If anyone was hoping for a calm end to the week on Friday, they couldn’t have been more wrong. The Friday data from the US sparked a chain reaction in markets. However, it is important to remember that they are not the only reason for the current situation.
Americans gave the signal
Friday’s data from the US job market seemed very interesting. After weaker partial readings, there were speculations about a possible weaker reading for July. The market was prepared for little, but received even less. A small number change in employment was expected, but received about ⅔ of expectations. In addition, the unemployment rate increased immediately from 4.1% to 4.3%. To top it off, there were weaker readings of orders – a 6.7% decrease in orders for durable goods in June on a monthly basis. Effects did not take long to appear. Investors quickly began to flee the dollar. On Thursday, the dollar was strongest against the euro in the past month, today it is already the weakest since March. It is worth remembering that there is also a massive capital flight from the US to Japan for the repayment of cheap yen loans, which after the recent exchange rate changes are no longer so cheap. It appears that the recent data only accelerated this movement.
Quick change of expectations
Just a week ago we were talking about a 0.25% interest rate cut in September being almost certain. Today, the market predicts a decisive 0.5% down. Only a month ago, analysts expected a second cut in December and a total interest rate cut of 0.5% by the end of the year. Today, expectations have changed drastically. A 1.25% drop is expected. The main reason is the job market. The Federal Reserve doesn’t want to trigger a wave of unemployment in the fight against inflation. Investors quickly came to the conclusion that the Fed will try to defend jobs with cheaper credit, even at the cost of maintaining higher inflation growth for longer. As a result, the story told at the last press conference after the Fed’s decision has become outdated. On Wednesday evening, we heard that cuts were necessary to aim inflation towards the target. A day and a half later, this story almost no longer exists.
Sales are continuing
The shocks from this data in markets are not only the EURUSD pair. There is a sharp drop in bonds yields, and these are chances for further interest rate changes. Stock markets are also falling sharply. Main European indexes opened today with 2-3% discount. American indexes closed with similar drops on Friday. Meanwhile, Japan experienced a more than 12% drop today. It’s not that the market likes a vacuum. The money, apart from bonds which led to a significant drop in yields, also went to the gold market. This precious metal once again this year beat the nominal record in value on Friday. Falls also did not bypass the oil market.
Today in the macroeconomic data calendar, it is worth paying attention to:
14:30 – USA – job market situation,
16:00 – USA – orders for goods.
Maciej Przygórzewski – Chief Analyst at InternetowyKantor.pl
Source: https://ceo.com.pl/rynki-w-panice-dane-z-usa-wywolaly-lawine-sprzedazy-23094
