August 21, 2024

“There is a lot of data coming up towards the end of this week. In the US today we get a critical set of revisions to last year’s employment figures as well as some minutes from the previous Fed meeting. Tomorrow PMIs are released for the US, UK, and eurozone, and then the big speeches in Jackson Hole follow on Friday.”

Tim Hallinan – Trading Director

Main Headlines

Former US President and First Lady Barack and Michelle Obama rallied the crowds as they delivered speeches endorsing Kamala Harris at the Democratic National Convention last night. Harris’ momentum has continued to grow since Biden dropped out, with some estimating donations since her effective nomination reaching $500m and betting site PredictIt narrowly favouring her for the win.

ONS figures this morning showed that he UK government borrowed more money than expected last month and the most in a July since 2021, at £3.1bn. That’s £1.8bn more than in the same month last year and highlights the challenges faced by the new Chancellor Rachel Reeves ahead of her first autumn budget.

GBP

Sterling has hit some resistance this morning and is consolidating a touch above 1.30, after a brief spike in GBP/USD pushed it to a 13-month high yesterday. It continues to track the weaker dollar momentum rather than any domestic catalysts, having settled into some sideways trading against the euro amid an emptier calendar. The first major piece of British data this week comes in the form of the PMIs tomorrow morning, which have largely been supportive of the pound this year as both the manufacturing and services sectors have returned to expansion. The consensus is looking for a similar report to July’s, which landed at 52.8.

EUR

Having pushed into unfamiliar territory above 1.11 for the first time this year yesterday, the euro is yet to get going into today’s session. Current account data yesterday showed a record high surplus of €50.5bn in June. That is a huge reversal from the energy terms of trade shock that took EUR/USD below parity in late 2022, when the deficit fell as low as -€26.3bn. Growth sentiment is weighing the euro down for now, but it would only take a rebound in activity and a Fed-induced broad dollar decline to push the common currency much higher. However, we are not seeing signs of the first just yet, and the aggressive nature of the bets on rate cuts in the US could prompt a dollar rebound in the near term.

USD

The dollar continued to point firmly downwards yesterday, as markets looked to today’s FOMC minutes and jobs revisions ahead of Powell’s Jackson Hole speech on Friday. The minutes are yesterday’s news to an extent, given that we have had that crucial payrolls report and some softer inflation figures since then, but may still have some clues towards the Fed’s reaction function come September. Arguably the bigger piece of data today is the updated jobs numbers, where Goldman Sachs are expecting between 600k and 1m jobs to be shaved off the payrolls figures for the year up to March 2024. If true, that would be a clear sign that the labour market was significantly weaker than the Fed had originally thought. However, it would would attest to the inability of markets to get solid trading cues from individua data points, and reinforce the idea that the aggressive rate cut bets following July’s 114k figure was an overreaction.

Markets

Stocks broadly closed slightly softer yesterday, having come back almost full circle on the drops seen at the beginning of the month. With most of the selloff recovered, equities are meeting some resistance and traders are waiting on some justification to continue the march higher. The 0.2% drop in the S&P 500 meant that it missed a 20-year-old winning streak after eight consecutive sessions in the green.

Main Economic Events (All Times CET)

8:00am: UK Public Sector Net Borrowing
5:00pm: US Payrolls Revisions
8:00pm: US FOMC Meeting Minutes

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