Seasonal Caution - SOFA.org

A slow week overall with US markets almost ignoring the two most anticipated events of the past week – Nvidia’s earnings results and Friday’s PCE data. While stocks levitated early in the week on low volatility, prices eventually corrected ahead of the long-weekend due to the weakness in tech shares (disappointing Nvidia and Dell earnings).

On the data side, core PCE inflation rose 0.27%MoM and 2.9%YoY in July as expected, while ‘suprecore’ services printed a disappointingly strong 0.39%. Markets were willing to overlook the one-off gains in financial services, allowing treasury yields to remain anchored around recent lows.

Core PCE was Higher Than Expected Due to One-Off Gains in Financial Services

Source: Citi

Focus this week will be on Friday’s NFP, where the street is expecting around a ~45k increase in headline payrolls (60k in private), with an unemployment rate of 4.3%. A slowing payroll trend is expected to continue given weak hiring demands, with the new monthly pace of ~50k in job growth reflecting the realities of a slowing economy and lower immigration,

NFP Friday Expected to Show a Slowing Pace of Hiring

Source: Citi

With the Fed having gone full-dove post Jackson Hole, precious metals have gone on a tear with Gold pushing towards $4,000 and silver topping $40/oz for the first time since 2011. Furthermore, foreign central banks are now holding more gold than treasuries for the first time since 1996, with the trend looking to continue with sticky inflation ongoing geopolitical pressures.

Foreign CBs Hold More Gold than USTs For the 1st Time Since 1996

Over in crypto, prices had a down week despite the strength in gold, as the market froth appears to be dissipating a bit with the aggregate DAT premium softening back towards LTD lows. New inflows appear to be topping, with rotation-type taking place as Solana was the lone gainer on the week, with SOL being the latest destination for the DAT craze and a decent rebound in on-chain TVL.

Crypto Prices Have Underformed Gold as Market Hits Near-Term Exhaustion, with Solana the Lone Outperformer as the Latest DAT-Darling

Source: Messari, Blockworks

Solana TVL has Also Recovered with the Recent FOMO Fever

Source: DeFiLlama

Looking ahead, we expect September to be a volatile and choppy month for risk assets across the board, with September seasons looking tricky across the board for stocks (lower), 10yr yields (higher), and BTC (lower) over the past decade. This is also happening at a time when volatility premium is priced at cycle lows and risk leverage being built up. With the Fed having ‘front-loaded’ their easing intentions early already, what’s left in the cards should risk assets undergo a swoon in September?

Too early to tell, but we suggest caution as we head into the seasonally tricky Sep-Nov periods. Good luck and good trading friends.

September is a Particularly Tricky Period for Risk Assets Across the Board