Nick Spencer-Skeen, Senior Executive Officer, Lunaro Markets Limited
Friday Closing Prices
- S&P 500 7,712 (-0.25%)
- Nasdaq 26,402 (-0.52%)
- Gold $4,455 (-3.20%)
- Brent Crude Oil $88.16 (-0.34%)
Source: Bloomberg
Last week delivered a modest net gain for risk assets, but the headline numbers masked significant cross-asset volatility.
The S&P 500 gained 0.49% over the week, while the Nasdaq 100 lagged slightly at 0.43%, with Nvidia providing the main equity catalyst following results released late Wednesday. Nvidia shares surged around 7% in premarket Thursday, adding almost $442 billion in market cap in a single session, the second-largest one-day gain by any stock in history1.
The counterweight came from Jackson Hole, where new Fed Chair Kevin Warsh delivered a distinctly hawkish debut on Friday. We outline more of the implications from his speech below. His speech followed the July release of US Personal Consumption Expenditures (PCE) inflation, with the core PCE figure remaining at 3.3% YoY, alongside flat real consumer spending4.
Elsewhere, gold dropped 3.2% on Friday, as higher front-end yields and dollar strength prompted profit-taking. Despite Japan revealing a record $96bn of FX intervention, USD/JPY still finished 0.44% higher, closing above 160.00.
Warsh Speech Triggers Volatile Friday
Fed Chair Kevin Warsh used his first Jackson Hole keynote on Friday to deliver a clearly hawkish message, pushing back against expectations that recent softer inflation readings were sufficient to declare victory.
He argued that underlying inflation had not improved meaningfully, reiterated the Fed’s commitment to the 2% target, and suggested financial conditions could not currently be described as restrictive. Crucially, he left the door open to interest rate hikes if inflation fails to move towards target at sufficient speed.
Markets quickly repriced the September meeting. The implied probability of a rate hike jumped from 35% before the speech to 58% afterwards1. The reaction was most pronounced in US Treasury yields, with the 2-year yield rising roughly 11bps to 4.34%, while longer maturities moved more modestly.
The dollar recorded its strongest daily gain in around two-and-a-half months1, while stocks came under pressure to end the week.
As we start the new week, investors will have had more chance over the weekend to digest Warsh’s speech.
All Eyes on Employment Data
Friday’s US employment report will provide the next major test for a market still trying to decide whether the Fed will tighten in September. Consensus currently looks for nonfarm payrolls to rebound by 55,000 in August, following July’s surprise 23,000 decline, while the unemployment rate is expected to remain at 4.1%.
The headline will matter, but in our view the composition may matter more. July’s weakness was compounded by sizeable downward revisions to prior months, reinforcing concerns that hiring momentum has slowed more sharply than previously thought.
Friday’s report will therefore put particular focus on revisions, alongside any change in average hourly earnings.
Remember, due to Warsh’s speech, markets enter the week pricing a meaningful probability of a September hike, leaving the report capable of producing an outsized rates reaction. A strong payroll print, particularly alongside firmer wage growth, would further strengthen the case for tightening. But another weak report would complicate the Fed’s inflation-first stance and reinforce concerns that labour demand is deteriorating quite quickly.
Gold’s Rally Takes a Pause
Gold peaked at $4,684 on Tuesday but ultimately suffered a sharp reversal to end the week, with most of the damage concentrated on Friday following Warsh’s hawkish speech. The resulting jump in front-end Treasury yields and stronger dollar created an unfavourable backdrop for non-yielding gold.
The next test for the precious metal will be Friday’s employment report we just previewed. Gold could have an opportunity to recover if we get a weak employment report. However, a stronger payroll number, particularly alongside firm wage growth, would back up Warsh’s hawkish message and leave gold vulnerable to further downside. The 100-day moving average (DMA) at $4,373 is the next major support level.
