What’s Making the Headlines
- US ISM Services data beats expectations, equities find themselves under pressure
- US Dollar and yields stay supported as US exceptionalism continues
- British Pound under pressure after BoE takes a softer tone on interest rate hikes
US ISM Services Data Beats Expectations
THE US ISM Services index for August came in at 59.9, beating expectations of 59.0. This is the highest reading since February, and indicates that the US service sector is continuing to expand at a strong pace.
The strong ISM data is likely to keep pressure on equities, which have been on a downward trend in recent weeks, as investors have become more concerned about the prospect of rising interest rates,
US Dollar and Yields Stay Supported
The US Dollar and US Treasury yields continued to be supported by the strong ISM data. The Dollar Index rose to a new 20-year high of 104.50, while the 10-year Treasury yield rose to 3.25%.
The continued strength of the US Dollar is a reflection of the view that the US economy is outperforming other major economies. This is likely to continue to weigh on risk assets such as equities and commodities.
British Pound Under Pressure After BoE’s Softer Tone
The Bristish Pound fell sharply after the Bank of England (BoE) took a softer tone on interest rate hikes.
The BoE said that it is “prepared to act” if inflation continues to rise, but it also said that it is “not on the path”to raising interest rates aggressively.
The softer tone from the BoE is a reflection of the fact that the UK economy is facing a number of headwinds, including the ongoing uncertainty surrounding Brexit.
This is likely to keep the Pound under pressure in the near term.
On the back of the GBP sell off, we are seeing potential for some upside on GBPJPY – waiting for the bid now is key.
Key Economic Data to Watch
The main economic data to watch today is the US Jobless Claims report. The report is expected to show that the number of Americans filing for unemployment benefits fell by 20,000 to 235,000 in the week ending September 2nd.
Another key data point to watch is the EIA Crude Oil Inventory report. The report is expected to show that US crude oil inventories fell by 1.5 million barrels last week.
Overall risk sentiment is negative
Overall risk sentiment is negative this morning, with classic risk assets like equities, high beta FX, and commodities all trading mostly lower. Safe havens are mixed, with bonds lower, and safe haven FX and equity vols mixed.
The biggest influence on overall risk sentiment today will be incoming US data.
Keep in mind, risk sentiment can be fickle, so tracking it throughout the session is key.
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