August 08, 2024

“The unpredictable moves from earlier in the week have calmed, but FX volatility remains at the highest levels since early 2023. US jobless claims will give the first major clue towards the evolution of the labour market this afternoon since the non-farm payrolls report.”

Sam Cornford – Head of Trading

Main Headlines

Vice President Kamala Harris and her election running mate, Tim Walz, hit the campaign trail in Michigan and Wisconsin yesterday, where President Biden beat Trump in both states in 2020. According to Harris’ campaign, $36m in donations were raised in the 24 hours after Walz was announced as the pick on Tuesday.

The UK economy bounced back from the pandemic more quickly than previously expected in 2022, after the Office for National Statistics upped its estimate for full year GDP growth from 4.3% to 4.8%. High energy prices and pandemic-related backlogs meant that revised data for the oil and gas sector and the health service have been raised higher

GBP

Sterling is struggling to regain any significant momentum and remains pinned near a one-month low. It is unclear what trigger is needed to reverse some of the 2% slide against the euro, given that yield differentials have largely moved in the pound’s favour this week. This morning’s REC jobs report showed a rebounding jobs market in July as jobs growth accelerated and vacancies rose, in what is a broadly concerning signal for the Bank of England, although the labour market remains considerably weaker than during the pre-pandemic period. The US data should drive the pound today, with traders on hold for some big domestic catalysts until next week’s barrage of wage, inflation, and growth data.

EUR

Calm has returned for the euro, which has drifted sideways against the dollar for the past few days. A pickup in risk appetite has so far been unable to drive EUR/USD higher, and markets seem highly reluctant to justify piercing through the 1.10 mark. Part of the reason for this is likely related to the pricing in of a third rate cut from the ECB in the second half of this year. The boost for risk assets has led to gains against the Swiss franc, however, having risen nearly 1% in yesterday’s session as the low-yielding G10 pared their gains and the Bank of Japan’s cautious commentary provided a renewed boost for the carry trade.

USD

Cooling volatility and rebounding risk appetite following this week’s erratic trading drove the dollar higher against the yen and the franc but saw it pare further gains against risk-sensitive G10. NOK and SEK both rose more than 0.7% against the greenback yesterday and the Aussie is on the front foot this morning, helped by comments from RBA Governor Bullock, who said that she would not hesitate to raise rates again if necessary. Today, the only data point of significance is this week’s unemployment claims figures, where the consensus is looking for a drop from 249K to 241K. It’s not usually a trigger for fireworks, but the jittery mood this week and the impact of the labour market on recession fears could lead to a more outsized move. We also get a speech from the Fed’s Barkin, who last refused to give much explicit guidance but said that Friday’s soft payrolls report had not materially changed his outlook.

Markets

Equities trading continues to be bumpy and while the VIX has cooled to around 28, it remains elevated compared to typical levels seen this year. Some risk appetite returned to lift indexes in Europe and the UK, but markets again trimmed tech stock valuations yesterday and dragged down the Nasdaq by 1.1%. The S&P 500 is now fluctuating around 8% below its highest level hit year-to-date in mid-July.

Main Economic Events (All Times CET)

2:30pm: US Unemployment Claims
9:00pm: Fed’s Barkin speaks

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