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Powell's impact on markets falters: Reflecting on Friday's moves

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2023-08-28

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Following Friday’s significant surge, it appears that Federal Reserve Chair Jay Powell's ability to influence market sentiments has diminished.

His Jackson Hole speech last Friday bore striking resemblance to his address at the same event a year ago when he cautioned about the forthcoming 'pain' in tackling inflation—a warning that prompted market declines.

In contrast, the recent session saw US stocks oscillating between marginal gains and losses before rallying toward the session's close.

The Dow concluded with a 247.48-point climb, representing a 0.7% increase to reach 34,346.90—though it had been up over 300 points at peak levels. The S&P 500 rose around 0.7% to close at 4,405.71, while the Nasdaq surged 0.9% to 13,590.65.

Throughout the week, US shares registered a 0.8% gain (S&P 500), a 2.26% leap for the Nasdaq, and a 0.45% dip for the Dow. European and Japanese shares mirrored the positive trend with a 0.6% increase.

Notably, Nvidia, the AI chip leader, experienced a decline as the week progressed. Despite recording a 6% gain for the week (owing to a strong quarterly report on Wednesday), Thursday and Friday trading failed to inspire confidence, resulting in a 2.4% loss by the end of Friday.

After peaking above $511 in after-hours trading on Wednesday, Nvidia's shares plummeted by 10% by Friday's closing bell, ending slightly above $460.

Concerns about China's growth trajectory persisted, causing a 2% drop in the Chinese share market. Australian shares also faced a 0.5% decline for the week, exacerbated by a substantial slide on Friday ahead of Powell's speech. The ASX 200 Index experienced an additional 0.9% loss on Friday, closing at 7,115.2.

Post-Wall Street's climb, the overnight share price futures market pointed to a 20-point increase for the local market on Monday.

Globally, the MSCI All Country stock index inched 0.12% higher on Friday. Gold and oil similarly advanced during the day.

The 10-year Treasury note yield remained stable at 4.23%, while the two-year yield, indicative of interest rate expectations, rose to 5.073%.

The US dollar gained marginal ground, with the Australian dollar ending just above 64 US cents. Traders anticipate a further decrease below this level in the coming session.

European shares surrendered earlier gains to conclude flat. At one juncture, the euro hit its lowest point since mid-June due to expectations of a potential pause in the European Central Bank's tightening cycle next month. By day's end, the euro trimmed losses to a 0.12% decline at $1.07965.

Market opinions diverge almost equally on whether the ECB will raise rates at its next meeting, compared to a 60% likelihood prior to this week's release of weak activity data. ECB Chair Christine Lagarde adopted a hawkish stance in her Jackson Hole speech.

Japan's Nikkei witnessed a 2% decline on Friday, with Nvidia supplier Advantest suffering the most, plummeting almost 10%. Hong Kong's Hang Seng faced a 1.1% slide, while a tech subindex dropped 1.7%. Mainland blue chips experienced a 0.4% dip.

In offshore markets, the Chinese yuan slightly weakened on Friday, slipping 0.07% to 7.2866 against the US dollar. However, the yuan strengthened about 0.28% over the week, moving away from Thursday's 9-1/2-month low of 7.349.

In addition to robust signals from the official midpoint, China's central bank, the PBOC, directed domestic banks to reduce outward investments, curbing the supply of yuan abroad. This action followed the week's earlier attempt to absorb unwanted yuan in the Hong Kong market, aiming to stabilize the yuan's value.

Looking ahead, the US jobs report will initiate the new month next Friday. An unexpectedly high employment figure for August could rekindle inflation concerns, while a notably weaker number might amplify worries that the Fed's interest rate hikes are beginning to undermine the economy.

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