The Economic Sentiment indicator in the Euro Area fell to 97.6 in August, from a downwardly revised 98.9 in July, and slightly below market forecasts of 98. This marks the lowest reading since February 2021 and comes amid significant weakening of confidence in industry and services, with both consumers and retailers feeling more pessimistic. Meanwhile, preliminary estimates showed that the annual inflation rate in the euro area accelerated to 9.1% in August from 8.9% in July, topping market forecasts of 9%. This represented a new record high, as energy cost remains elevated and food prices continue to accelerate.
The number of job openings in the US rose by 199,000 from a month earlier to 11.2 million in July of 2022, while markets had expected it to drop to 10.45 million. It was the first increase in job openings after three consecutive months of slight declines, reflecting persistent tightness in the labour market amid worker shortages.
The Caixin China General Manufacturing PMI (purchasing managers index) unexpectedly declined to 49.5 in August, missing market forecasts of 50.2, and points to the first contraction in the sector since May. The latest print reflected the impact of widespread COVID-19 lockdowns and electricity shortages. Output grew at its softest pace in three months, while both new orders and buying levels fell for the first time since May. Employment also fell for the fifth month running.
NEW MONTH, NEW LOSSES
Wall Street started September in the red, after shedding just over 4% in August, as concerns over rising interest rates continue to linger. The highly anticipated Non-Farm Payroll report, due out today, will be keenly watched to gauge the strength of the labour market. The Dow Jones was down almost 300 points on Thursday, and both the S&P 500 and the Nasdaq lost more than 1%. Energy and material stocks were among the worst performing sectors. Tech shares were also under pressure after Nvidia and AMD were instructed by the US government to halt exports of certain chips to China.
The FTSE 100 fell 1% on Thursday to its lowest in nearly six-weeks, following a 1.9% loss in August, pressured by commodity-linked stocks amid a drop in oil and copper prices. Among single stocks, Reckitt Benckiser’s shares were down 5% after the Anglo-Dutch consumer goods company announced that CEO, Laxman Narasimhan, will step down at the end of the month, after a three-year tenure.
Bourses in Europe also kicked off September in the red, with the DAX falling almost 2% and the STOXX 600 hitting a seven-week low after shedding 1.5%. European-based stocks ended August nearly 5% lower for the month.
The Nikkei 225 Index slipped 1.53% while the broader TOPIX Index lost 1.41% on Thursday, sliding to its lowest levels in almost a month, as a hawkish outlook on US interest rates and weak global economic data dampened investor sentiment.
POWER CONCERNS DRIVE URANIUM SKYWARD
Uranium futures rose above $53 per pound on Thursday, their highest since mid-May, as the uncertainty regarding energy supplies across the world drove governments to double down on alternative energy sources. Japanese Prime Minister, Fumio Kishida, ordered the development of new nuclear reactors to strengthen the country’s energy security and lower carbon emissions. The Japanese Nuclear Regulation Authority has also approved the reactivation of 17 existing reactors, while six reactors have already restarted operations. The move signals a historical pivot, as the country regains confidence in nuclear energy following the 2010 Fukushima power plant meltdown. In addition, California Governor, Gavin Newsom, proposed extending a $1.4 billion loan to extend the life of the Diablo Canyon Power Plant until 2025, while Swiss politicians launched a petition to revise the country’s nuclear energy policy and avoid power plant shutdowns.
Brent Crude futures dipped more than 2% to trade toward $93 per barrel on Thursday, after closing out the third consecutive monthly decline, as recession worries and a weakening demand outlook overshadowed concerns around tighter supply. Brent Crude has lost nearly 20% in the past three months as major central banks aggressively raised interest rates to combat surging inflation. Ongoing concerns over the strength of the Chinese economy, the largest importer of Brent Crude, also dampened the demand outlook.
Gold prices weakened past the key support level of $1,700 an ounce on Thursday, hovering at their lowest level in six weeks, pressured by the US Federal Reserve’s firm commitment in fighting inflation with aggressive policy tightening. Cleveland Fed President, Loretta Mester, said on Wednesday that the policy rate will have to be moved “somewhat above 4%” by early next year and stay there in order to bring high inflation back down to the Central Bank’s target, and that she does not anticipate rate cuts in 2023. While gold is widely considered as a hedge against inflation and economic uncertainty, higher interest rates raise the opportunity cost of holding non-yielding bullion, which dents its appeal.
CURRENCIES IN FLUX
The US Dollar Index rose above 109 on Thursday after a volatile few sessions this week. It climbed back toward its highest levels in 20 years as the US Federal Reserve appears intent on keeping interest rates higher for longer. Markets are currently priced for a third consecutive 75 basis point interest rate hike in September. The US nonfarm payrolls data, due today, is expected to show that the economy added 300,000 positions in August, which will strengthen the case for more aggressive rate hikes.
The euro managed to claw its way back above parity, trading just above $1, as investors weigh growth concerns and prospects that the European Central Bank (ECB) will continue to raise interest rates. Recent data showed the inflation rate in the euro area increased more than expected this month, raising the odds the ECB will also deliver a 75 basis point rate hike when it meets next week. However, several ECB members have recently advocated for a larger hike. However, concerns of an imminent recession in Europe continue to build, as the energy crisis intensifies, weighing on the common currency.
The pound remained on the backfoot, weakening past $1.18 and reaching its lowest level since March 2020, as the outlook of soaring inflation threatened to hurt the pound’s purchasing power and further damage the British economy. Citibank economists forecasted inflation will surge to 18.6% by the start of 2023, due to soaring wholesale gas prices, supported by expectations that the country’s retail energy price cap could reach £5,816 by April, compared to £1,971 currently.
The pound started the day trading at 1.1550/$ and 1.1580/€.
Written by Citadel Global Director, Bianca Botes
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