✅ Daily Market Analysis - FRIDAY SEPTEMBER 01, 2023
Key events:
USA - Average Hourly Earnings (MoM) (Aug)
USA - Nonfarm Payrolls (Aug)
USA - Unemployment Rate (Aug)
USA - ISM Manufacturing PMI (Aug)
ISM Manufacturing Prices (Aug)
As August drew to a close, US equities continued their upward momentum, driven by the excitement surrounding the forthcoming employment report for the same month.
Maintaining a streak of four consecutive positive sessions, Wall Street's major indices wrapped up Wednesday with gains. The Dow Jones Industrial Average, which represents established companies, inched up by 0.1%. Simultaneously, the broad-based S&P 500 recorded a 0.4% increase, while the technology-focused Nasdaq Composite enjoyed a 0.5% ascent.
NASDAQ index daily chart
SPX index daily chart
DJI index daily chart
Nonetheless, it's important to highlight that despite recent gains, these major benchmarks are still set to end the month with declines. In August, both the DJI and Nasdaq Composite recorded approximately 2% declines, while the S&P 500 saw a decrease of 1.4%.
Recent economic indicators, including a second-quarter gross domestic product (GDP) that fell short of expectations and core inflation data released on Thursday, have injected optimism into investors. This optimism arises from the possibility that the Federal Reserve might be nearing the end of its series of interest rate hikes. In July, core inflation, as predicted, rose compared to June on an annualized basis. Despite this increase, the figures remained below the elevated levels seen in the previous year.
The Federal Reserve, which has emphasized its data-driven approach to interest rate decisions, could interpret these reports as indications that their previous actions are starting to yield results. While their goal is to keep inflation in check with an annual growth rate of 2%, the central bank might opt to postpone a rate hike during its September meeting.
Market futures largely reflect expectations of such a pause, with certain futures traders assigning probabilities to a 0.25% increase in November, effectively concluding the year.
The forthcoming jobs report on Friday stands as another critical factor in the Federal Reserve's decision-making process for the upcoming month. Recent data has indicated that job openings this week were lower than anticipated. Furthermore, the jobs report is expected to reveal a slower rate of job creation compared to previous months. The Federal Reserve has been actively monitoring indicators that suggest the tight labor market is gradually easing, a development that would help alleviate inflationary pressures.
Analysts anticipate the economy added 170,000 jobs last month, down from the 187,000 reported the previous month. The unemployment rate is expected to remain at 3.5%.
US nonfarm payroll
Additionally, today also brings the release of the ISM manufacturing index, which is expected to show a reading of 47, an improvement from the previous reading of 46.4.
In other news, Huw Pill, an economist at the Bank of England, has made an announcement that goes against market expectations. He intends to advocate for maintaining rates at 5.25% for an extended period, contrary to the market's anticipation of a 50 basis point increase to 5.75%. This statement was reported by the Financial Times. Pill expressed his support for this steadfast approach, citing its potential to ensure financial stability, gradually ease the impact on the economy, and effectively transmit higher rates into two- and five-year fixed-rate mortgages, which are commonly used lending instruments for property transactions in the UK. He made these remarks during a conference in South Africa.
UK interest rate
The situation seems to be unfolding without significant disruptions. Central banks worldwide are echoing similar sentiments, emphasizing their unwavering commitment to combatting inflation, which implies a prolonged period of higher interest rates, but not necessarily a constant upward trajectory.
The US Dollar demonstrated strength against all currencies except the Japanese Yen. Recent data on unemployment benefits in the US showed a decrease to 228,000, surpassing median forecasts that had anticipated 236,000.
USD/JPY daily chart
This decline represented the lowest reading seen in the past four weeks.
The Euro (EUR/USD) broke its three-day upward streak, declining to 1.0840 from the previous level of 1.0880. This shift in direction coincided with the release of the European Central Bank's (ECB) meeting minutes, which revealed concerns about inflation and a less optimistic growth outlook. Conversely, the British Pound (GBP/USD) strengthened against the US Dollar, reaching 1.2670, an increase from the previous rate of 1.2645.
