Silver (XAG/USD) continued its upward momentum during the European trading session on Wednesday, trading in the mid-$29.00s. This recovery follows the metal’s recent dip to its lowest level since May, driven by a dovish Federal Reserve stance, pressure on the US dollar, and geopolitical uncertainties, which have bolstered silver’s status as a safe-haven asset.

According to retired investment professional Kevin Bambrough, Samsung’s new solid-state (SS) battery, incorporating silver as a key component, is set to drive significant demand for the metal.

This battery features a silver-carbon (Ag-C) composite layer that enhances performance, offering a 600-mile range, 20-year lifespan, and 9-minute charge time. Bambrough estimates that each battery pack could require around 1 kg of silver.

With 16 million EVs potentially adopting this technology, annual silver demand could rise by 16,000 metric tons—nearly two-thirds of current global production. This surge, coupled with ongoing demand from the solar industry, points to a bullish outlook for silver.

•Anticipation of a September Federal Reserve rate cut has boosted silver prices.

•Investors expect a 25 basis point rate reduction, leading to lower US Treasury yields and a weaker dollar.

•The CME Group’s FedWatch Tool shows a 70% probability of the rate cut, reflecting strong market sentiment.

•A Reuters poll suggests most economists anticipate 25 basis point cuts at each of the Fed’s three remaining 2024 meetings.

•Fed Governor Michelle Bowman warns inflation concerns may delay rate cuts, potentially limiting silver gains.

•Geopolitical tensions further drive demand for silver as a safe-haven asset, supporting the metal’s recent rally.

Silver (XAG/USD) continues its upward trend, trading near $29.53. The price is supported by bullish momentum, with key support at $29.34, indicating potential for further gains.

Economic activity moderated in the first half of this year after increasing at a strong pace last year. Private domestic final purchases (PDFP) growth was solid and slowed much less than gross domestic product (GDP). Consumers appear to be pulling back on discretionary items and expenses, with a decline in restaurant spending.

The labor market continues to loosen, and there are signs that illustrate the labor market is coming into better balance. After slowing in the second quarter, payroll employment gains eased to a more modest pace in July. Although the unemployment rate is notably higher than a year ago, it remains at a historically low. In addition, the ratio of job vacancies to unemployed workers has declined to its pre-pandemic level. The inconsistencies in the latest jobs report warrant caution. Job gains have been consistently overstated in the establishment survey since March of last year, and it appears that the recent rise in unemployment may be exaggerating the degree of cooling in labor markets.

In recent months we have seen some further progress on lowering inflation, with the 12-month measures of total and personal consumption expenditures (PCE) inflation having moved down since April, although they have remained above the 2% target. It is expected that inflation will decline further with the current stance of monetary policy. Should the incoming data continue to show that inflation is moving sustainably toward our 2 percent goal, it will become appropriate to gradually lower the federal funds rate to prevent monetary policy from becoming overly restrictive.

However, I still see some upside risks to inflation due to increasing geopolitical tensions, additional fiscal stimulus, and increased demand for housing due to immigration. We need to be patient and avoid undermining continued progress on lowering inflation by overreacting to any single data point. I will remain cautious in my approach to considering adjustments to the current stance of policy.

There was no major news on the wire to trigger the minor selloff in global equities, so it was nothing else than a correction after a long rally following an ugly meltdown. As such, the S&P500 and Nasdaq were slightly down, by around 0.20% each, the European Stoxx 600 retreated 0.47%, while the Nikkei gave back some of yesterday’s gains in Tokyo, as the USDJPY fell and consolidated near the 145 level.

The US dollar index took another dive, however, and hit the lowest levels since the beginning of January. Citi analysts said that the carry trade is back but not with the Japanese yen but with the US dollar. They say that the positioning comes as a macro risk gauge dipped below neutral, but warned that there is only a small window of opportunity for the strategy to perform well as the election risks are looming. Additionally, the Fed risks are looming as well, and the greenback – now in the oversold territory according to the RSI index – doesn’t look appetizing for further shorting the dollars.

