European and US futures are trading mostly lower as traders are a little hesitant ahead of a number of economic events that will unfold, and they are also picking up momentum from Asia. The ongoing weakness in the Japanese yen against the dollar could not only become a serious problem, but this could be the actual black swan event. The currency is trading near 38-year lows, while most traders believe that the primary reason for this is nothing more than a wide difference in the monetary policies between the two central banks.
Eurozone’s Economic Data
Traders in Europe are focusing on the most important economic event, which will not only bring fresh news about the inflation situation in the Eurozone but also provide clues about the next monetary policy for the European Central Bank. Yesterday, we saw a further drop in the inflation rate for the biggest economy in the Eurozone—Germany. The preliminary German CPI m/m came in at 0.1%, whereas the forecast was for 0.2%. Furthermore, we saw the German Final Manufacturing PMI numbers coming in at a higher number than expectations, giving traders and investors more confidence that things are actually improving for the Eurozone’s economic engine.
Later today, we are expecting the Eurozone’s CPI number. As we discussed yesterday, monitoring the inflation situation in the Eurozone’s major economies, such as France, Germany, and Italy, is crucial. However, the region’s overall inflation data significantly influences the Euro. The forecast for today’s number is 2.8%, a further drop from the previous number of 2.9%. Regarding the CPI flash estimate y/y, the forecast is for 2.5%, whereas the previous number came in at 2.6%. If the number drops to 2.8%, traders and investors would expect the president of the Eurozone Central Bank to show a bit more satisfaction with the current monetary policy. Later on, we expect her to speak at a central bank panel event. However, if we witness an increase in inflation rates, similar to those in Australia, it could lead to more challenging situations for her, potentially prompting her to shift her stance from neutral to hawkish, signifying a reduced willingness for additional interest rate reductions throughout the year.
Powell’s Speech and JOLTS Data
Over in the US, there are two important things to watch out for: Firstly, we have the Fed Chairman, Jerome Powell, along with the President of the ECB, as previously mentioned. Second, there is the JOLTS data. The expectations for the JOLTS job opening number are 7.96 million, while the previous number came in at 8.06 million. Therefore, if the actual number aligns with the forecast, the Fed will face less pressure to rationalize the ongoing job market weakness. However, if the number falls far away from expectations, then we could actually be looking at a situation where bad news may become good news as market players will continue to think that it is the Fed’s hawkish monetary policy that is responsible for the slowdown in the job market, and they need to get their act together in order to stop further weakness in the market.
Traders will be keeping a close on the US 30 index, the Dow Jones 30, as the data will come into the spot light and the Fed Chairman will make his comments. The important levels are shown on the chart below
Gold
With no clear trend in sight, the precious metal continues to move in a sideways direction. This is because, on the one hand, gold traders are confused about the consistent noise that is coming from the FOMC members, and on the other hand, the economic data is telling them a very different story. It is pretty evident that there is weakness in the US economic data, and traders have been expecting a more dovish tone from the Fed. However, because the labor data itself has also given mixed signals, traders are unsure whether overall economic data can push the Fed to make a dovish move. In addition, the US equity markets had a stellar quarter, building on their remarkable performance in the first half of this year. Mid- and large-cap companies continue to drive momentum, and a notable AI trader significantly boosted the market on the first trading day of the second half. Overall, traders are becoming more comfortable with taking risks, indicating a decreased fear or interest in safe haven assets, which is contributing to the decline in the gold price.
On the date of publication, Naeem Aslam did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
