Weekly market recap 08 August 2022 - FTMO®

Slide WEEKLY MARKET RECAP Your weekly global financial markets newsletter Market weekly Recap

08 August 2022

  • Friday’s unexpectedly strong U.S. labour market data once again unnerved investors in financial markets and sparked concern from investors that the Federal Reserve would continue its aggressive interest rate hikes to cool the economy and dampen inflation. According to the Labor Department, the U.S. economy added 528,000 nonfarm jobs in July, more than double consensus expectations of around 250,000. May and June estimates were revised up by a combined 28,000. Following the strong July gains, total nonfarm employment in the U.S. has now returned to its pre-pandemic level.
  • The unemployment rate ticked down to 3.5%, matching its record low February 2020 level. Wage growth also rose more than expected, 0.5% MoM and 5.2% YoY, so inflation remains the big problem for economy and Fed officials.
  • Very strong labour market is a double-edged sword for the Fed. They can continue to hike rates to tackle inflation without causing a sharp increase in the unemployment rate, but the labour market must cool to help ease price pressures. The question of whether the Fed will continue at its current pace and deliver a third straight 75 bps rate hike next month is currently of key importance to investors. However, a number of Fed officials had pushed back against the market’s dovish narrative and signalled that the central bank is still committed to raising rates until inflation is under control.
  • Fed Governor Michelle Bowman said Saturday that the Fed should consider more 75 bps rate hikes to bring inflation back in line with the central bank’s target, and there’s also speculation about inter-meeting rate hike if the inflation reports were to surprise to the upside.

Indices

US stocks ended with mixed results due to Friday’s labour market data. Of the major indices, the S&P 500 and Nasdaq ended in profit for the week, but Friday’s sell-off meant an overall weekly loss for the DJIA. Good corporate earnings have helped equities in recent weeks, but inflation numbers and further monetary tightening in the week ahead may put a damper on growth in equity markets.

European equities were also affected by the speculation about aggressive interest rate hikes, so the equity markets ended with mixed results on the old continent as well. The pan-European STOXX Europe 600 Index slipped by 0.59%, Germany’s DAX 40 climbed by 0.67%, France’s CAC 40 ticked up by 0.37% and the UK’s FTSE 100 Index added 0.22%.

US30
-0.13%
US100
+2.01%
US500
+0.36%
GER40
+0.67%

Commodities

The prices of agricultural commodities continued to fall as the chances of resuming grain and corn supplies from Ukraine increased. Many countries, particularly in Africa, the Middle East and Southeast Asia, depend on the supplies of agricultural commodities from Ukraine, and a resumption of supplies from the country could avert a food crisis. However, logistics and grain exports, including the new harvest of up to 65 million tonnes of grain, remain a significant issue that needs to be resolved soon.

Gold
+0.55%
Silver
-2.14%
BRENT
-8.76%
NATGAS
-2.93%

Forex

The surprising data from the US labour market also helped the US dollar, which made impressive gains on Friday and for the week. Against the Japanese yen, the dollar even notched its biggest daily percentage gain since mid-June.

However, according to many analysts, the Japanese yen will no longer be the battering ram that investors could make a bundle on shorting anytime soon. Three pillars of selling the yen (a widening US-Japan interest-rate gap, soaring oil prices and the loss of the currency’s haven status) are crumbling. Growing recessionary fears keep a cap on yields, put pressure on crude and send investors back into the arms of traditional safe assets.

EUR/USD
-0.45%
USD/JPY
+1.36%
GBP/USD
-0.74%
USD/CAD
+1.07%

Macro

According to the ISM data, the service sector growth accelerated unexpectedly last month. The manufacturing sector was above expectations too, but fell to its lowest level since july 2020. Unlike the NFP report, which surprised with a big increase, initial jobless claims on Thursday edged up to 260,000, in line with projections.

The BoE raised its key interest rate by 50 basis points (0.50 percentage point), to 1.75%, the highest level since 2009. It was the sixth consecutive rate hike and the biggest increase in 27 years. The BoE also projected that the inflation would hit 13.3% in October because of the surging energy prices and will remain at very elevated levels throughout much of 2023.

The number of unemployed people rose in the eurozone for the first time in 14 months in June, according to the Monday data of the European Commission’s statistics bureau. The unemployment rate remained unchanged at a record low of 6.6%, but the number of job seekers increased by 25,000, to just under 11 million.

The S&P Global Eurozone Manufacturing PMI fell to 49.8 in July of 2022 pointing to the first contraction in factory activity since June of 2020. The service sector, according to The S&P Global Eurozone Services PMI, showed the slowest growth since January, due to the fading post-pandemic restrictions bounce and the cooling demand pressures.

What to watch out for this week

  • The main highlight this week will come on Wednesday, when the inflation reports from the USA and Germany will be released. Preliminary data on the inflation in Germany point to a second consecutive decline in inflation, but the inflation remains at the 40-year highs of around 7.5%. In the USA, analysts expect the annual rate of inflation to moderate to 8.7% in July, from 9.1% in June. The core CPI is, however, expected to increase by 0.5% MoM, pushing the annual rate up to 6.1%, from 5.9% in June. On Thursday, the Producer price index figures for July will also be released.
  • The data on the monthly GDP for June and the preliminary data on the the overall second quarter GDP in the UK will be released on Friday, after the Bank of England warned last week that it expects the economy to enter a 15-month recession later this year.
  • The Chicago Fed President Charles Evans, the Minneapolis Fed President Neel Kashkari and the San Francisco Fed President Mary Daly are due to speak in the coming week. Their comments will be closely watched in the context of the expected inflation numbers and the Fed’s next monetary policy move.

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