Data-wise, the final inflation numbers from the Eurozone brought no surprise. The headline inflation remained steady at 2.9% and core inflation ticked slightly higher from 2.5% to 2.6%. The numbers were soothing but the slowing disinflation and the strong wages growth in many European countries including France, Spain and Germany, were pointed as ‘worrying signals’ for the European Central Bank’s (ECB) struggle to bring inflation down to its 2% target. The latter cast a shadow over what the ECB could do after the anticipated September cut. The waning dovish expectations gave a boost to the single currency yesterday. As such, the EURUSD spiked past the 1.11 level. The US dollar’s broad-based weakness helped as well.

Now, the EURUSD is in the overbought territory and a downside correction would be healthy. Across the Channel, the weak dollar pushed Cable above an important psychological mark: the 1.30 level. The pair never traded meaningfully above this level since 2022 and a meaningful appreciation above this level means more to sterling bulls than just a policy divergence between the Federal Reserve (Fed) and the Bank of England (BoE).

Elsewhere, though, the tone was mixed. In Sweden, the Riksbank cut its rate by 25bp yesterday and said that it could lower its rate three more times this year. But despite that dovishness, the Swedish krona advanced against the greenback yesterday, and the USDSEK fell to the lowest levels since March.

Across the Atlantic, inflation in Canada fell from 2.7% to 2.5% in July as expected and marked the softest increase in consumer prices since March 2021. Core inflation fell to 1.7%. The numbers were aligned with the Bank of Canada’s (BoC) forecasts that inflation would drop toward the 2.5% mark in H2. Although inflation is expected to rebound due to incoming base effects for gasoline prices, the numbers backed the dovish BoC expectations, yet here as well, the Loonie was bid against a widely offered US dollar. Even the selloff in crude oil didn’t give cold feet to the CAD bulls. The USDCAD fell to 1.36 and is about to test the 200-DMA to the downside. Needless to say that the pair is also approaching an overbought territory and should see traders take a break and think what to do next.

In summary, no matter the news flow or the idiosyncratic expectations, the major story is the US dollar’s weakness – that I think has stretched to unfunded levels. Today, the dollar traders will have a close look to the FOMC minutes and the BLS preliminary revision to annual payrolls. I don’t think that we will have anything major from the Fed minutes – plus, so much has changed since the last FOMC meeting with market expectations going to wild places – but the BLS’ revision could be interesting in that, economists at Golman Sachs and Wells Fargo expect that the revisions will show that the payrolls growth in the year through March was at least 600’000 lower than currently forecasted. Goldman says that the revision could be as high as a million lower, while JP thinks that the numbers will be revised by around 360’000 jobs to the downside. The bigger the downside revision, the higher the worries that the Fed has waited too much before normalizing and the crazier the Fed doves will go and the higher the pressure will be on the US dollar.

And of course, the dollar’s misery is making gold shine like a new penny. TD Securities say that the current positioning in gold is more consistent with levels that would suggest recession. If you believe a recession isn’t imminent, gold prices may be – perhaps – inflated. It’s true that the EM central bank have been buying gold to diversify against inflation and diversify away from the dollar and the uncertain geopolitical, financial landscape drives capital to the safety of the yellow metal.

Yet, Chinese consumers are reportedly cutting back their purchases due to high prices, the dovish Fed expectations look overpriced and the RSI index suggests that gold is about to step into the overbought territory and correction could be healthy at the current levels.

Official data have confirmed recent upbeat survey evidence, indicating that the UK economy is faring well in 2024. Gross domestic product rose 0.6% in the second quarter, according to initial estimates from the Office for National Statistics, building on a solid 0.7% gain in the first three months of the year. This follows robust S&P Global PMI readings for the UK in the year to date. The all-sector PMI index (tracking output in the manufacturing, services and construction sectors) has averaged 52.9 over the first seven months of 2024, having not fallen below 52.3 so far this year.

Further growth is anticipated for the second half of the year, though most economists - including those at the Bank of England - are expecting the pace of expansion to cool. The Bank's forecasters are expecting a 0.4% GDP rise in the third quarter followed by a 0.2% increase in the closing quarter of the year.

This slowing in part reflects base effects: the first half of the year has seen the economy rebound from a mild technical recession in the second half of 2023. However, survey data suggest that the underlying pace of growth has remained robust into July, suggesting that any slowdown in the third quarter GDP numbers should not be overly concerning.

The PMI's headline index tracking output in the manufacturing, services and construction sectors registered 53.1 in July, in line with the average seen in the second quarter.