EUR/USD daily chart
GBP/USD daily chart
USA - Average Hourly Earnings (MoM) (Aug)
USA - Nonfarm Payrolls (Aug)
USA - Unemployment Rate (Aug)
USA - ISM Manufacturing PMI (Aug)
ISM Manufacturing Prices (Aug)
As August drew to a close, US equities continued their upward momentum, driven by the excitement surrounding the forthcoming employment report for the same month.
Maintaining a streak of four consecutive positive sessions, Wall Street's major indices wrapped up Wednesday with gains. The Dow Jones Industrial Average, which represents established companies, inched up by 0.1%. Simultaneously, the broad-based S&P 500 recorded a 0.4% increase, while the technology-focused Nasdaq Composite enjoyed a 0.5% ascent.
Nonetheless, it's important to highlight that despite recent gains, these major benchmarks are still set to end the month with declines. In August, both the DJI and Nasdaq Composite recorded approximately 2% declines, while the S&P 500 saw a decrease of 1.4%.
Recent economic indicators, including a second-quarter gross domestic product (GDP) that fell short of expectations and core inflation data released on Thursday, have injected optimism into investors. This optimism arises from the possibility that the Federal Reserve might be nearing the end of its series of interest rate hikes. In July, core inflation, as predicted, rose compared to June on an annualized basis. Despite this increase, the figures remained below the elevated levels seen in the previous year.
The Federal Reserve, which has emphasized its data-driven approach to interest rate decisions, could interpret these reports as indications that their previous actions are starting to yield results. While their goal is to keep inflation in check with an annual growth rate of 2%, the central bank might opt to postpone a rate hike during its September meeting.
Market futures largely reflect expectations of such a pause, with certain futures traders assigning probabilities to a 0.25% increase in November, effectively concluding the year.
The forthcoming jobs report on Friday stands as another critical factor in the Federal Reserve's decision-making process for the upcoming month. Recent data has indicated that job openings this week were lower than anticipated. Furthermore, the jobs report is expected to reveal a slower rate of job creation compared to previous months. The Federal Reserve has been actively monitoring indicators that suggest the tight labor market is gradually easing, a development that would help alleviate inflationary pressures.
Analysts anticipate the economy added 170,000 jobs last month, down from the 187,000 reported the previous month. The unemployment rate is expected to remain at 3.5%.
Additionally, today also brings the release of the ISM manufacturing index, which is expected to show a reading of 47, an improvement from the previous reading of 46.4.
In other news, Huw Pill, an economist at the Bank of England, has made an announcement that goes against market expectations. He intends to advocate for maintaining rates at 5.25% for an extended period, contrary to the market's anticipation of a 50 basis point increase to 5.75%. This statement was reported by the Financial Times. Pill expressed his support for this steadfast approach, citing its potential to ensure financial stability, gradually ease the impact on the economy, and effectively transmit higher rates into two- and five-year fixed-rate mortgages, which are commonly used lending instruments for property transactions in the UK. He made these remarks during a conference in South Africa.
The situation seems to be unfolding without significant disruptions. Central banks worldwide are echoing similar sentiments, emphasizing their unwavering commitment to combatting inflation, which implies a prolonged period of higher interest rates, but not necessarily a constant upward trajectory.
The US Dollar demonstrated strength against all currencies except the Japanese Yen. Recent data on unemployment benefits in the US showed a decrease to 228,000, surpassing median forecasts that had anticipated 236,000.
This decline represented the lowest reading seen in the past four weeks.
The Euro (EUR/USD) broke its three-day upward streak, declining to 1.0840 from the previous level of 1.0880. This shift in direction coincided with the release of the European Central Bank's (ECB) meeting minutes, which revealed concerns about inflation and a less optimistic growth outlook. Conversely, the British Pound (GBP/USD) strengthened against the US Dollar, reaching 1.2670, an increase from the previous rate of 1.2645.
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