Commodities up, cryptos flying, dollar weaker, equities sliding. Fresh intervention from Bessent, but not in the expected asset class. Metals responding with gusto to the Treasury buyback, gold up 3% and through $4,500. Cryptos catching a bid on the debasement trade too, as well as renewed support from the President, Bitcoin up 17%. The dollar sliding to three-month lows. Continued uncertainty in the Middle East sees energy markets push higher, WTI (USOIL) up around 5% on the week. Read on for a breakdown of what brought volatility back to a number of previously quiet asset classes, and a preview of what will move markets next week.
Treasury Secretary Scott Bessent caught the markets by surprise on Wednesday when he announced that his department would “at least double” planned purchases of long-dated debt, by $2 billion per operation. The unusual move sent a clear signal that authorities are worried by the fact that 10-year Treasury yields have steadily risen to their highest level since Trump took office this time around. Following the action taken by Bessent in recent weeks to support the Japanese currency, this confirms him as the most interventionist and even activist Treasury leader in many years, indeed decades. But similar to the ensuing price action seen from the Yen intervention, the response from bond markets was short-lived, at least so far. Credibility is on the line and yet to be properly put to the test.
On top of signalled measures to be taken domestically, Bessent is soon to outline the details of the US plan to economically isolate Iran and its trading partners. This shift in approach from missiles to sanctions is set to be unveiled at a press conference this coming Monday.
While bond markets, including 10-year yields, returned fairly swiftly to where they were ahead of Bessent’s surprise announcement, moves in other markets stuck. Spot gold (XAUUSD) jumped around 3% on the news and has continued to push higher since. The dollar index dropped to three-month lows and has likewise stayed down there. These moves imply that these markets, rather than digesting the announcement in isolation, are instead seeing it as confirmation of a thesis. And that thesis is dollar debasement. Should the thesis hold, gold offers the most obvious hedge. Scarcity in real world commodities, particularly in the energy sector, is now being compounded by “financial repression” as it is being labelled by Jeffrey Currie among others. Thus a perfect storm of sorts has gathered to boost commodity prices.
Ahead of the inaugural meeting of the Commodity Futures Trading Commission’s Innovation Advisory Committee on Thursday, Trump stepped up his calls for Congress to “take the next step by passing the Clarity Act, a fair version of the Clarity Act”. An agenda for digital assets has been a major priority for Trump this term, but has taken a back seat since the conflict with Iran began. While still seen as a long shot to be signed off this year, this fresh demonstration of support for digital instruments gave crypto markets a further boost, and a significant one at that. Further that is from the boost provided by Bessent’s intervention. Bitcoin is up by around $10k this week, now trading at three-month highs. This follows a period of historically low volatility in crypto markets, at least as far as the majors are concerned. This breakout from relatively long held ranges has naturally spurred renewed interest in the asset class from traders. CFDs remain a secure and simple way in which to take a view. Next week’s Jackson Hole Symposium is sure to be of interest and spark further movements, given the agenda gives heavy weighting to digital payments and associated issues.
Core PCE, now commonly referred to as the Fed’s preferred measure of inflation, lands on Wednesday. Consensus for July’s reading is an increase of 0.2% m/m, with the annual rate to stay at 3.3%. Anything higher will increase rate hike probabilities and provide a headwind for equity markets. As mentioned, the Jackson Hole Symposium taking place through the back half of the week will be watched among other things for any hints or clues provided by Chairman Warsh as the September FOMC meeting draws close. The RBA’s preferred measure of inflation will also be released on Wednesday, with the headline rate expected to ease further to 3.5% y/y.
In the earnings department, the big one next week is NVIDIA, coming in the post-market session on Wednesday. Others to watch for are Salesforce and HP.
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