trump shifted his stance on the Russia-Ukraine conflict, expressing his belief that Ukraine is capable of recovering its territory.
6. Macron "Challenges" Trump: If You Want to Win the Nobel Peace Prize, First Stop the Gaza Conflict: French President Emmanuel Macron publicly called on Trump to help end the conflict in Gaza.
7. Argentine Market Shock! US Treasury Secretary Extends a Helping Hand: The US is considering a potential financial aid package for Argentina, leading to a rally in Argentine assets.
8. Nvidia Lavishly Invests Hundreds of Billions of US Dollars, Is the "Great Leap Forward" in OpenAI's Computing Power Coming?: OpenAI and Nvidia plan to build large-scale AI data centers, signaling a major increase in computing capabilities.
9. Trump Administration Plans to Acquire Shares in Lithium Americas to Renegotiate Thacker Pass Project Loan: The US government is directly intervening in the critical minerals market, seeking a stake in Lithium Americas.
10. World's Second Largest Copper Mine Shuts Down, Copper Prices Welcome Largest Weekly Increase in Five Months: The suspension of operations at the Grasberg mine has led to a surge in copper prices.
11. Alibaba's Stock Price Hits a Four-Year High, "Wood Sister" Rebuilds Her Position After Four Years: Alibaba's stock has surged, and Cathie Wood has rebuilt her position in the company.
12. Tether Plans to Raise US$20 Billion Through Private Financing, Valuation May Reach US$500 Billion: Tether plans a large financing round, potentially leading to a massive valuation.