Market sentiment remains cautious early Thursday due to a combination of geopolitical developments, concerns about a potential U.S. government shutdown, mixed statements from Federal Reserve officials, and updates on U.S. trade deals. Traders are also in a cautious mood as they await a series of U.S. economic data releases and speeches from various central bank officials. Additionally, U.S. and Chinese officials are holding talks in Washington, adding to market uncertainty.
On Wednesday, there were no major data releases except for the U.S. New Home Sales for August, which saw a significant jump to 800,000 units Month-over-Month (MoM), exceeding market expectations of 650,000 and the previous figure of 664,000 (revised). This marks the highest level since February 2022.
Federal Reserve Bank of San Francisco President Mary Daly stated it is "hard to say" whether further rate cuts will occur now, later in 2025, or at some other point in the future. Daly's comments suggest that more monetary policy adjustments may be necessary, but there appears to be little clarity or consensus within the Federal Open Market Committee (FOMC).
On the trade front, U.S. Trade Representative (USTR) Jamieson Greer indicated that the U.S. will focus on finalizing additional trade agreements with countries in the Association of Southeast Asian Nations (ASEAN) in the coming months. This comes after news that Chinese President Xi Jinping ruled out meeting U.S. President Donald Trump in 2025.
In South Korea, Prime Minister Kim Min-seok confirmed that South Korea will not proceed with investments in the U.S. until visa-related issues are resolved. South Korea's President Lee also met with U.S. Treasury Secretary Bessent, urging the U.S. to ensure that tariff discussions are "commercially rational" and benefit both countries. Lee also stated that South Korea could face a financial crisis if it agrees to U.S. demands on $350 billion in investments. Bessent responded by stating he would attempt to persuade President Trump to reduce the $350 billion demand.
Meanwhile, the White House has instructed federal agencies to prepare plans for mass layoffs in the event of a government shutdown. This memo reflects the administration’s efforts to reshape the federal workforce and could intensify political clashes over budget negotiations as lawmakers work to avoid a lapse in government funding.
In the Middle East, after a meeting with Arab and Muslim leaders, President Trump presented a "21-point plan for peace" to end the war in Gaza and address post-Hamas governance. The White House expressed confidence that a breakthrough could be announced in the coming days.
In response to China’s growing control over rare earth minerals, the Group of Seven (G7) nations and the European Union (EU) are exploring new measures to counter China’s dominance, including setting price floors for rare earths and potentially imposing carbon-style tariffs on Chinese exports.
In Japan, the Bank of Japan's (BOJ) July meeting minutes revealed that the central bank expects to continue raising interest rates if inflation and economic conditions align with its projections. However, the decision to keep rates "on hold" was unanimous at the time. Further, Japan’s Services Producer Price Index (PPI) for August showed a year-over-year (YoY) increase of 2.7%, slightly below the expected 2.9%, and down from the prior reading of 2.9%.
In the UK, car production declined by 18% in August, with Jaguar Land Rover (JLR) facing a production slump after a cyberattack forced the company to shut down all three of its U.K. plants. Additionally, Megan Greene, a member of the Bank of England’s (BOE) Monetary Policy Committee, argued that central banks need to adjust monetary policies in response to the increasing frequency and severity of supply shocks caused by climate change and geopolitical tensions. She also noted that the risks to inflation have shifted to the upside, although the risks from weaker demand have diminished.
In Canada, flash manufacturing sales for August fell by 1.5% MoM.
Meanwhile, oil prices benefited from concerns about potential attacks on Russian infrastructure, while gold prices weakened after a three-day winning streak. The U.S. Energy Information Administration (EIA) reported a surprise draw in crude oil inventories, with a drawdown of 607,000 barrels, compared to an expected build of 235,000 barrels.
Equity markets saw declines, particularly among top tech stocks such as Oracle, with some profit-taking occurring. Micron’s stock fell by 2.6% even after it reported upbeat earnings.
The U.S. Financial Industry Regulatory Authority (FINRA) approved a proposal to eliminate the $25,000 minimum equity requirement for pattern day traders, pending approval from the Securities and Exchange Commission (SEC). This rule, in place since 2001, previously required traders to maintain at least $25,000 in their margin accounts if they executed four or more day trades within five business days.
Intel’s stock rose by 5.61% after reports that it plans to ask Apple to invest as part of a potential comeback. Shares of Apple dropped for two consecutive days. This came after Intel is likely to ask Apple to invest as part of a comeback bid.
Earlier, the U.S. government acquired a roughly 10% stake in Intel, and Nvidia also announced a $5 billion investment in Intel, becoming one of its largest shareholders.
