✅ Daily Market Analysis - WEDNESDAY AUGUST 30, 2023

Key events:

USA - ADP Nonfarm Employment Change (Aug)
USA - GDP (QoQ) (Q2)
USA - Pending Home Sales (MoM) (Jul)
USA - Crude Oil Inventories


Tuesday witnessed a notable upsurge in Wall Street's activity, coupled with a dip in Treasury yields. This unfolding scenario unfolded amidst relatively low trading volumes, as the markets approached a holiday. The catalyst behind this movement was a series of less-than-stellar data releases, prompting investors to readjust their expectations concerning US monetary policy.

Remarkably, all three prominent US stock indices rounded off the session with substantial gains. This encouraging momentum was accompanied by investors' anticipation of crucial economic data that looms later in the week. The outcomes of these data releases hold the potential to significantly impact the Federal Reserve's future decisions on interest rates in the upcoming months.

NASDAQ index daily chart

SPX index daily chart

The magnetic pull of the big tech sector was palpable, especially as declining Treasury yields enhanced the appeal of high-valued growth stocks. This effect was particularly noticeable in the technology and consumer-focused segments, lending a helping hand to the overall upward trend of the market.

At the forefront of this positive movement were notable players like Meta Platforms Inc. (NASDAQ: META) and Alphabet (NASDAQ: GOOGL). Adding fuel to the upward trajectory, Alphabet launched its three-day cloud event, during which the company revealed its plans to intricately infuse artificial intelligence into its array of cloud-based products. This strategic move signaled a commitment to innovation and technological advancement.

Meta Platforms stocks daily chart

Alphabet stocks daily chart

The prevailing sentiment towards the technology sector remains decidedly upbeat, as highlighted by a recent Bank of America survey. The survey's findings revealed that the tech sector was one of the driving forces behind a substantial $3.7 billion investment inflow into stocks over the past week.

Treasury yields have continued their downward trajectory, influenced by recent economic indicators that have unveiled unexpected drops in both consumer confidence and job openings. These developments have ignited speculations that the Federal Reserve is leaning towards maintaining the current interest rate status in its upcoming September meeting.

The consumer confidence index, as measured by The Conference Board, retreated to 106.1 in August from the previous month's reading of 114, defying economists' earlier projections of 116.

The US Labor Department's recently published report on the Job Openings and Labor Turnover Survey (JOLTs), which provides insights into labor demand, indicated a decline in job openings in July, totaling around 8.8 million. This figure fell short of the anticipated 9.46 million.

In light of this data, which underscores the potential effects of the Fed's previous rate hikes, the probability of a pause in September has significantly increased. This likelihood has surged to nearly 90%, a noticeable rise from the previous week's 80%.

In the realm of foreign exchange (FX) markets, the week kicked off with a relaxed pace. Trading activities remained subdued, primarily due to the UK market's closure on Monday in observance of a national holiday. This closure, coupled with the absence of significant key data releases, contributed to lowered trading volumes during this period.

Currently, the Dollar Index (DXY) is hovering around the elevated range of 103.50, a level previously witnessed in both May and June. Investors are proceeding with caution and opting to wait for further validation from upcoming jobs data before initiating significant maneuvers aimed at potentially elevating the dollar from its current position. As we approach the imminent release of the payrolls report on Friday, an air of vigilant anticipation is likely to characterize the FX markets.

US Dollar Currency Index daily chart


Within the scope of the Japanese Yen, the US Dollar (USD/JPY) encountered a 0.5% decrease, leading the exchange rate to shift from its previous opening position of 146.45 the previous day, down to 145.82. Amidst a trading atmosphere marked by fluctuations, the USD/JPY pair exhibited a significant surge, propelling it to an overnight peak that reached a notable level unseen in the past 9 months, specifically at 147.38.

USD/JPY daily chart

The start of the week witnessed a measured upward movement for the British pound, a rise that can be attributed in part to the hawkish comments made by Bank of England Deputy Governor Ben Broadbent during the Jackson Hole event. Broadbent emphasized that the projected easing in the pace of inflation is expected to occur at a slower rate than its initial increase, thus providing a rationale for the continuation of a prolonged period of restrictive monetary policy. This stance has contributed to the currency's buoyancy.

Additionally, the British pound's momentum has received a boost from a tentative shift in sentiment towards risk-taking, coupled with a weakened US dollar. This change in sentiment is particularly notable as London markets resume full activity following the UK's national holiday.

GBP/USD daily chart

With the UK economic calendar offering relatively limited data points for the week, it's expected that external forces will maintain their significant influence on shaping the direction of the pound. One notable event to keep a close watch on is the impending speech scheduled for Thursday, to be delivered by Huw Pill, the Chief Economist of the Bank of England (BoE). This speech holds the potential to provide valuable insights and further clarity on the central bank's perspective, potentially leading to consequential movements in the pound's trajectory.