- European markets and Wall Street futures in the red after Wednesday’s jump.
- High inflation, possible recession and rising interest rates continue to be the dominant theme.
- The dollar looks less strong after Wednesday’s events.
- Relief in commodities and emerging market currencies.
Wall Street futures are falling, paring some of Wednesday’s gains. The dollar validates Wednesday’s losses and raw materials, the recovery. The intervention of the Bank of England triggered an easing and a general correction, which for now, does not change the underlying risks.
The hurricane Ian it was downgraded to the category of tropical storm but left damage estimated at more than 67,000 million dollars in the Florida area. Vladimir Putin plans to sign a decree annexing four regions of Ukraine on Friday after the referendums; they are areas not fully controlled by Russian troops.
More calm, with volatility
The The S&P 500 closed Wednesday up nearly 2%, and futures on Thursday are down 0.65%. In Europe, the main markets operate in negative with falls around 0.80%. Bond markets are once again showing declines in sovereign bonds and rises in yields, although far from Wednesday’s peaks, which occurred before the Bank of England’s announcement.
The United Kingdom remains at the center of the scene. The sharp drop in bonds that followed the presentation of the economic plan of Liz Truss, with significant tax cuts, led to an emergency announcement on Wednesday from the Bank of England to buy bonds. The BoE sought to prevent further falls that would endanger the financial system. Truss today defended his economic plan. The pound remains far from recent lows.
The BoE announcement boosted sovereign bonds, that on Thursday they are giving back some of those gains by pushing yields back up, although they are far from the weekly peak. The 10-year bond, which was above 4% and then 3.70%, is at 3.82%. The UK 10-year benchmark is at 4.14%.
What has not changed is the general expectation that the Federal Reserve, the European Central Bank and the BoE will continue to raise benchmark interest rates. This race, by continuing to be led by the Fed, gives the dollar important natural support. DXY had its worst day in months on Wednesday, trading around 113.00 on Thursday. The dollar has been weakened after what happened on Wednesday, but the trend is still in its favor. The Chinese yuan understands the recovery from historical lows against the dollar and after the warning of the Asian authorities. The USD/CNH is at 7.1230.
EUR/USD is above 0.9700, GBP/USD near 1.0900 and USD/CHF below 0.9800. The weakest currency is still the yen; USD/JPY advances again and trades at 144.60. Emerging market currencies also had a big rally against the dollar on Wednesday and retain most of those gains. In Australia it was known that inflation in August was 6.8%, below 7% in July (this is the first time it has been reported on a monthly basis). AUD/USD is in the 0.6500 zone, far from the 0.6360 low.
The preliminary September inflation estimate for Germany will be out in minutes. In the US, a new reading of the GDP for the second quarter and the weekly report of requests for unemployment benefits will be published. In addition, Loretta Mester and Mary Daly of the Federal Reserve will exhibit in public. The central bank of Mexico will announce its monetary policy decision (consensus: +75 basis points to 9.25%) and so will the Colombia (consensus: +150 basis points at 10.5%). China data will be released early Friday with indicators of the manufacturing sector (the official PMI and the Caixin)
The actions of porsche rise after going public. Among the companies that will present results on Thursday are Nike, MicronCarMax and Beb Bath & Beyond.
Commodities soared on Wednesday and are pulling back modestly on Thursday, holding on to most of the gains. The Prayed is around 1650$ and the silver at 18.70$. The cryptocurrencies are stable with Bitcoin at $19,500 and ethereum at $1,340. Oil prices rise modestly, after advancing almost 5%; a barrel of WTI is trading on $82.00.
Technical levels
Source: Fx Street
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