Market Wrap US-Europe 21 August: Dow Climbs 518 Points but the Week Still Ends Lower

By The Edge Research Team

American stocks rebounded on Friday and took back most of Thursday’s slide, but the bond market did not co-operate and the week still ended lower. The Dow Jones Industrial Average closed 517.80 points higher at 53,277.01, up 0.98 percent, against Thursday’s fall of more than 700 points. The S&P 500 added 0.43 percent to 7,674.37 and the Nasdaq Composite 0.43 percent to 26,180.46, per CNBC.

One session did not repair the week. Measured against the closes we published on 14 August, the Nasdaq Composite ended the week 2.05 percent lower, the S&P 500 1.43 percent lower and the Dow 0.85 percent lower, which snaps a three-week advance for the S&P. Those are our calculations from the two sets of published closes.

The yield curve went the wrong way for a relief rally

Yields rose across the curve for a second consecutive session. At the New York close the two-year Treasury yield stood at 4.236 percent, up 5.1 basis points, the ten-year at 4.736 percent up 3.8 basis points and the thirty-year at 5.276 percent up 3.9 basis points, our calculation from the levels published by CNBC.

That matters because the week began with the opposite. Treasury announced on 19 August that the maximum size of its liquidity-support buybacks in the ten-to-twenty-year and twenty-to-thirty-year sectors would rise from 2 billion dollars per operation to at least 4 billion, effective 9 September through 4 November, per the department’s own release. Long yields fell hard on the announcement, then rebounded on Thursday and rose again on Friday. The operations themselves have not begun; what did not last the week was the relief the announcement bought.

Ray Dalio, the founder of Bridgewater Associates, put a name on what the market has been pricing. In a LinkedIn post published Friday and reported by CNBC, he called the buyback plan part of a broader pattern that can precede a crisis, wrote that he is confident the government’s financial condition is at an inflection point, and said the debts will build to unmanageable levels if not dealt with now. He recommended investors go underweight bonds and hold as much as 10 to 15 percent of a portfolio in gold plus a small allocation to bitcoin. Those are his figures and his call, not ours.

Europe closed green across the board

Every major European index finished higher. The FTSE 100 led at plus 0.64 percent to 10,816.56, the Euro STOXX 50 added 0.63 percent to 6,462.22, the DAX 0.59 percent to 26,136.56 and the CAC 40 0.37 percent to 8,484.43, per CNBC. The spread between the strongest and the weakest was 27 hundredths of a percentage point, which is a session with no national story inside it.

Oil went quiet and diesel did not

Crude finished almost flat after a week that was anything but. Brent for October settled at 94.39 dollars a barrel, up 61 cents or 0.65 percent, and WTI for October at 87.06 dollars, up 23 cents or 0.26 percent, per CNBC, leaving the week more than 5 percent higher. The WTI comparison needs one line of care: the September contract expired on Thursday at 87.83 dollars, so October’s 23-cent gain is measured against October’s own previous close, not against that expiring settle.

Friday’s calm followed remarks from Iranian President Masoud Pezeshkian, who described the June memorandum of understanding signed with the United States as a victory for the Islamic Republic and said it is better to end the war today, per the state news agency and CNBC. The comments offered a de-escalatory signal after Thursday, when the Treasury Secretary told CNBC that Washington would impose what he called the toughest sanctions in history.

The part of the energy market that has not calmed is refined product. Helima Croft, head of global commodity strategy at RBC Capital Markets, told CNBC that diesel prices are at historic highs and there is no spare refining capacity for diesel, and that the market is still losing about 8 million barrels a day from the conflict against roughly 20 million barrels a day of oil and products that moved through Hormuz before it. The United States military told CNBC it has helped tankers move more than 660 million barrels through the strait since early May.

Gold ran the other way from oil. COMEX December gold traded around 4,675 dollars an ounce late in New York, up about 2.3 percent, per CNBC.

Currencies barely moved and bitcoin did not

The major pairs were close to still. Sterling firmed 0.12 percent to 1.3646, the euro was little changed at 1.1677 and the yen little changed at 158.99 to the dollar. The dollar index eased 0.06 percent to 98.835 and has lost close to 0.9 percent across the week, per CNBC.

Bitcoin was the exception, up 6.69 percent to 77,492.53 dollars in the live market, and the Cboe Volatility Index fell 5.50 percent to 15.13 at its 16:15 New York final print.

Why it matters:

Friday’s equity rebound and Friday’s bond selling are not contradictory; they are the same trade seen from two ends. Stocks bought the absence of new bad news, while the long end kept demanding more compensation for holding government debt. What separates the week from an ordinary risk-on session is where some of the strongest moves landed: gold and bitcoin rose while the dollar weakened, a combination consistent with a market focused on fiscal credibility rather than on growth. Bitcoin also carries its own drivers, and we are not attributing all of a near 7 percent move to the debt argument. For Gulf readers the practical signal is not in the index levels but in the diesel market, where tight refining capacity keeps a floor under product prices independently of what crude does.

Outlook:

The Jackson Hole symposium runs from 27 to 29 August, hosted by the Federal Reserve Bank of Kansas City on the theme of financial innovation, and CNBC reports that Federal Reserve Chairman Kevin Warsh is due to deliver the keynote on 28 August; the organiser has not published a speaker list, so the date rests on CNBC. After that, the enlarged buyback operations begin on 9 September and run to 4 November, and the market will judge them on what Treasury actually accepts rather than on the announced maximum. For oil the question is whether Friday’s de-escalatory signal from Tehran survives the weekend, and for equities whether a fourth week can start with the long end still selling off.

Table – US equities, 21 August close, ranked by change:

Table – Europe equities, 21 August close, ranked by change:

Table – MENA equities, closes for reference, grouped by session and ranked within each:

Table – Asia equities, Friday 21 August closes, for reference, ranked by change:

Both reference tables are reused verbatim from our MENA-Asia wrap published today at 14:25. The MENA rows carry their own day labels because only the UAE markets trade on Friday, which is why that table is grouped by session rather than ranked straight through.

Table – Commodities, late New York, 21 August, ranked by change:

Brent and WTI are the settlements reported by CNBC. Gold is a late New York quote, not a settlement.

Table – Currencies, 21 August:

Table – US Treasury yields, 21 August market levels at the New York close:

Treasury had not posted its official daily par yield curve for 21 August at the time of writing; the 20 August official row reads 4.19, 4.69 and 5.23 percent. The levels above are market levels per CNBC and are not on the same basis as the official curve this series normally carries.

Table – Volatility and crypto, 21 August, ranked by change:

Sources: CNBC; the United States Department of the Treasury; the Federal Reserve Bank of Kansas City; the Central Bank of Egypt; Saudi Exchange; Boursa Kuwait; Egyptian Exchange; Bahrain Bourse; Dubai Financial Market; Abu Dhabi Securities Exchange; Amman Stock Exchange; Muscat Stock Exchange; Qatar Stock Exchange.

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