FISG Daily Market Wrap 28th August

Markets Await Warsh as Rate-Hike Bets and Geopolitical Risks Persist

Asian stocks edged higher on Friday while US equity futures slipped as investors remained cautious ahead of Federal Reserve Chair Kevin Warsh’s closely watched speech at the Jackson Hole gathering. With inflation concerns and the US fiscal outlook still weighing on markets, investors are looking for clearer signals on the future path of interest rates. MSCI’s Asia Pacific equity gauge rose 0.3%, with gains and losses broadly balanced across the region. South Korea’s Kospi, an important barometer for the global AI trade, fell 1.3%. Nasdaq 100 futures slipped 0.2% as the initial boost from Nvidia’s bullish outlook began to fade, while Marvell Technology fell more than 7% in after-hours trading following its latest earnings report. European shares were positioned for a higher open. Treasuries remained under pressure following Thursday’s losses, with yields having risen between two and three basis points across the curve amid renewed concerns over inflation and the US fiscal outlook. The two-year Treasury yield remained around 4.23%, while the Dollar was broadly unchanged. The main focus remains on Kevin Warsh’s speech at the Federal Reserve’s annual Jackson Hole gathering. Investors are increasingly looking for a potentially hawkish message, particularly as inflation remains above the Fed’s comfort zone and long-term Treasury yields remain elevated. Kansas City Fed President Jeff Schmid added to the cautious tone, saying monetary policy is not currently restraining the economy. The Federal Reserve kept its policy rate unchanged at 3.5%-3.75% at its latest meeting, although futures markets continue to price in a quarter-point rate increase by year-end. The divergence between current Fed policy and market expectations is likely to remain a key source of volatility for bonds, equities and the Dollar. In Japan, the Yen traded around 159.40 per Dollar after Tokyo’s key inflation gauge accelerated for a third consecutive month. The data strengthened expectations that the Bank of Japan could raise interest rates further, potentially as early as September. Investors are also monitoring Finance Ministry data on recent currency intervention, while a weak two-year Japanese government bond auction added to speculation around further policy tightening. Demand at Japan’s two-year government bond auction weakened significantly, with the bid-to-cover ratio falling to 2.97 from 3.63 at the previous auction and below the 12-month average of 3.74. The weaker demand highlights the challenges facing Japan’s bond market as investors increasingly price in a shift toward higher interest rates. In commodities, Gold slipped toward $4,580 an ounce while Bitcoin fell below $80,000. Brent crude declined 0.5% to around $89.30 a barrel as efforts to reach an agreement over the Strait of Hormuz encountered fresh obstacles. The reduced likelihood of a rapid reopening of the strategic waterway is limiting expectations for a significant increase in energy flows from the Persian Gulf. Oil markets also remain sensitive to developments in Venezuela, with reports that the country is considering plans to leave OPEC. Any change to Venezuela’s position within the organization could have implications for global oil supply dynamics and the broader outlook for crude prices. Geopolitical developments involving Iran remained in focus. Iranian Foreign Minister Abbas Araghchi said the US should build trust and uphold its commitments, while also indicating that putting diplomacy back on track is not impossible. He also described his discussions with Qatar’s prime minister as “creative,” suggesting that diplomatic channels remain active despite continued obstacles surrounding the Strait of Hormuz. In the technology sector, Moody’s affirmed TSMC’s Aa3 rating and changed its outlook to positive, reflecting confidence in the company’s financial position and growth prospects amid strong demand for advanced semiconductor manufacturing. Thursday’s US session saw technology stocks rally following Nvidia’s strong outlook, helping lift the major equity indexes even though every other sector finished lower. The divergence highlights how heavily market sentiment remains concentrated around the AI trade, with Nvidia’s earnings outlook continuing to provide support while other sectors face a more challenging environment. Meanwhile, US-Canada trade tensions remain another source of uncertainty. US Commerce Secretary Howard Lutnick accused Canada of scuttling trade negotiations by introducing last-minute demands, arguing that Prime Minister Mark Carney had political incentives to end the emerging agreement. The dispute leaves the possibility of further trade measures and retaliatory actions hanging over North American markets. Overall, investors enter the end of the week with their attention firmly fixed on Jackson Hole and Kevin Warsh’s policy message. A hawkish signal could reinforce expectations for higher rates and place further pressure on long-duration Treasuries, while a more balanced message could help stabilize bonds and risk assets. At the same time, developments around Iran and the Strait of Hormuz, Japan’s monetary-policy outlook, US fiscal concerns and trade tensions remain important sources of market risk. FISG Daily Market Wrap provides a concise view of the forces moving global markets, helping investors stay informed and better prepared for what comes next.