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Warsh and Iran unsettle markets

Federal Reserve Chair Kevin Warsh’s signal on Friday that US monetary policy could be tightened further, alongside renewed US-Iran hostilities, weighed on investor sentiment to start the week. Wall Street’s major indices slipped on Friday, led by technology shares, while Asian equities were broadly lower on Monday as traders increased bets on a September rate increase. Oil prices surged after US forces struck Iranian launch sites, adding to concerns over energy supplies moving through the Strait of Hormuz.

  • Date
  • Auteur Shane Strowmatt, Senior Investment Writer
  • Temps de lecture 5 minutes

Strategist Jackson Hole
© Shutterstock

Federal Reserve Chair Kevin Warsh indicated at the Jackson Hole symposium on Friday that further interest-rate increases could be needed if inflation does not return sufficiently quickly to the 2% target. Market-implied odds of a quarter-point rate increase at the September meeting rose to about 60% on Monday, from 36% before his speech. Warsh said the Fed would base its decisions on incoming data rather than provide forward guidance, with the August inflation and labour-market reports likely to shape its decision. Immediately following the speech, the US Dollar Index shot up alongside US Treasury yields, while gold and bitcoin sold off.

US jobs, inflation and AI demand in focus

This week, markets will turn their focus to the US labour market and inflation data from major European economies. The euro area releases August Consumer Price Indices on Tuesday, while Switzerland reports August inflation and second-quarter gross domestic product on Thursday. After Nvidia’s stronger-than-expected results last week reinforced confidence in the artificial intelligence investment cycle, investors will look to Broadcom’s fiscal third-quarter earnings on Wednesday after the close for another indication of whether AI-driven demand across semiconductors and infrastructure remains strong. The Bank of Canada announces its interest-rate decision on Wednesday, while key business-activity data include the US ISM Manufacturing Purchasing Managers' Index (PMI) on Tuesday. The week culminates with Friday’s US employment report, which will provide more insight into the Fed's future rate path. UK markets are closed on Monday for the Summer Bank Holiday.

Asian equities fall on Fed hike concerns

Asian equities fell on Monday after Warsh’s hawkish remarks. Korea’s Kospi was 0.5% lower, Japan’s Nikkei 225 declined 0.5% and Hong Kong’s Hang Seng Index fell 0.6%. Mainland China’s CSI 300 slipped 0.4%, despite China’s official manufacturing PMI improving to 49.8 points in August from 49.2 in July, but remaining below the 50-point threshold separating expansion from contraction. Meanwhile, Australia’s S&P/ASX 200 lost 0.2% and India’s Nifty 50 declined 0.7%.

Wall Street declines after Warsh signal

US stocks ended lower on Friday after Warsh's speech. The technology-heavy Nasdaq 100 fell 0.7% to 29,433.43 points, while the S&P 500 declined 0.3% to 7711.76 points and the Dow Jones Industrial Average was broadly unchanged at 53,559.99 points. Chip stocks led losses as investors reassessed the outlook for interest rates, while payment group PayPal dropped 12.7% after Advent and Stripe reportedly abandoned takeover plans.

Swiss KOF barometer rises

Switzerland’s KOF economic barometer rose by 2.5 points to 106.7 in August from a revised 104.2 in July, moving clearly above its long-term average, data showed on Friday. The increase reflected stronger indicators for manufacturing, services and foreign demand, while consumer-demand measures weakened slightly. Within manufacturing and construction, inventories of intermediate goods, employment prospects, production and order books supported the outlook. The Swiss Market Index rose 0.1% on Friday, outpaced by other European indices: the Euro Stoxx 50 gained 1%, Germany’s DAX advanced 0.8% and France’s CAC 40 climbed 1%.

Oil rises after US strikes Iran

Oil prices rose on Monday after US forces struck two Iranian rocket launchers on Larak Island on Sunday, heightening concerns about supply disruption through the Strait of Hormuz. Brent crude oil futures were trading 5.5% higher at USD 90.85 per barrel, while West Texas Intermediate (WTI) futures gained 3% to USD 85.89. US Central Command said Iranian forces had been preparing to fire rockets with sea mines into the waterway, where traffic has been severely disrupted during the six-month regional conflict. US President Donald Trump also threatened to destroy Kharg Island, Iran’s main oil export terminal, after Tehran reportedly retaliated with attacks on US bases in Jordan.

Corporate and economic calendar

Corporate news in focus: There is no major corporate news scheduled today.

Economic data in focus: Swiss foreign currency reserves (09:00), German Consumer Price Index (14:00) and Dallas Fed Manufacturing Index (16:30).

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Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.