A look at the day ahead in U.S. and global markets by Dhara Ranasinghe.
If the pressure on global markets from the tumult at the start of the month has abated, nobody told the dollar.
The U.S. currency remains on the back foot — trading near its lowest level in more than a year versus the euro and Britain’s pound. The dollar index, reflecting the currency’s value against a basket of peers, is down 2.7% so far this month and is set for its biggest monthly drop since November.
For sure, the end of dollar resilience has long been anticipated and long been proved wrong, given strength in the economy and interest rates staying higher for longer.
Still, the latest developments suggest dollar pain will continue for now. First, Wednesday’s minutes from the Federal Reserve’s July meeting suggest the central bank appears to be set for a September interest rate cut.
Second, data showed U.S. employers added far fewer jobs than originally reported in the year through March, adding to a sense that labour market conditions are weakening.
And third, data on Thursday shows euro zone business activity displayed surprising strength in August despite firms raising prices, potentially weakening expectations for two more rate cuts from the European Central Bank this year.
Interest-rate futures are back to pricing in just over 100 basis points of Fed easing by year-end, compared to roughly 65 bps in the euro area.
Worth noting is that the ECB has already delivered a quarter point rate cut.
Thursday’s U.S. data calendar is light, with some focus on the release of the S&P Global flash August snapshot of business activity – the Purchasing Managers Index (PMI).
July U.S. existing home sales numbers are also due out.
U.S. stock futures were just a touch firmer, suggesting the positive momentum on Wall Street could continue.
Oil prices are also in many people’s sights after falling for a fifth straight day on concern about weakening demand in the global economy.
U.S. West Texas Intermediate crude, trading around $71.64 in early London trade, is hovering near its lowest levels since February.
Elsewhere, eyes are on plans for an unprecedented rail stoppage in Canada that could badly damage its economy and have a significant impact on cross-border trade with the United States.
Canadian National Railway and Canadian Pacific Kansas City have shut down their rail networks in the country on Thursday and locked out nearly 10,000 workers after unsuccessful negotiations with a major labor union.
The Canadian and U.S. economies are highly integrated, with rail transport accounting for 14% of total bilateral trade of roughly $382 billion between the countries for the first half of 2024, according to the U.S. Department of Transportation.
Vice President Kamala Harris, the Democrat candidate for the Nov. 5 U.S. presidential election, will address the Democratic National Convention in Chicago on its final night.
Key developments that should provide more direction to U.S. markets later on Thursday:
* S&P Global Flash PMI August
* U.S. July existing home sales
* Auction of 30-year U.S. TIPS
(Reporting by Dhara Ranasinghe; Editing by Philippa Fletcher)
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