Macroeconomic data announced the previous day in the USA pointed out that inflationary pressures were continuing, somewhat overshadowing the optimism created in the markets by chip company Nvidia’s balance sheet exceeding expectations.
The fact that the personal consumption expenditures (PCE) price index, which the Fed carefully monitors in terms of the course of inflation, increased by 0.2 percent on a monthly basis in July and exceeded market expectations, raised questions about whether the upward movement in the general level of prices could continue in the future.
The perception in the markets that “even though inflation seems to be somewhat moderate, it may still continue” kept investors’ expectations for an interest rate increase this year alive. This situation limited the effects of the positive signals given by Nvidia’s balance sheet, which shed light on whether the artificial intelligence theme is sustainable, on risk appetite.
According to the pricing in the money markets, it is predicted that there is a 66 percent probability that the Fed will keep the policy rate constant next month, while there is a 62 percent probability that the bank will increase the interest rate by 25 basis points in October. In this regard, the US 2-year bond interest, which is the most sensitive to expectations regarding the Fed’s policy steps, increased by approximately 3 basis points to 4.23 percent yesterday.
With these expectations, all eyes are on the messages that Fed President Kevin Warsh will give today at the Jackson Hole Economic Policy Symposium. Warsh, who was an active participant in Jackson Hole as an academician at Stanford University during the 2006-2011 period when he was a member of the Fed Board of Directors and later, will attend this event for the first time as Fed President.
Analysts pointed out that Warsh’s more detailed explanation of what developments might lead to an interest rate increase in the future could help calm the markets and reduce risk premiums somewhat, noting that even a signal that provides clear guidance regarding the course and timing of policy steps could have a significant impact on the markets.
Speaking after the last monetary policy meeting, where the Fed kept the policy rate in the range of 3.50-3.75 percent, Warsh reiterated his determination to ensure price stability and said that there was no softening in the inflation target.
In addition to Warsh, the statements of other Fed officials are also being followed closely. Kansas City Fed President Jeffrey Schmid said that inflation is following a stubborn and rigid course.
Cleveland Fed President Beth Hammack emphasized that now is the time to take action on inflation and said, “The longer inflation remains above our target, the more difficult it will be to reduce it again and the more difficulties individuals and businesses will experience.” made his assessment.
Boston Fed President Susan Collins also said, “If I find that conditions do not provide the evidence I seek that inflation continues to decline, I am open to supporting a rate hike.” he said.
In addition to these developments, a revision of non-agricultural employment data is expected to be published today.
On the geopolitical side, each development that will positively affect the tanker flow in the Strait of Hormuz increases optimism in the markets, while US President Donald Trump defended Iran as a “collapsing country” in his post on his social media account.
Stating that Fox News correspondent Jonathan Hunt “reported incorrectly” on Iran, Trump claimed that he did not want to meet with Iran, on the contrary, Iran was begging to reach an agreement.
On the macroeconomic data side, the number of people applying for unemployment benefits for the first time in the USA decreased by 4 thousand to 203 thousand in the week ending August 22, below market expectations.
In light of these developments, the US 10-year bond interest rate, which rose to 4.68 percent yesterday, continues its rise for the second day and is at 4.69 percent on the new day.
Demand for the dollar continues to strengthen with expectations regarding the Fed’s interest rate path and the possibility that Fed Chairman Warsh may give messages prioritizing price stability. The dollar index is at 99.2 with an increase of 0.1 percent.
The ounce price of gold, whose alternative cost has increased due to the strong dollar and high bond interest rates, is finding buyers at 4 thousand 580 dollars, with a decrease of 0.5 percent. Brent oil for October delivery is traded at $89.2 per barrel, with a decrease of 0.6 percent.
With these developments, the S&P 500 index increased by 0.72 percent, the Nasdaq index increased by 1.57 percent and the Dow Jones index increased by 0.2 percent. Index futures contracts in the USA started the day mixed.
