Just when August seemed to be off to a sluggish start, volatility in the financial markets reached a peak as the New York session approached.
what happened after that?
Here’s a quick summary of the headlines and economic updates that impacted the markets:
headlines:
- Australian import prices recovered 1.0% q-o-q in Q2 2024, compared with a previous 1.8% decline and an expected 0.9% rise.
- China Caixin Manufacturing PMI July: 49.8 (51.4 expected, 51.8 prior)
- Commodity prices in Australia fell 3.0% year-on-year in July, up from a previous 3.5% decline.
- The Bank of England cut interest rates by 0.25% from 5.25% to 5.00% in a “finely balanced” 5-4 vote.
- Bank of England Governor Bailey Warns of successive rate cuts as upside risks to services inflation persist
- Challenger job cuts Growth slowed from 19.8% year-on-year to 9.2% in July.
- US Initial Weekly Jobless Claims at 249K (236K expected, 235K prior)
- US primary unit labor costs Q2 2024: 0.9% QoQ (1.8% expected, down from 4.7% to 4.0%)
- Canada’s manufacturing PMI fell from 49.3 to 47.8 in July, reflecting a sharper contraction.
- US ISM Manufacturing PMI July: 46.8 (48.8 expected, 48.5 previous)
- US ISM Manufacturing PMI July: 52.9 (51.9 expected, 52.1 previously)
- Amazon misses Q2 2024 revenue, business outlook lowers
- Intel announces 15% workforce cut, dividend suspension starting Q4
- Snap Earnings Mostly In Line With Estimates But Issues Weak Q3 Guidance
Price movement in the broad market:
Dollar Index, Gold, S&P 500, Oil, 10-Year US Treasury Yield, Bitcoin Chart by TradingView
Most major asset classes saw sideways moves early on, as market players may have decided to take it easy after the FOMC decision the previous day.
Even China’s disappointing manufacturing PMI was unable to spark a strong risk-on reaction, with US stocks and crude oil remaining in tight ranges into the New York session.
The weaker-than-expected US manufacturing PMI appears to have sparked a sharp wave of risk aversion, with oil, bitcoin and the S&P 500 falling after the release. Treasury yields have also fallen since the weak employment component raised the odds of weak nonfarm payrolls data, raising expectations of a Federal Reserve rate cut in September as well.
Bitcoin managed to recover some of its losses, recovering to the $65,000 area by the end of the day, while gold held steady throughout the day. US stocks continued to be affected by the slowdown in the tech sector, with Amazon shares falling 7% after the company missed second-quarter revenue expectations, while Intel announced massive workforce cuts that sent its shares down about 20%.
Forex Market Behavior: US Dollar vs Major Currencies:
US Dollar Overlay Against Major Currencies Chart by TradingView
While some USD pairs had a somewhat quiet start, USD/JPY was as nervous as it has been in the past few days, falling sharply in the wake of the FOMC decision. The JPY continued to rise until the start of the New York session, before resuming its decline.
The pound also made some good moves, rising against the dollar ahead of the Bank of England rate decision and then retreating after learning of the rate cut. The Australian dollar, which had a strong start, recovered some ground as the Asian session ended.
The ISM manufacturing PMI drew mixed reactions across major currencies, with the dollar continuing to fall against its lower-yielding counterparts (the Japanese yen and the Swiss franc) while advancing against the rest of its FX peers.
Potential catalysts coming up on the economic calendar:
It’s natural family planning day, ladies and gentlemen!
Prepare for more volatility between dollar pairs and possibly across financial markets, as the outcome of US Jobs Report for July This is likely to weigh on expectations of a Federal Reserve rate cut in September.
Before that, you should watch the big moves in the Swiss franc, as the CPI release may affect the SNB’s monetary easing expectations as well!