Note also that the PMI data show the UK outperforming all other major developed economies bar the US. In particular contrast, growth has near-stalled in the eurozone while Canada and Australia both saw falling output in July. Japan's growth has meanwhile recently been more volatile than that of the UK.

Much of the UK's recent economic strength is due to robust service sector activity growth, which is also propelling growth in the US and Japan. However, worthy of special note is a marked outperformance of manufacturing in the UK in recent months. Only India and Thailand reported faster manufacturing growth than the UK in July, according to S&P Global's PMI surveys. By comparison, factory output fell sharply in the eurozone and declines modestly in Japan, while only a modest increase was recorded in the US.

Alas, the UK's manufacturing growth is not linked to improved export performance, with Brexit and associating trading impediments exacerbating a broader global trade slowdown in July according to survey contributors, but the UK's strong production growth does nonetheless hint at reviving domestic demand.

Further clues of the UK's third quarter growth trend will be provided by the upcoming flash PMI data for August, and any stronger than expected performance could tip the Bank of England towards erring on the side of caution when it comes to cutting interest rates.

The Monetary Policy Committee cut interest rates for the first time since the pandemic at its August meeting, the policy rate falling from 5.25% to 5.00%. However, the decision was 'finely balanced' with five committee members voting to cut rates against four voting to leave rates unchanged. Any strengthening of economic growth will worry the hawkish rate setters that pricing power and wage bargaining power remain elevated.

Moreover, although inflation fell to the Bank's 2.0% target in May and June, July saw the rate lift higher for the first time in a year to 2.2%.

However, the latest CPI increase was less than anticipated. Services inflation - which has been the bug-bear of the central bank's fight against stubborn inflation - encouragingly fell from 5.7% to 5.2% in July, and core inflation dipped from 3.5% to 3.3%, its lowest since September 2021; both of these key gauges moving in the right direction.

Some insights into the extent to which core inflation may fall further will also be provide by the flash PMI data. The survey's index of prices charged for goods and services correlates well with core inflation, acting with a lead of 5-6 months. This gauge fell in July to its second-lowest since February 2021.

While markets have been increasingly pricing in two more rate cuts by the Bank of England in 2024 since the lower-than-expected CPI reading for July, further downward progress in the PMI price gauges - especially for services - may be needed to convince the majority of policymakers that another cut interest rates is warranted any time soon.

The Hong Kong Exchange said Wednesday that its bottom line fell during the first half of the year, amid weak market sentiment, although there were also signs of a turnaround.

The exchange's interim earnings, released during the midday trading break, showed revenue and other income in the half was virtually flat at 10.61 billion Hong Kong dollars ($1.36 billion), while net profit dropped by 3% on the year to HK$6.12 billion.

The numbers come against a backdrop of economic uncertainty in the city and mainland China. The exchange chalked up the stagnant first half to falling revenue and profit from two of its four core business segments -- the cash market along with equity and financial derivatives. These were partially offset by growth in the commodities segment as well as data and connectivity.

The cash segment -- which mainly refers to trading fees and is the largest breadwinner -- saw revenue drop by 2%. EBITDA, or earnings before interest, tax, depreciation and amortization, slipped by 4% compared to a year earlier.

The main culprit was a 7% decline in trading fees on equity products, as average daily turnover on the exchange during the six months came to HK$100.3 billion, dropping by 2.5% on the year.

Average daily turnover of the Northbound Stock Connect system, which allows certain mainland A-shares to be bought and sold directly through Hong Kong, grew by 27% through the Shanghai link to 64.4 billion yuan ($9.03 billion), setting a new half-year record. The link with Shenzhen saw a 12% increase, to 65.8 billion yuan. Nevertheless, Connect fees dipped by 20% to HK$217 million, owing to a 30% reduction in A-share trading fees since the end of last August.

A weaker yuan also negatively affected the exchange's revenue, as the Hong Kong dollar is pegged to the U.S. dollar.

Initial public offering activity remained subdued during the six-month period as well. New mainboard listings in Hong Kong totaled 29, four less than the year-earlier period, while the total funds raised by these IPOs dropped by 25% to HK$13.4 billion.

