The DXY Index recovered with risk appetite, appreciating by 0.2% to 103 overnight. US equities rose after Monday’s capitulation. As the VIX Volatility Index retreated to 27.71 from its blowout to 65.73 on Monday, the S&P 500 and Nasdaq Composite indices rose for the first time in three sessions by 1% each. The US Treasury 10Y yield rebounded by 10.4 bps to 3.892% from Monday’s intra-day low of 3.665%, near the level at the end of 2023 when markets were pricing for 7-8 rate cuts in 2024.
In the short term, the Fed will likely support the USD by pushing back the market’s aggressive bets for 100 bps of cuts in the remaining three FOMC meetings this year. The Fed does not subscribe to the market’s fear of a US recession triggered by last Friday’s increase in the unemployment rate. However, the Fed has flagged a rate cut in September and will not respond with a “higher for longer” stance like it did in the first 4-5 months of this year. The cooling labour market provides scope to remove top-level restriction amid the sharp decline in US inflation from four-decade highs.
However, inflation has yet to return to the 2% target despite renewed confidence that it will do so. Hence, markets must stop expecting a larger 50 bps cut in September, especially if next week’s CPI inflation rises to 0.2% MoM in July from -0.1% in June. At the Fed’s Jackson Hole Symposium on August 22-24, the Fed and the other central banks will likely emphasize that monetary policy decisions will continue to depend on data, meeting by meeting. We reckon the DXY Index will hold a 102.5-103.5 range over the next fortnight.
Quote of the day
”Opportunity is missed by most people because it is dressed in overalls and looks like work.”
Thomas Edison
7 August in history
Philippe Petit walked tightrope strung between twin towers in 1974.
Topic
The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). This report is intended for “Accredited Investors” and “Institutional Investors” (defined under the Financial Advisers Act and Securities and Futures Act of Singapore, and their subsidiary legislation), as well as “Professional Investors” (defined under the Securities and Futures Ordinance of Hong Kong) only. It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.
DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability. 13th Floor One Island East, 18 Westlands Road, Quarry Bay, Hong Kong SAR
Virtual currencies are highly speculative digital "virtual commodities", and are not currencies. It is not a financial product approved by the Taiwan Financial Supervisory Commission, and the safeguards of the existing investor protection regime does not apply. The prices of virtual currencies may fluctuate greatly, and the investment risk is high. Before engaging in such transactions, the investor should carefully assess the risks, and seek its own independent advice.