Risk aversion was the name of the game on Tuesday, as caution ahead of this week’s major market events mixed with weaker U.S. technology stocks and rising geopolitical tensions in the Middle East.
How have major assets behaved in recent trading sessions?
We share the details:
headlines:
- Australia Building Approvals June: -6.5% m/m (-2.1% expected, 5.7% previous)
- French GDP Q2 2024: 0.3% QoQ (0.2% expected, previous quarter revised up from 0.2% to 0.3%)
- Germany’s preliminary consumer price index Growth accelerated from 0.1% m/m to 0.3% m/m in July; annual CPI rose from 2.2% to 2.3%
- KOF Swiss Economic Index Decreased from 102.7 to 101.0 (102.6 expected) in July;The outlook for external and consumer demand is worsening.“
- germany primary gdp Q2 2024: -0.1% QoQ (0.1% expected, 0.2% previously)
- Eurozone GDP Q2 2024: 0.3% QoQ (0.2% expected, 0.3% prior)
- The Israeli military said it killed Hezbollah’s top commander in an airstrike on Beirut on Tuesday.
- Conference Board US Consumer Confidence Index July 2024: 100.3 (100.0 expected; 97.8 previously)
- Job vacancies at US JOLTs June: 8.18 million (8.05 million forecast; previous forecast 8.23 million)
- New Zealand building approvals fell sharply from -1.9% m/m to -13.8% m/m in June.
- Japan’s primary industrial production fell 3.6% month-on-month in June (-4.2% expected, 3.6% prior), as scandals involving major automakers such as Toyota weighed on the production of cars and vehicles.
- Japan’s retail sales rose 2.8% year-on-year to 3.7% year-on-year (3.3% expected) in June
- ANZ Bank New Zealand business confidence rose from 6.1 to 27.1 in July; hiring intentions fell from 0.0 to -3.6; and pricing intentions rose from 35.3 to 37.6.
- Speculation of a 25-basis-point rate hike supports the yen in the US session
Price movement in the broad market:
Dollar Index, Gold, S&P 500, Oil, 10-Year US Treasury Yield, Bitcoin Chart by TradingView
With only Japanese employment data due early today, Asian traders kept things mostly cautious, sticking to a risk-off mood ahead of this week’s big data releases.
Tensions rose during the US trading session when a disappointing earnings report from Microsoft dampened some of the optimism stemming from AMD’s positive earnings. The report also highlighted concerns that the AI-led rally in US stocks may be overdone.
In addition to the cautious mood, Germany’s GDP continued to lag behind the rest of the eurozone, and news that Israel claimed to have killed Hezbollah’s top commander in an operation in Beirut on Tuesday didn’t help matters either.
To add to this, traders appear to be ignoring the positive US reports and instead banking on a dovish shift from the Federal Reserve this week. CME FedWatch Tool It puts the odds of a 25 basis point rate cut in September at 86.3%.
Uncertainty ahead of central bank meetings this week, mixed U.S. earnings reports, and rising geopolitical tensions are putting pressure on U.S. Treasuries, the dollar, and riskier assets like Bitcoin, stock indices, and oil prices.
WTI crude reached $75.00 before finding some intraday support; BTC/USD continued its weekly slide quietly, returning to the $65,600 level; US 10-year Treasury yields fell from 4.19% to 4.13%; S&P 500 and Nasdaq both hit new weekly lows.
Forex Market Behavior: US Dollar vs Major Currencies:
US Dollar Overlay Against Major Currencies Chart by TradingView
The US dollar had a mixed start to the day, reacting to a weaker yen and stronger New Zealand and Australian dollars during the Asian session.
Things got more stable during the US session when the US Consumer Confidence report and the JOLTS jobs reports gave the dollar a boost.
But traders’ focus quickly shifted to pricing in a dovish Fed this week and the possibility of a September rate cut. That is likely to send the dollar lower against the Swiss franc and extend its losses against the yen and the New Zealand dollar.
Yen traders were also active, with the currency falling – possibly on profit-taking – during the Asian session ahead of the BoJ decision. However, rumors began to circulate that the BoJ could surprise the market with a 25 basis point rate hike this week. This hawkish speculation supported the yen throughout most of the U.S. session, and the currency ended the day higher across the board.
Sterling also did not perform well, as speculation that the Bank of England will be more accommodative later this week weighed on the currency.
Potential catalysts coming up on the economic calendar:
- Bank of Japan monetary policy decision due during Asian session
- France Preliminary CPI at 6:45 AM GMT
- Germany Unemployment Rate Change at 7:55 AM GMT
- Eurozone inflation data at 9:00 am GMT
- Italy Preliminary CPI at 9:00 AM GMT
- US ADP report at 12:15 PM GMT
- Canada’s monthly GDP at 12:30 PM GMT
- US Quarterly Labor Cost Index at 12:30 PM GMT
- Chicago PMI US at 1:45 PM GMT
- US Pending Home Sales at 2:00 PM GMT
- FOMC Statement at 6:00 AM GMT, followed by press conference 30 minutes later
Today we are witnessing a series of high-profile economic reports that are likely to cause increased volatility in major assets.
The Bank of Japan’s monetary policy decision is likely to dominate headlines until the European session, until the eurozone publishes its inflation data.
In the US, all eyes will be on the Fed’s monetary policy statement for any signs of any changes in members’ hawkishness and policy biases in the near term. If members don’t align and the event proves to be inconsequential, more attention could be focused on the ADP and US labor cost reports and what they might mean for Friday’s nonfarm payrolls data.