✅ Daily Market Analysis - THURSDAY AUGUST 03, 2023

Key News:

UK - BoE Interest Rate Decision (Aug)
USA - Initial Jobless Claims
USA - S&P Global US Services PMI (Jul)
USA - ISM Non-Manufacturing PMI (Jul)

European markets faced a second consecutive day of decline on the previous day. The primary driving force behind this downturn was the growing concern over economic activity that fell short of expectations. This has led to increased worries about the potential for earnings growth in the latter half of the year. Adding to the prevailing negative sentiment was a credit rating downgrade for the US by Fitch, which further amplified profit-taking activities, particularly following the recent record highs observed in the DAX.

DAX index daily chart

In the United States, markets also experienced a negative session, with the Nasdaq 100 facing its most significant downturn since February. Amid this period of uncertainty, investors sought refuge in the US dollar, which acted as a safe-haven asset, while the yield curve exhibited signs of steepening.

The ongoing sell-off in the US markets, coupled with weakness in Asian markets, is expected to have a ripple effect on European markets, leading to a lower opening today.

As per the latest update, Dow Jones futures and Nasdaq 100 futures showed a modest increase of 0.2%, while S&P 500 futures exhibited a slight uptick of 0.1%.

NASDAQ Indices daily chart

SPX indices daily chart

In July, the United States saw growth in private payrolls, with an increase of 324,000 jobs. Although this number was lower than June's figure of 455,000, it still exceeded economists' expectations, which were set at 189,000.

Despite the positive private jobs report, some economists remain cautious, believing that the labor market is gradually slowing down due to the impact of the Federal Reserve's rate hikes permeating the economy.

Nonetheless, progress is being made in the US labor market, albeit still with some way to go before reaching normal conditions. The steps taken in the right direction are encouraging and suggest that the previous policy actions aimed at slowing down the economy and labor market to restore price stability are yielding the intended results.

Meanwhile, the Pound Sterling (GBP) is currently on a two-day losing streak, as investors exercise caution in anticipation of the Bank of England's (BoE) interest rate decision. The GBP/USD pair is under pressure due to a bearish market sentiment and concerns about a potential deep recession in the United Kingdom, especially as the central bank prepares for its 14th consecutive interest rate hike.

GBP/USD daily chart

Investors hold varying opinions concerning the speed at which the Bank of England (BoE) will raise interest rates. The UK economy faces high inflationary pressures, surpassing those of other G7 nations, and households are dealing with a notable squeeze on their real income. If the BoE decides to implement a substantial interest rate hike, it could potentially dampen the economic outlook.

In contrast, gold prices witnessed a decline on Thursday and suffered significant losses for the week. This downward trend was primarily driven by concerns surrounding a robust US economy and a strong job market, which raised fears of potential interest rate increases.

XAU/USD daily chart

Over the last two days, the price of gold experienced a sharp decline of nearly $30, causing December futures to move further away from the crucial $2,000 per ounce level. The market's reaction was prompted by data showing that private payrolls had grown significantly more than expected in July, leading to a boost in the US dollar's value. The strong labor market data raised concerns among investors about the potential outcome of the official nonfarm payrolls data, which is scheduled for release on Friday. The strength of the dollar had a widespread impact on most metal prices, pushing them lower.

US Dollar Currency Index daily chart

Despite Fitch's downgrade of the US sovereign rating, gold saw limited safe-haven demand, as analysts downplayed the move's actual impact on financial markets. Meanwhile, the US dollar continued to rise, supported by stronger-than-expected payrolls data from ADP and indications of a recovery in US manufacturing and construction earlier in the week.

Investors are now anticipating the Federal Reserve's ability to continue hiking interest rates, which could potentially have an adverse effect on gold and metal markets. As interest rates rise, the opportunity cost of holding gold increases, and investors may favor the dollar as a safe haven in such a scenario.

In the upcoming Thursday's trade, investors will keep a close eye on several economic indicators, including weekly jobless claims, preliminary nonfarm productivity data, as well as the Markit and ISM services PMIs. These data points will provide further insights into the state of the economy and the labor market, influencing market sentiment and potential price movements in gold and other assets.