In the cryptocurrency market, the New York Federal Reserve highlighted recent activity by JPMorgan and Barclays, who used BlackRock’s tokenized money market fund, BUIDL, as collateral for derivatives and repurchase agreements. This marks a growing institutional interest in tokenized funds, even though adoption is still in its early stages. The Federal Reserve’s report noted that while tokenization remains in its infancy, developments like these signal the potential for digital assets to reshape global markets in the future.
On Thursday, seven Federal Reserve officials, including New York Federal Reserve President John Williams, are scheduled to speak. Additionally, a Chinese delegation will visit the U.S. Treasury for talks on trade and the economy.
Against this backdrop, the U.S. Dollar Index (DXY) eased after posting its largest daily jump in a month. The EUR, GBP, and JPY saw declines, with the USDJPY reaching its highest level since July 7 before retreating. The AUD and NZD ended a two-day losing streak, while the USDCAD set a fresh monthly high during its three-day uptrend before retreating on Thursday.
Crude oil prices reached their highest level in three weeks during a three-day rally, before retreating on Thursday. Meanwhile, gold prices remained weak after a record high, snapping a three-day winning streak.
In equity markets, major indices posted modest losses, and cryptocurrencies dipped slightly after an initial uptick.
EUR saw its biggest daily slump in a month the previous day, ending a two-day winning streak, before making a slight rebound early Thursday. The recent bounce in the EUR is largely driven by market consolidation following a sharp USD surge, ahead of upcoming data and events. Additionally, the broad strength of the USD, combined with EU trade concerns and political tensions involving Russia, France, and Ukraine, contributed to the EUR’s decline the previous day.
Similarly, GBP also fell to a three-week low the previous day, marking its first daily loss in three. However, it recovered slightly early Thursday. Despite this recovery, the GBP continues to consolidate its weekly and monthly losses, lacking strong momentum.
USDJPY surged to its highest level in three weeks, marking its biggest jump since July 7, the previous day. This rally in the Yen pair can be attributed to the broad strength of the U.S. Dollar and mixed signals regarding potential Bank of Japan (BoJ) rate hikes. The BoJ minutes, released early Thursday, revealed that policymakers are open to further rate hikes if necessary, despite a slight easing in Japan’s Services Producer Price Index (PPI). However, JPY’s status as a safe-haven currency also exerts some downward pressure on USDJPY amid the prevailing cautious market mood.
On Thursday, there were no significant data releases from Australia or New Zealand, but the USD's pullback helped halt the two-day losing streak for both AUDUSD and NZDUSD. The recovery also gained some support from growing optimism over the US-China trade talks, as Chinese officials headed to Washington for another round of negotiations.
Meanwhile, USDCAD paused its three-day winning streak, reaching the highest level in a month, as the USD retreated. This pullback was further supported by rising crude oil prices and positive sentiment surrounding Canada’s potential trade deals with the U.S. and China, despite some negative headlines on the same issue.
Gold prices ended a three-day winning streak and retreated from the all-time high the previous day, staying under pressure early Thursday as traders prepare for key U.S. data amidst mixed news. Despite this pullback, gold remains up for the sixth consecutive week, even though overbought RSI signals suggest a potential need for a healthy price correction.
Crude oil also experienced significant gains over the past three days, before easing slightly early Thursday. The recent rally was supported by reports of Ukraine targeting Russia’s energy infrastructure, raising concerns about global energy supply disruptions, even though Russia’s oil exports are mostly limited to certain countries. Additionally, a sharp drawdown in crude oil inventories further fueled the rise in WTI crude prices.
Cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) initially tried to pare the early-week losses before dropping further. The risk assets are pressured amid the firmer USD and the market’s month-end positioning after stellar gains in August and early September.
Elsewhere, equities also marked a second day retreat from their all-time highs despite upbeat news from Intel, Micron, and US FINRA, mentioned earlier.
Looking ahead, a packed day of data will keep traders busy on Thursday, with key reports on U.S. Durable Goods Orders, GDP, Jobless Claims, PCE, Existing Home Sales, and multiple speeches from Federal Reserve officials. In addition, seven members of the Federal Open Market Committee (FOMC), along with officials from the European Central Bank (ECB) and the Bank of England (BOE), will speak, potentially increasing market volatility. The ongoing trade talks between Chinese officials and U.S. representatives, as well as concerns about Russia and Israel, will also add to the momentum in the market.
As a result, today is expected to be an active trading day. The likelihood of further U.S. Dollar strength is high, which could lead to additional weakness in equities and cryptocurrencies. On the flip side, traditional safe-havens like the Japanese Yen (JPY), Swiss Franc (CHF), and Gold could see some rebound, provided the USD doesn’t rise too sharply.
May the trading luck be with you!
