🥇 First rule of investing? Know when to save! Up to 55% off InvestingPro before BLACK FRIDAYCLAIM SALE

Marketmind: Transatlantic surprise gap opens up again

Published 2023-09-07, 06:20 a/m
© Reuters. The exterior of the Marriner S. Eccles Federal Reserve Board Building is seen in Washington, D.C., U.S., June 14, 2022. REUTERS/Sarah Silbiger/File Photo
GBP/USD
-
USD/CAD
-
CAD/USD
-
USD/CNY
-
AAPL
-
LCO
-
CL
-

A look at the day ahead in U.S. and global markets from Mike Dolan

The U.S. dollar is building another head of steam as doubts linger about whether the Federal Reserve is done tightening just yet, even as the rest of the world's major central banks hesitate or ease off.

As red-hot U.S. service sector growth accelerated through August, an already alarming gap in economic momentum between the United States on one side and struggling Europe and China on the other has started to widen again.

Positive U.S. economic surprise indices, which had been gradually easing back from post-pandemic highs through late summer, are pushing back higher again just as disappointingly negative euro zone equivalents turn lower. And the gap between those two gauges, which had halved from July peaks, is starting to yawn wider yet again.

Part of the drag on Europe is the ailing Chinese economy, its ongoing property bust and its contracting industrial sector.

Although the steep annual drop in Chinese exports and imports last month was marginally better than forecast, the ongoing funk in activity remains stark and threatens Beijing's overall economic growth target of about 5%.

Wednesday's news of another miss in German industrial production in July illustrated the ripple effects in Europe of troubles in the world's second biggest economy - and a resurgent crude oil price as winter hoves into view will unnerve both.

The contrast with a re-accelerating U.S. economy is stark.

The latest data saw U.S. interest rate futures go back to a 50-50 stance on whether the Fed has one last hike left in the tank. Although slightly off the week's highs on Thursday, U.S. Treasury yields remained pumped up.

And hovering just below six-month highs on Thursday, the dollar's index against the world's most traded currencies has now risen for six days in a row - a rise of almost 5.5% since the middle of July.

With Bank of England boss Andrew Bailey indicating on Wednesday that UK rate hikes are nearly done, the pound took most of the heat over the past 24 hours and hit three-month lows against the dollar.

The dollar also hit six-month highs against the Canadian dollar on Wednesday after the Bank of Canada left its policy rates on hold too.

With China's yuan recording its lowest close on domestic markets since 2007, weakness in the offshore unit has remerged too.

Annual changes in Brent crude oil prices, meantime, turned positive for the first time since January as spot prices climbed following this week's decision by Saudi Arabia and Russia to extend output cuts.

Attention now shifts back to what Fed policymakers make of this U.S. growth pickup, the rebound in energy prices and some mixed signals from the tight labor market.

At least six senior Fed officials are in speaking engagements later on Thursday - including Fed board member Michelle Bowman and New York Fed chief John Williams.

The Fed's Beige Book of economic conditions released on Wednesday appeared relatively relaxed about both the activity and inflation picture. The weekly jobless update later on Thursday is the most immediate focus on the data front.

Shares in China, Japan and across Asia were in the red again on Thursday and U.S. stock futures marked further losses on Wall Street at the open. Europe's bourses steadied after initially dipping for the seventh session in a row.

Shares of Apple (NASDAQ:AAPL) fell another 2.5% premarket on reports China is seeking to broaden an iPhone ban to state firms and agencies. Apple shed 3.6% on Wednesday on news Beijing had banned officials at just central government agencies from using its handsets.

Events to watch for on Thursday:

* U.S. weekly jobless claims, Q2 labor cost and productivity revisions

* Federal Reserve Board Governor Michelle Bowman, New York Fed President John Williams, Chicago Fed chief Austan Goolsbee, Philadelphia Fed chief Patrick Harker, Atlanta Fed chief Raphael Bostic and Dallas Fed chief Lorie Logan all speak. Bank of Canada Governor Tiff Macklem speaks

© Reuters. The exterior of the Marriner S. Eccles Federal Reserve Board Building is seen in Washington, D.C., U.S., June 14, 2022. REUTERS/Sarah Silbiger/File Photo

* U.S. President Joe Biden travels to India for four-day visit around weekend G20 Leaders' Summit in New Delhi

* U.S. Treasury auctions 4-week bills

(By Mike Dolan, editing by Susan Fenton mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.