The flash PMI numbers for August indicate contraction in the French, German, and Eurozone manufacturing and services sectors, causing a negative impact on the Euro and Pound, as well as a spike in the US Dollar Index and increased investment in sovereign debt.
The Eurozone and UK services PMI data led to a drop in the euro and pound, while weakness was observed in Canadian consumers and China, suggesting a darkening global growth picture as interest rates rise, with the US being the main source of growth but showing signs of slowing in mortgage applications and student debt repayments.
The US Dollar performed well against major currencies, with the British Pound, Euro, and Canadian Dollar underperforming, while the Chinese Yuan and Australian Dollar fared better; the Federal Reserve's indication of a higher terminal rate and potential further borrowing cost increases contributed to the market sentiment, leading to lower US equity markets; upcoming economic data includes consumer confidence, inflation gauges from key European countries, and manufacturing PMI gauges from China.
The US dollar experienced a major technical reversal due to a weaker JOLTs report, leading to a drop in US interest rates, while market positioning played a role in the price action; the focus now shifts to personal consumption figures and US jobs data, with the euro and sterling firm but most other G10 currencies softer, and emerging market currencies mixed. In Asia, most large bourses advanced, but Europe's Stoxx 600 fell after rallying in previous sessions, while US index futures traded softer; European bonds are selling up, gold is consolidating, and oil prices are firm. Australia's CPI slowed more than expected, China is expected to release the August PMI, and Japan reports July retail sales. The US dollar has seen no follow-through selling against the yen, yuan, or Australian dollar, while the euro and sterling staged impressive price action. The JOLTS report saw the dollar and US rates reverse lower, and today the US reports advanced merchandise trade figures for July, with the Canadian dollar as the worst performing G10 currency yesterday.
Stock markets showed signs of improvement last week, fueled by hopes of a Goldilocks economic scenario, despite downward revisions in Q2 GDP growth and a slowdown in housing prices, while robust hiring and a decline in wage growth raised concerns about a cooling job market. The strength of U.S. consumers and the moderation of the Consumer Confidence index are factors that could influence the Federal Reserve's decisions on inflation, with investors advised to rely on trustworthy data and analysis. Noteworthy upcoming earnings and dividend announcements include Zscaler, Gitlab, GameStop, C3ai, American Eagle, DocuSign, and Kroger. Key economic reports this week will focus on Factory Orders, ISM Services PMI, and Q2 Non-Farm Productivity and Unit Labor Costs.
Asia-Pacific markets are expected to have a mixed start to the week as investors await key data from Australia and China, while in the US, the unemployment rate rose to 3.8% in August and traders are betting that the Federal Reserve may not raise rates further this year. Additionally, the highly anticipated IPO of Softbank-backed Arm is expected to arrive later in the month.
The key event during the Asian session will be the Reserve Bank of Australia (RBA) meeting, where no change is expected in interest rates, and the final reading of Services PMIs will be released, while the Eurozone wholesale inflation and US Factory Orders data are also due.
The US dollar's strength in the foreign exchange market, along with discussions of de-dollarization, highlights the divergence between the US and other major economies. The Dollar Index is on an eight-week rally, reaching a record high in international payments, while the euro's share has declined to a record low. In the week ahead, the US CPI and the ECB meeting are expected to be major events, with the US showing signs of inflation and weaker demand, and the euro facing challenges amid stagnation and inflation. China's CPI and PPI have shown some improvement, but the focus will be on yuan loans and real sector data. The eurozone's focus will be on the possibility of a rate hike by the ECB and the release of July industrial production figures. Japan's household consumption continues to fall, and the country may experience a contraction in Q3. The UK will release employment data and GDP details, while Canada will see data on existing home sales and the CPI. Australia will release its August employment data, and Mexico's peso positions may continue to adjust due to the winding down of the currency forward hedging facility.
The US Dollar performed strongly against major currencies, with the Euro experiencing its 8th consecutive weekly loss and the Chinese Yuan performing poorly, while global market sentiment was negative and stock markets weakened. In the coming week, market focus will be on the US inflation report, UK employment and GDP data, Australian employment data, and the ECB rate decision.
