Week of 31 AUGUST

Markets were generally reliant on expectations ahead of the Fed's Jackson Hole symposium, with the US PCE price index slightly above expectations. Gold started the week just under $4,700 per ounce amid lower yields, rising to $4,750 intraday by Tuesday, but a recovery in the dollar and falling bond prices pushed gold as low as $4,625 by Friday.

The week ahead is fairly busy, starting with the Eurozone CPI, followed by the BOC's rate decision ahead of crucial US jobs data by Friday.

Week in Review

The main theme of the week was the recovery in the US bond market as investors awaited more clarity from the Fed at its Jackson Hole Symposium at the end of the week. While expectations about the future of rate hikes stayed largely unchanged (about two-thirds odds of a hold), the market seemed to decide it had overreacted the week before, allowing the dollar to recover. The effect was bolstered by the headline PCE price index ticking up to 3.7% from the 3.6% it was expected to remain at. The increase was driven by solid demand metrics, with increasing consumption. The core rate, however, was unchanged at 3.3%, as expected, leaving the Fed without any significant new pressure to raise rates.

The geopolitical situation remained tense, with the Strait of Hormuz still officially closed, but reports indicated that an increasing volume of crude was making it through in "dark" shipments. The US and Iran stepped up rhetoric against each other, but the market seemed more focused elsewhere. Brent declined from around $93 per barrel at the start of the week to under $86 by Wednesday, but recovered to around $90 by Friday as US President Donald Trump suggested he was not interested in returning to the MOU framework.

Sticking to the geopolitics scene, the US-Canadian trade talks fell apart over the weekend, leaving the US to impose 50% tariffs on around $20 billion in Canadian imports. Canada's Prime Minister Mark Carney threatened dollar-for-dollar reciprocal tariffs by September 8th if an agreement to end tariffs was not reached in time.

Risk sentiment improved following chipmaker and AI bellwether Nvidia's earnings after the market on Wednesday. Ahead of the event, US equities were treading water and the Nasdaq was in the red. After better-than-expected results from Nvidia, its shares surged almost 9%, and the Nasdaq rose 1.6%. Overall, markets were stuck in a wait-and-see mode at the start of the week but reacted positively to US data and earnings, turning green in the latter half of the week.

Biggest Market Movers

• The dollar staged a recovery later in the week after US PCE Data showed inflationary pressure remained
• The Canadian dollar was among the worst performers following the collapse in US-Canadian trade talks on the weekend.
• The Aussie dollar was among the best-performing currencies amid higher commodity prices.
• The DAX outperformed global indices following an upward revision in Germany's Q2 GDP and rising export expectations.
• Palladium rose towards an all-time high amid general upside in the precious metal group and supported by an expected supply crunch.

Top Events in the Week Ahead

The coming week is expected to have a slow start as investors digest the Jackson Hole Symposium and the UK is away for holiday. The US jobs market will be in focus, as investors look to see if pressure will mount on the Fed to keep rates unchanged. Traders will also watch the BOC's rate decision, given its connection to the US and the recent collapse of trade talks. The US-hosted G20 finance ministers' meeting this week will likely get more attention given the situation with yields and the recent intervention to support the yen. The Shanghai Cooperation Organisation summit is expected to feature bilateral meetings between China's President Xi Jinping and India's Prime Minister Narendra Modi, with Russian President Vladimir Putin also attending, potentially bringing the war in Ukraine back into focus. Background geopolitical risks such as the situation in the Middle East and US-Canadian trade talks could unexpectedly intrude on the market.

US Non-Farm Payrolls Expected to be Weak

The focus of the week is likely to be on US labour data, which could be reinterpreted in the context of Fed Chair Kevin Warsh's comments at Jackson Hole. First up is JOLTS on Tuesday, with investors looking at the hiring ratio to explain why July's reading was so weak. Then Friday's NFP release is expected to show just 12K jobs created, although an improvement from the -23K loss a month earlier. However, prior revisions could also substantially affect the market's reaction. Another month of very weak job creation in the US could leave the market speculating if the Fed will actually raise rates, given its second mandate to maintain full employment. The unemployment rate is projected to tick up to 4.2% from 4.1%. Gold is perhaps the most sensitive asset to a shift in Fed outlook at this point, and could surge there is another negative print, or fall back if the labour market looks more solid than expected. A move higher could see it heading for resistance at the $4,750 level, the highest intraday it has been since early June. A drop could see it finding support at the recent swing low around $4,340.

BOC Seeks Balance

There is broad consensus that the BOC will hold rates unchanged at its meeting on Wednesday, marking its sixth consecutive pause. At the last meeting, Governor Tiff Macklem highlighted two-sided risks of inflation and economic underperformance, which could be the main theme after higher tariffs with the US. However, the Canadian economy has improved over the last quarter, and there are green shoots in the jobs market, which could open the door for the BOC to consider taking a bigger role in tackling inflation. For the broader market, investors will likely pay close attention to the BOC's commentary for clues about what the Fed might do a week later, given how closely the two economies are linked. A more hawkish statement could send the USDCAD towards its recent multi-month low for support at 1.3750. A dovish interpretation of the meeting could send the pair higher towards its 50-day MA at o 1.450.

Eurozone Inflation to Justify Hike

The ECB is widely expected to hike rates at its September meeting amid rising inflationary pressures, supporting the Euro as the shared economy has rebounded through the summer. But, a reversal in consumer prices could cause the market to pause, dragging on the Euro if the odds of ECB tightening shift. Flash August Eurozone CPI is expected to accelerate to 3.1% from 2.9%, as a result of increasing energy costs. The core rate is also projected to increas eto 2.6% from 2.5% amid an acceleration in the services sector. Hotter CPI could send the EURUSD back towards resistance at its Augut high at 1.1710, but cooler data could see it decline towards support the near-term swing low at 1.1530.

Other Events and Earnings

On Monday, China official PMIs are published. UK Nationwide housing prices figures come out on Tuesday. Wednesday includes Australian GDP figures. For Thursday, Canada and Australian trade balances are expected. Friday sees Canadian unemployment figures. Companies expected to update investors this week include Dell Technologies, Palo Alto Networks, Broadcom, Snowflake, Ciena, and Lululemon.