Adieu to a bruising August: In the coming week, hurt bond market investors seek comfort. This is driven by U.S. jobs and European inflation data. China is also trying to stabilize its markets and economy, and grains’ outlook is uncertain.
Lewis Krauskopf in New York, Kevin Buckland in Tokyo, Yoruk Bahceli in Amsterdam, and Nigel Hunt and Dhara Ranasinghe in London compiled this week’s market outlook.
Too hot, too cold, or right?
Treasury yields have risen and stocks have fluctuated, worrying investors about a long period of higher U.S. interest rates. Important data will show how hot the U.S. economy is in the coming days, fueling rumors about the Fed’s desire to keep interest rates high.
The crucial August jobs report is the focus. July’s nonfarm payrolls showed fewer new jobs than expected, but wage growth and a drop in the unemployment rate to 3.5% showed a tight job market. Consumer confidence, manufacturing health, and inflation trends will also be reported. These readings follow Federal Reserve Chair Jerome Powell’s Jackson Hole symposium warning that interest rates may rise. The recent rise in 10-year U.S. Treasury yields to 2007 levels fuels market talk.
THE HARD PART
After a year of aggressive rate hikes to slow high inflation, the European Central Bank (ECB) faces a slowing economy. Many traders believe September’s rate hikes may be postponed if business slows. However, Thursday’s euro area flash inflation numbers could change the ECB’s plans.
Consumer prices in the Eurozone rose 5.3% in July, down from 5.5% in June. This shows prices falling since fall. The closely watched underlying gauge stayed at 5.5%, but service prices rose. The Bundesbank fears consumer prices will rise above 2%. The 20% August gas price increase in Europe suggests slow deflation. Because of this, September rates may rise.
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Parting ways
After a tough August, when rate projections were recalibrated, bond market participants are looking for a break. People worried about how long rates might stay high. A strong U.S. economy makes the long-awaited recession less likely.
Long-term U.S. Treasury yields reached their highest level in 16 years, and real rates exceeded 2% for the first time since 2009. This unnerved stocks. A worsening business downturn revealed that Europe’s struggling economies would face more problems, changing the story. British and German bond yields have dropped over 10% in recent days. Even though the future looks bad, 10-year U.S. Treasuries are likely to have their worst month since February with a nearly 30-basis-point rise. A darker outlook is shown by smaller German and British yield increases.
A BIG SHIP
Since fiscal stimulus has been scarce, investors want more from China’s market, currency, and economy revival. Over 100 A-share companies are repurchasing shares to boost market confidence. The People’s Bank of China (PBOC) positions the yuan to be strong in the middle despite recent lows.
In this area, real estate is the storm. In Country Garden, empty development sites show how bad the sector is. Some developers lack the funds to pay their employees and debts. President Xi Jinping says China’s economy is stable, but Thursday and Friday’s PMIs will reveal weaknesses.
Sweet and bitter
The first El Nino in seven years is bad for global food supplies. The U.S. Climate Prediction Center predicts worsening until 2023/2024 winter. This is bad news.
August was the driest month since 1901, threatening India’s monsoon rains. The world’s most populous nation worries about rice and sugar production. The ban on exporting non-basmati white rice from India raised global prices, and the upcoming ban on sugar will worsen things.
Agriculture in Asia is preparing for the effects. Dry weather is likely to hit palm oil and sugar exporters Indonesia and Thailand hardest.