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Household and labour demand are strong, supporting the Fed’s aggressive move


US stocks ends at the lowest level in a month, as fresh data pointed to resilience in household and labour demand, affirming the Federal Reserve’s resolve to continue to be aggressive in its fight against inflation. Three regional Fed presidents, in separate remarks on Tuesday, reiterated Chair Jerome Powell’s intention to bring down inflation. A reading on job openings Tuesday added to signs that the labour market remains tight and wage pressures persist. Jobless claims will air Thursday before Friday’s August payroll report. Moreover, the Fed this week is also set to step up the unwinding of its near-$9 trillion balance sheet. Other risks range from China’s economic slowdown to an energy crisis that threatens to tip Europe into recession undermining the market mood.

The benchmarks, both S&P500 and Nasdaq100 slid on Tuesday and finished the session at their lowest level in a month. All eleven sectors of S&P500 stayed in negative territory, as Energy and Materials performed the worst among all groups, which dropped by 3.36% and 1.71% respectively for the day. The Dow Jone Industrial Average fell 1%, Nasdaq 100 tumbled with a 1.1% loss, and the MSCI world index also decreased 1% on Tuesday.

Main Pairs Movement

The US dollar was little changed on Tuesday, as the market priced the huge interest rate hikes by U.S. Federal Reserve and the European Central Bank (ECB). The DXY index edged lower and touched a daily low level below 108.3 in the first half of Tuesday, then regained bullish momentum and surged to a daily high level above 109.1 following the announcement of Consumer confidence readings. However, the greenback then weighted by heavy selling pressure, dropped and oscillated in a range from 108.6 to 108.9.

The GBP/USD dropped with a 0.45% loss daily for the day, as the data this week so far has kept the hawkish sentiment going. The cables dropped dramatically and touched a daily low below 1.1626 following the surprised US CB Consumer Confidence, then little corrected and wandered to a level around 1.1660. Meanwhile, EUR/USD tumbled with a huge loss to a level around 0.9983, then corrected to a level above 1.001. The pair advanced with a 0.18% gain on daily basis on Tuesday, after upbeat statistics from Germany, as well as hawkish comments from the European Central Bank (ECB) policymakers.

Gold dropped with 0.75% losses for the day, drifting back closer to a one-month low. The aggressive Fed rate hikes bets drive flows away from the yellow metal, XAU/USD tumbled and oscillated around $1,724 marks after the US consumer reading.

Economic Data

CurrencyDataTime (GMT + 8)Forecast
CNYManufacturing PMI (Aug)09:3049.2
EURGerman Unemployment Change (Aug)15:5528K
EURCPI (YoY) (Aug)17:009.0%
USDADP Nonfarm Employment Change (Jun)20:15200K
CADGDP (MoM) (Jun)20:300.1%
USDCrude Oil Inventories22:30-1.483M