Global markets closed in the green zone last month on expectations of a slowdown in the pace of rate hikes by the US central bank. Investors suggest that the Federal Reserve could pause its monetary tightening in August and announce a 0.25% rate increase in September, thus raising the interest rate to 3.00%.
This reflects a global shift in emerging positive market sentiment, which stayed strong on Friday after a personal consumption report in the US, one of the main components of inflation, logged growth in figures.
In this light, the market has shifted focus towards the fact that the Federal Reserve could pause rate hikes and slow down the pace to 0.25% in September. As a result, government bond yields fell, and the pressure on the dollar increased. The greenback consolidated against the basket of major currencies all week and collapsed versus the yen.
Given all that, it is possible to say that the US stock market hit the bottom last month. Investors rushed to buy cheaper stocks, expecting the Federal Reserve to slow down the pace of rate hikes or stop raising them already this fall. Although recession risks in the United States remain high as preliminary data on Q2 GDP shows, investors focus on the bigger picture, trying to foresee possible scenarios.
What can we expect from global markets in August and this week in particular?
Stock markets are highly likely to continue recovering this month as the Federal Reserve, the ECB, and perhaps other central banks could pause their rate hikes. In such a case, demand for risk assets could soar. Investors can hardly miss such a great opportunity. In this light, the dollar may go down against major currencies. If nothing extraordinary happens this month, market sentiment will stay positive as in July.
This week, the market will focus on macroeconomic data, including the US labor market report and the RBA's and the BoE's interest rate decisions. Both regulators are expected to raise the interest rate and then pause monetary tightening like the Federal Reserve and the ECB.
The stock market is likely to be in an uptrend this week but with small corrections. Meanwhile, the dollar will feel pressure. The release of relatively good results on the US labor market could provide some support for the greenback but boost demand for stocks, which could be seen as a signal that the market has hit the bottom. Likewise, this will indicate a reversal in the stock market as well as global markets as well as the beginning of a new steady uptrend.
Daily outlook:
XAU/USD
Spot gold is highly likely to rise to the target of 1800.00 this week after going above the barrier of 1700.00 amid the general weakening of the dollar.
GBP/USD
The pair has approached 1.2200 resistance. The price may well break through it amid the weaker dollar and a rate hike by the Bank of England this week. In this light, the target is seen at 1.2315.