The earnings deterioration in the derivatives segment was much sharper than the cash segment. Revenue and EBITDA fell by 13% and 15%, respectively. The average daily turnover for derivative warrants, callable bull-bear contracts and other warrants dropped by 20% to HK$10.1 billion, which led to a double-digit decrease in trading fee income.

A decline in net investment income from margin funds delivered a harder blow, dropping by 19%. The funds are invested in liquid assets as collateral and to prepare for withdrawal requests from contract participants. The slump was due to the lower fund sizes and an increase in the proportion of collateral denominated in Japanese yen.

On the other hand, the commodities segment was a bright spot. Revenue jumped by 35% and EBITDA surged 82% on the year, as trading and clearing fees at HKEx's London Metal Exchange subsidiary soared. Average daily volume across all major products, such as aluminum, copper, zinc, lead and nickel, rose during the period.

While the first half was stagnant overall, the April to June quarter was more promising for the exchange, as both the cash and derivatives segments showed signs of improvement. Total revenue in the quarter rose 8%, to HK$5.42 billion, while net profit increased by 9%, to HK$3.15 billion.

Bonnie Chan, who took over as the new CEO in March after her predecessor Nicolas Aguzin resigned, described the first-half results as "robust," focusing on the second quarter "upswing in market momentum and trading activity," in a statement published with the earnings disclosure.

However, she was only "cautiously optimistic about the outlook for the rest of the year" as "macro-environment uncertainties persist."

The initial response from the stock market was negative, as the exchange operator's shares dropped as low as HK$225.40, or 2.8% lower than the Tuesday close, as the afternoon session opened.

•Risk assets have enjoyed strong gains over the past fortnight, although signs of rally fatigue are creeping in

•Markets want their cake and to eat it too, pricing in eight Fed rate cuts by June while simultaneously betting on a soft economic landing

•Fed chair Jerome Powell speaks on Friday

•NZD/JPY, AUD/JPY rallies stall around former uptrends

Risk assets have enjoyed a strong fortnight following Japan’s market meltdown, recovering much of the ground lost during those wild days earlier in the month. But there are some signs of caution creeping in ahead of Jerome Powell’s speech at the Jackson Hole economic symposium on Friday.

This note looks at two short setups involving NZD/JPY and AUD/JPY, should risk start to rollover again.

NZD/JPY has rebounded over six big figures from its August nadir, enjoying relative calm in markets which has enabled carry trades to be reestablished. But the bullish price action is showing signs of fatigue; RSI (14) has broken its uptrend while Tuesday’s daily candle looks suspiciously like a topping patten, rejected from the intersection of horizontal resistance at 89.96 and former uptrend running from the pandemic lows in early 2020.

I’m not ready to short just yet knowing buyers are parked above 88.00 based on the price action seen over the past week. Liquidity is also likely to wane ahead of Jerome Powell’s speech on Friday. But if NZD/JPY were to fail again at the former uptrend, especially post Powell, the conviction behind the trade would increase considerably.

Stops could be placed above the uptrend with shorts targeting a push towards 87.72. If that level gives way, there’s little major support to speak of until you get down to 83.50.

I’ve included correlation analysis in the bottom pane, looking at the rolling daily relationship NZD/JPY has had with Nasdaq 100 futures over the past fortnight. At 0.88, the strength of the correlation suggests a short setup is far more likely to succeed if risk appetite rolls over.

The setup for AUD/JPY is similar to that of NZD/JPY, although it managed to reclaim the former pandemic uptrend late last week. The price action since has been unconvincing, with advances towards 99.00 knocked back in the four trading sessions prior to today. There’s no obvious topping pattern, but the inability for the price to push higher corresponds with RSI (14) breaking the uptrend established during Japan’s meltdown.

Like with the Kiwi, shorting now comes across as a lower probability play before Powell. However, should risk appetite rollover, confidence in the setup will improve considerably. The daily correlation AUD/JPY has had with Nasdaq 100 futures over the past fortnight stands at 0.90.

If the price is unable to build upon the rally pre or post Powell, shorts could be established with stop loss orders placed above the highs hit earlier this week. 96.92 is the first support layer of note, with another minor level found at 95.51. 90.27, where the pair bounced earlier this month, is one potential target should we see a real unwind in risk appetite.

If either NZD/JPY or AUD/JPY were to resume their rallies, the option would be to flip the setups around, but that’s a post for another day.