The Shadow of Uncertainty: a Trend of Dips Across the Global Economy

Traders continue to wait eagerly for the Jackson Hole Symposium where the Federal Reserve and other Central Banks will speak. Although the event is not made public, comments shared by the officials can impact the market. The Federal Reserve is one of many powerful and influential institutions that will attend.

The US Dollar Index has declined slightly after the release of the British, German, and French Purchasing Managers’ Index (PMI) reports. The PMI for all 3 countries showed signs of economic pressure, but partially performed better than expected. Currently, the Dollar index is priced at 109.00 which is 0.02% lower than the daily open price.

The market is now waiting for the release of the US Service and Manufacturing PMI which are both deemed to be major price drivers. New Home Sales and the Richmond Manufacturing Index are also scheduled to be released later today. These are known to have a weaker effect on the Dollar, but can still influence the price.

The price of crude oil reached a new weekly high and has corrected back to prices seen before the significant decline on the 12th August. Currently, the price is at $92.05 and has been supported by comments from the Saudi Arabian Energy Minister. This morning, the minister advised that the Organization of the Petroleum Exporting Countries (OPEC) may potentially cut output if the price significantly declines and remains volatile.

GBP/USD

As mentioned above, the main influential factor which has been released throughout the day so far is the UK’s PMI report. The Manufacturing PMI was extremely negative and came in much lower than originally predicted by the market. In the industrial sector, the indicator fell from 52.1 points to 46.0 points, which technically is in the contraction zone. This marked its lowest since May 2020 in the depths of a pandemic-related lockdown, amid lower consumer demand, staff shortages, and likely due to strikes that have occurred recently.

GBP/USD 12-hour price chart on August 23rd.

Even though the Service PMI was higher than originally expected, it is still slightly lower compared to the previous month. Analysts have advised that the level of inflation is likely to significantly pressure Service PMI levels within all economies. Jan Hatzius, the Chief Economist at Goldman Sachs, advised Bloomberg that the Service sector is seeing significant levels of inflation, such as rent prices. He also added that the Eurozone, UK, and China are at greater risk of falling into a recession when compared to the US.

Over the past month, many economists have advised that the US Dollar is more attractive than the Great British Pound. This may potentially be true as the Fed has been more hawkish and the Dollar also holds the status of a “safe-haven currency”. However, traders need to note that there have been signs of weakness in the economy within certain US sectors such as the construction industry and mortgage market.

S&P500

The S&P500 has shown signs of gains at times in this morning’s futures market and is currently slightly higher than the market open price. Traders are eagerly waiting for the reaction after the New York Exchange bell rings. So far, the Index has declined in appetite and confidence within the market. For example, Starbucks has declined by 3.42% over the past 2 days. The decline took place even though the company’s earnings were positive and had increased demand throughout July and early August. The earnings per share amounted to $0.84, which exceeded the consensus estimate of $0.77. The company's revenue grew by more than 7.0%. So, we can see here how the investor confidence within the market can overshadow fundamentals.

Key Takeaways:

• The US Dollar shows mixed price movements throughout the day as investors wait for the latest PMI report.
• UK PMI figures indicate economic contraction.
• Jan Hatzius, the Chief Economist at Goldman Sachs, advises the markets that the US is in a better position than its competitors.
• The US Stock market declines even with the positive earnings.