The first two weeks of August were mild for investors around the world, surfing on the recovery of the main assets during the month of July. Moreover there was a certain recklessness due to the excellent results of the earnings season and the decline in inflation figures from 9.1% to 8.5% in July, following the report from the US Department of Labor.
The peak having been reached, all the financial players were dreaming of a more accommodating central bank and summer was in full swing, as the holidays seemed to bring a new burst of optimism.
This lightness, however, could not withstand the current economic and geopolitical reality, such as the war in Ukraine (6+ months), growing inflation in Europe coupled with an economic slowdown which is also hitting China, the soaring energy prices and persistent inflation at more than 8% in the USA. (see the US yield curve, below).
This harsh reality did not escape the Chairman of the FED, Jerome Powell, who sounded the end of recess during his speech in Jackson Hole, reminding anyone willing to listen that the main objective of the FED is to bring inflation back to 2%, stating in particular that: “the restoration of price stability will take some time and will require using the tools of the central bank forcefully'”.
He did not hesitate to be more even more combative: “We are taking aggressive and timely measures to moderate demand in order to better align it with supply and to keep inflation expectations anchored”, then ended with the following conclusion: “We will continue our efforts until we are satisfied that the job is done.” (see link below).
https://www.bnnbloomberg.ca/video/u-s-fed-chair-jerome-powell-speaks-at-jackson-hole~2508466
This “muscular” intervention that the markets feared had the expected effect. The main assets contracted during August, in particular those relating to Tech, such as AMZN (-13.5%) APPL (-10.80%); TSLA (-13.53%), followed by the US indices US100 (-10.5%); S&P500 (-8.6%); US30 (-8.18%) as well as GOLD (-5.41%) and Silver (-13.78%).
The cryptocurrency world was the big loser in a bearish rally with Bitcoin losing more than 22.5%. As for Forex stocks, they have had very little taste of the strength of the dollar, the safe haven value of which no longer needs to be demonstrated (USIndex +4.64%).
USDIndex
With the month of August over, investors will have to be patient in order to assess market intentions for the month to come, but the horizon seems to be darkening.
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Kader Djellouli
Market Analyst
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