US stocks turn lower – RBNZ forecasts further easing, UK inflation accelerates

US equities took a hit on Tuesday, led by losses in the technology sector; the Nasdaq 100 slid 1.4% and the S&P 500 was down 0.6%. The pullback, in part, may be due to recent comments from OpenAI CEO Sam Altman, saying Artificial Intelligence (AI) is in a bubble. Still, I think the drop across risk assets is primarily due to investors' profit-taking ahead of upcoming event risk, including today’s release of the minutes from the previous US Federal Reserve (Fed) meeting and the Jackson Hole Symposium, which kicks off tomorrow.

Markets are largely expecting Fed Chair Jerome Powell to adopt a more dovish stance on Friday at the Symposium. The risk, therefore, is whether Powell reiterates his wait-and-see stance and essentially throws cold water on near-term easing. As I highlighted in the week-ahead preview, if Powell were to stick to his guns and suggest waiting for more clarity before advocating for a rate cut, you can expect a hawkish market response. This should benefit US Treasury yields along with the US dollar (USD), and weigh on Stocks.

Fed Governor Michelle Bowman also hit the wires yesterday and doubled down on her dissent. Speaking to Bloomberg, Bowman said that ‘the story is out there’, and added that ‘she had not changed her views’. You may recall that both Bowman and Fed Governor Christopher Waller dissented at the previous Fed meeting, calling for a 25-basis point (bp) rate cut, which marked the first time since the 1980s that two Fed Governors dissented. She also brushed off speculation that she is in the running for the new Fed Chair spot.

NZD and GBP in focus in early trading

In the FX space, the USD rose for a second consecutive day on Tuesday, up 0.2% according to the USD Index, and found acceptance north of the 50-day simple moving average at 98.07. The New Zealand dollar (NZD) is down versus G10 peers this morning, following the Reserve Bank of New Zealand (RBNZ) reducing its cash rate by 25 bps to 3.0%. Per the central bank’s updated forecasts, the RBNZ now projects higher inflation/unemployment along with lower economic activity, and scope for two additional rate cuts – one at the end of 2025 and another in early 2026. You will also see that the minutes show there were discussions of a 50-bp cut today!

The British pound (GBP) was also in the spotlight earlier this morning, immediately catching a bid following the July UK CPI inflation data (Consumer Price Index). Headline YY inflation accelerated to 3.8%, largely driven by airfares, and bettered both the median estimate of 3.7% and June’s reading of 3.6%. YY core inflation also edged higher by 3.8%, up from the 3.7% consensus/previous data, with the YY services print coming in at 5.0%, surpassing the 4.8% forecast and up from the 4.7% previous figure. While hotter-than-expected data could keep the Bank of England (BoE) at bay this year, we have to remember the central bank is expecting inflation to reach 4.0% in September. As you would expect, investors have pared rate-cut bets on the back of the latest inflation numbers.

Spot Gold testing the lower boundary of potential weekly pennant pattern

Across commodities, Spot Gold (XAU/USD), Spot Silver (XAG/USD), and WTI Oil (West Texas Intermediate) all explored deeper water yesterday, shedding 0.5%, 1.7%, and 0.9%, respectively. For any technical analysts reading, Gold is currently shaking hands with the lower boundary of a potential weekly bullish pennant pattern, extending from the low of US$3,120. What is interesting here is that price is now at the pattern’s apex, meaning a breakout could be imminent.