While a sales-oriented trend was prominent in European stock markets yesterday, excluding Germany, investors are closely following the movement in Brent oil prices, which have declined due to the monetary policy messages to be given in Jackson Hole and the possibility that diplomatic relations between the USA and Iran may be re-established.
On the other hand, the monetary policy meeting minutes of the European Central Bank (ECB), published yesterday, revealed that the bank is preparing for a new interest rate increase soon if inflation does not decrease.
While it was emphasized in the minutes that the decisions would depend on future data flow, “If a significant improvement in the inflation outlook is not achieved, a new interest rate increase seems necessary.” The statement was included.
On the other hand, it was stated in the minutes that in order to leave room for the possibility of improvement in the medium-term inflation outlook, it should be emphasized that the Governing Council had communicated that there was no previous commitment to increase interest rates in September.
Some Council members stated that the data received since the June meeting supported the continuation of tightening in monetary policy and, accordingly, they did not oppose a possible interest rate increase at the July meeting.
Meanwhile, ECB Executive Board Member Isabel Schnabel will speak at the panel titled “Financial Innovation: Implications for Payments and Policies” at the Jackson Hole Economic Policy Symposium.
With these developments, the FTSE 100 index in England decreased by 0.79 percent, the FTSE MIB 30 index in Italy decreased by 1.17 percent and the CAC 40 index in France decreased by 1.68 percent, while the DAX 40 index in Germany increased by 0.31 percent. Index futures contracts in Europe started the day with a mixed trend.
While Nvidia’s strong performance and positive forward-looking signals supported the risk appetite in Asian stock markets, investors were observed to take a cautious stance before possible hawkish messages from Fed Chairman Warsh.
Accordingly, regional markets follow a positive trend, except for South Korea. Inflation in Japan showed signs of accelerating. According to the data announced today in the country, the Tokyo Consumer Price Index (CPI) in August increased by 1.9 percent on an annual basis, accelerating compared to the previous month’s data.
Additionally, Tokyo core CPI, excluding fresh food and energy, increased by 2 percent in August. The increase in July was 1.8 percent. However, in Japan, the unemployment rate was below expectations at 1.18 percent in July. Following the announced data, the expectation that the Bank of Japan (BoJ) will increase interest rates next month has strengthened.
With these developments, near the closing, the Nikkei 225 index in Japan increased by 0.3 percent, the Shanghai composite index in China increased by 0.1 percent and the Hang Seng index in Hong Kong increased by 0.3 percent, while the Kospi index in South Korea decreased by 1.7 percent.
PUBLIC OFFERING DECISION FROM CMB
BIST 100 index at Borsa Istanbul, which followed a sales-oriented trend yesterday, finished the day at 14,575.51 points, losing 0.24 percent of its value.
The August futures contract based on the BIST 30 index in the Borsa Istanbul Futures and Options Market (VIOP) rose by 0.13 percent in the last evening session compared to the normal session closing.
On the other hand, the Capital Markets Board (CMB) also published the Board’s Principle Decision on the Criteria to be Prioritized in Finalizing Applications for the Initial Public Offering of Shares.
According to the decision, if at least one of the criteria determined in the applications for the initial public offering of shares of non-public partnerships is met and a request is made by the company, the application can be concluded on a priority basis, without being subject to the application order announced on the Board’s website.
In addition, applications for public offerings to be carried out in accordance with international legislation can be concluded with priority, provided that the market value of the shares to be offered to the public is more than 15 billion lira and a minimum of 50 percent allocation is provided to the foreign investor group.
While Dollar/TL closed yesterday at 48.1580, today it is traded at 48.2450 at the opening of the interbank market, 0.2 percent above the previous closing.
Analysts stated that the economic confidence index and foreign trade balance will be followed domestically today, as well as Fed Chairman Warsh’s speech, the unemployment rate in Germany, the economic confidence index in the Eurozone, and the University of Michigan consumer confidence index and inflation expectations in the USA. They noted that technically, 14,500 and 14,400 points in the BIST 100 index are support and 14,700 and 14,800 points are resistance.
