Overnight Headlines
*USD had a generally strong day with DXY breaking higher
*US equities closed mostly lower following Fed Clarida’s hawkish comments
*Big intraday swings in Fed rate hike expectations after shocking ADP miss
USD pushed higher out of its recent range, closing 0.2% higher at 92.27. On the flip side, the EUR and GBP’s recent consolidation was broken with both currencies drifting lower. A dismal ADP employment report showed half the number of job gains than expected. But the greenback was helped by hawkish Clarida comments cementing market Fed rate hike expectations.
US equities faltered on the Fed Governor’s hawkish comments. Sector performance was mixed with tech higher and energy sharply lower as oil dropped for a third straight day. This saw the Nasdaq close in the green (+0.15%) while the Dow dropped nearly 1%. Asian markets are mixed with European futures slightly positive.
Market Thoughts – Whippy day in bond markets
We highlighted the ADP report yesterday as something to keep an eye on. Even though it has been a poor predictor of the non-farm payrolls data released on Friday. A miserly 330k jobs were added in July which was less than half the expected rise. That number is well below the consensus forecast for the payrolls print and the weakest addition since February. However, this was at odds with record ISM services index growth which suggested faster jobs growth in July.
Markets then reversed the moves seen after the ADP report on Clarida’s hawkish comments. He indicated that the Fed will likely announce tapering this year. He noted that the conditions for a rate hike could be met already by the end of 2022. Interest rate futures did a full 180-turn with the dollar breaking higher out of its recent range. All eyes are squarely on NFP tomorrow which will provide ammunition for either the hawks or the doves.
Chart of the Day – BoE vote in focus
Across to the hawks in the UK and some on the MPC have recently been proposing an early end to QE. A 6-2 vote is predicted at today’s BoE meeting in favour of QE continuing. Fairly upbeat forecasts are expected to be unveiled with inflation projections especially raised on re-opening price spikes. But most economists think Covid uncertainty and the ongoing furlough programme are set to linger over policymakers.
GBP/USD is continuing to consolidate after threatening to move higher yesterday on the weak ADP report. But Clarida’s comments put paid to that bullish move. Support sits at the bottom of the range at 1.3875 with resistance at last week’s high around 1.3983. The 50-day and 100-day SMA are capping any moves higher at 1.3933 and 1.3923. Two big risk events within 25 hours should determine which way we go!
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