The hawks swoop inNew data prompts concerns over the health of the US private sector and sends the dollar retreating from its two-decade high.
- Turns out business activity in the US is on the decline. New data from the S&P’s service sector purchasing managers’ index (PMI), which basically tracks the manufacturing and services sectors, came in at a 27-month low to contradict analyst predictions and prove that business activity reduced further in August.
- What does this PMI data mean for the Fed? That’s the question on everyone's lips these days, and while we can’t tell you the answer exactly, we can say that signs of a weaker economy is exactly what the Fed is looking for to tame inflation, so the general chat is that this could mean rate hikes slow their roll in September.
- The dollar, a popular hedge, pared back from the two-decade high it hit on Monday and sank 0.41% while yields took a lil dip in early trading on the PMI data. Investors are uneasy about the Fed’s upcoming Jackson Hole conference, which is important bc so many policymakers meet to discuss the economy and it often ends up being the moment big announcements are made.
Illustration by TradingView
Subscribe to Snaps
See the market snapshots that matter and nothing else – sent to your inbox daily. Designed to be read in 20 seconds or less.
“Little evidence” inflation is easingThe Fed is back at it again with the hawkish meeting minutes, this time clarifying its thoughts on the market’s hottest debate rn: whether inflation is cooling.
- The short answer is… no. Well, not really anyway. The Fed’s July meeting minutes came out yesterday showing that while some officials showed concern that the rate hikes are going too far for the economy to handle, the consensus is that there’s “little evidence” inflation is actually easing and the bank looks likely to keep up the hawkish nature of the hikes in September.
- Only one sector closed Wednesday in the green after the release, with all four major US indices snapping their recent winning streaks to close down for the day. Tech was particularly hard hit, with the FAANG gang sinking around 2% after the 10-year Treasury yield moved sharply lower.
- All that being said, the odds of a 75bps hike in September dropped from 52% earlier on Wednesday to 40% after the minutes were released. That could be why the dollar (a popular hedge) pared some of its recent gains in afternoon trading, and the digital currency-verse saw losses pretty much across the board, with the overall crypto market dipping 2.25%.
David Clode / Unsplash
It’s headed for parityFor the first time in two decades, €1 now equals $1 – almost anyway – and there are no signs of things getting better for the struggling euro.
- The euro is less than a cent away from parity with the greenback as of early Tuesday morning trading, having now declined nearly 12% year-to-date as investors flock to the dollar as the unofficial global reserve currency – the US dollar index is up 12.7% this year and has been hitting crisp new highs nearly every day this month.
- The euro’s weakness has been driven by inflation and a weak economy, which tbf everyone is struggling with, but the European Union is the most dependent on Russian energy supplies and as a result of the invasion of Ukraine, has been especially suffering with skyrocketing prices and a cost of living crisis.
- There’s an expectation that the US will never default on its debt and will remain robust given its real interest rates are higher than elsewhere, so people are seeing it as something of a safe haven. That being said, major US indices are still struggling to digest economic headwinds, with all four opening the week sharply down.
Ibrahim Boran / Unsplash