U.S. Indices closed lower as the moves on Monday were largely an unwind of the post-dovish Powell moves on Friday. Stocks and bonds were sold while the Dollar was stronger. Stocks were lower with all Indices in the red, while small caps took the largest hit after rallying on Friday. Sectors were predominantly lower, particularly defensives, Consumer Staples, Health Care and Utilities, while Communication, Tech and Energy outperformed. T-Notes had sold off across the curve led by the front-end, reversing some of the bull steepening on Friday. The Dollar also recouped a lot of lost ground throughout the US session, with DXY heading into APAC trade at 98.50 from a low of 97.50. There was little fresh fundamental news for the driver, but it is worth noting that even after Powell’s dovish speech at Jackson Hole, money markets are still not fully pricing in a 25bps cut in September, currently implying a c. 80% probability of such a move. There is still key data to digest between now and September, particularly the US NFP report on September 5th (next week). There will also be the July PCE on the 29th August, ahead of the August CPI on September 11th. The data ahead is largely the next market focus in terms of shaping Fed expectations – official commentary will be eyed between now and the blackout period, starting 6th September. Treasury traders are also eyeing 2s, 5s and 7year supply this week, which may have helped with some of the bear flattening on Monday. Crude prices were bid throughout the session with upside driven by geopolitical risk premium after Ukraine struck Russia’s Ust-Luga terminal even as Trump pushes the two sides to talks. The US President reiterated today that there could be consequences if they do not meet, suggesting he will “step in” if no progress is made within two weeks. On trade, Trump met with South Korean President Lee, and Trump suggested before the meeting he is open to renegotiating the deal. Bloomberg also reported that Canada officials are to meet with US Commerce Secretary Lutnick this week, after Canada dropped some retaliatory tariffs on the US. Reuters sources also reported that the US is considering visa sanctions for the EU and EU member state officials over the bloc’s Digital Services Act. New Home Sales fell 0.6% in July to 652k from an upwardly revised 656k, albeit remaining above the 630k consensus. The seasonally-adjusted estimate of new houses for sale at the end of July was 499k, -0.6% M/M, representing a supply of 9.2 months worth at the current sales rate, unchanged from the prior month. The median sales price of houses was -0.8% M/M and -5.9% Y/Y to USD 403.8k. Summarising the data, Oxford Economics write that price cuts and other building incentives are keeping a floor under new home sales. It adds that the buildup of supply (inventory at the highest level in 16 years), will keep a lid on single-family housing starts in the months ahead. Elsewhere, Oil closed higher by 1.62% while Gold was flat.
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