Weekly Roundup

Financial Markets Face Challenges Amid US Interest Rate Tensions

In early August, the financial markets encountered challenges driven by renewed tension surrounding US interest rates. Fitch downgrade of the US credit rating raised concerns and uncertainty about the Federal Reserve’s rate decisions. The situation was further complicated by the release of monthly employment figures, which brought some relief but also indicated a tight labor market that could impede the central bank’s efforts to address economic overheating.

Oil prices surge on production cuts by Russia and Saudi Arabia

During the week, oil prices experienced a bullish surge, marking the sixth consecutive week of gains. This surge was largely attributed to the extension of production cuts by major oil-producing nations like Russia and Saudi Arabia. The latter announced its commitment not only to recognize its unilateral reduction of 1 million barrels per day until September but also to consider further extensions and deeper cuts until autumn. Following Saudi Arabia’s lead, Russia declared its intention to cut exports by 300,000 barrels a day in September, adding to the reductions already announced last month. The record fall in US crude oil inventories, showing a decrease in stockpiles, also significantly contributed to the rise in Brent prices, bringing it close to its highest level in over three months.

Inflation concerns and the surge in US Bond Yields
The most significant event of the week was the notable surge in US bond yields, with the 10-year maturity rising from 3.8% in mid-July to 4.18% on Friday. The strong performance of the latest US macroeconomic indicators dispelled fears of an economic slowdown, but it also led to increased mistrust regarding the trajectory of monetary policy. Additionally, Fitch’s decision to strip the US debt of its “AAA” rating further heightened concerns. The exacerbation of the political divide in the country was cited as an additional source of worry. These developments led to tightening bond markets and had a knock-on effect on equities, resulting in a challenging week for the stock market. The dollar strengthened, particularly after the publication of the July employment figures in the United States.

Gold prices react to weaker-than-expected US Jobs Report

As nervousness grew in the markets, gold prices rose on Friday following a slightly weaker-than-expected US jobs report. This resulted in lower dollar and Treasury yields, offering some relief to bullion, which was on track for its worst week in six years. While an ounce of gold traded at around 1945 USD on the LME, silver was at 23.7 USD per ounce, and palladium was at 1251 USD per ounce.

US crude oil stock data and its impact on crude oil prices

In addition to the surge in oil prices due to production cuts, the fall in US crude oil inventories also played a significant role in driving prices higher. The decline in stockpiles signaled increased demand and tighter supply conditions, which further supported the bullish trend in the oil market. The combination of production cuts and reduced inventories brought Brent prices closer to its highest price in over three months, with the WTI trading firm around 82.2 USD per barrel.

Cryptocurrencies and cyber-attacks

Bitcoin and Ether, the two leading cryptocurrencies, experienced relatively stable performances during the week. Bitcoin saw a marginal decline of 0.18%, while Ether fell by just under 1% since Monday. However, the crypto sphere faced challenges as several major decentralized finance platforms (DeFi) suffered cyber-attacks. These incidents raised concerns among investors and speculators involved in lending and borrowing protocols within the DeFi space, leading to uncertainty and reflected in the prices of major crypto-assets during the week.

How the blue chip companies fared

Index heavyweight such as Apple, Microsoft, Alphabet, Tesla, Coca-Cola, Walmart well most of their earnings beat analysts’ expectations. This is a positive sign for the stock market, as it suggests that these companies are still performing well despite the recent volatility. However, it is important to note that the stock market is still in its initial profit booking stage and the uptrend may not resume soon.

Outlook for August

The heightened anxiety and uncertainty in various markets have raised questions about the trajectory for the month of August. The impact of US interest rate tensions, oil prices, inflation concerns, bond yields, and cyber-attacks on cryptocurrencies may shape the market’s performance going forward. As investors and analysts closely monitor the developments, the question remains whether August will break the current trends and restore an uptrend.

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