The Daily Fix – Risky assets hit a sweet spot, at least for now

One could argue that is the case, at least for now, but trends in the economic data flow hold the key, and we know that there is a stark difference between insurance rate cuts, which is the market's current base case, relative to where the Fed and other central banks need to consider more front-loaded rate cuts – a sign of greater concern, and a dynamic which would see much more liberal derisking through equity and risk assets.

We’ve seen the market pricing in Australian interest rate futures shift from a debate around the probability of an August rate hike (from the RBA), to one of higher for longer, and whether we could realistically get a 25bp rate cut before year-end. The ASX200 is the key beneficiary of this psychological shift, and the relief that this rates cloud has been removed has seen the index break out to new highs with real venom.

To some surprise from the more cynical traders, the BoJ did not disappoint with the degree of hikes that had been speculated on in the local press, and while there was no initial reaction to the hike, and the taper to the future bond buying, the JPY has rallied hard, and gone for it, with USDJPY now oscillating around ¥150. Leveraged and fast money traders are long JPY and adding on rallies in USDJPY and AUDJPY, while those holding legacy long-term JPY shorts – for carry – will be keenly reviewing that position.

US tech and AI-plays have gone for it

US equity has been well traded, with solid flows in the NAS100, where Nvidia has had a breathtaking rally and added nearly $330b in market cap on the day. Semis and AI names have feasted off the guidance and outlook from AMD’s report, and traders have been buying and chasing the move in Nvidia, as they have in Broadcom, Marvell, and Super Micro Computers. I had been skewed for better relative performance from the Dow over the NAS100, but that is clearly the wrong position to be in, for now, and take that one firmly off the table.

This flow towards tech/AI plays was then given additional legs aftermarket, with Meta and QCOM delivering the goods for investors in the aftermarket session – we can look at the beats in their various earnings metrics across the board, but when we hear from Meta that they “see significant capital expenditure growth in 2025”, we see that as a sign of real underlying confidence and having a significant impact on the future of US tech.

A more explicit Fed more than meets the mark

The Fed meeting will be sliced and diced by all, but the wash-up was that Powell and co more than met market pricing and expectations for cuts in September, and more into the December FOMC. The reaction in markets to Chair Powell’s presser speaks volumes, where we saw solid buying across the US Treasury curve (yields lower), with the USD losing ground against nearly all major currencies and growth equity has not looked back.

We await the FOMC minutes (due 21 August) to see the number of Fed officials who felt the Fed needed to cut at this meeting. However, Jay Powell was more explicit in his guidance than many thought was likely, and unless something dramatic happens from here, the Fed will likely start the ball rolling on easing on 18 September.

Another highlight was the further confirmation that the US labour market is of equal importance to inflation and that suggests some creeping concerns of future economic fragility that will need to be skilfully managed. Friday’s nonfarm payrolls will therefore wear an increased risk premium for markets, and heightened volatility around the jobs print seems assured – if it's important to the Fed, it's important to market pricing.

In theory, it is now not out of the realm of possibility, if we do get higher unemployment in tomorrow’s US payrolls, that US rates/swaps markets start to gradually price a premium for a 50bp cut in September, especially with increasingly concerning headlines from the Middle East.

For now, though, we see the NAS100 ripping, and we look ahead at earnings from Apple, Amazon, and Intel after-market, and given the levels of implied volatility in these names we could be in for another lively session ahead. We also see crude on a tear, and gold also captures big flows as we push towards $2450, the all-time closing high of $2469, and the intraday high of $2483.

Good luck to all,