✅ Daily Market Analysis - TUESDAY AUGUST 29, 2023

Key events:

USA - CB Consumer Confidence (Aug)
USA - JOLTs Job Openings (Jul)

On Monday, Wall Street wrapped up the day with a positive tone, propelled by notable gains in companies like 3M and Goldman Sachs. This uptick came just ahead of the anticipated release of significant inflation and jobs data later in the week. The forthcoming data carries the potential to offer valuable insights into the Federal Reserve's future course of action regarding interest rates.

Particularly, 3M saw a substantial surge of 5.2% in its stock value. This surge was triggered by reports suggesting that the conglomerate has tentatively reached an agreement to resolve over 300,000 lawsuits linked to the sale of faulty combat earplugs to the US military. The reported settlement amount is said to surpass $5.5 billion.

3M stock daily chart

All three major stock indices exhibited upward momentum as investors digested the comments made by Fed Chair Jerome Powell last Friday. These statements highlighted the prudent stance adopted by Powell and his colleagues at the Federal Reserve in their handling of adjustments to monetary policy. Their objective is to effectively address the escalation in prices while avoiding any disruptive repercussions on the overall economy.

NASDAQ index daily chart

SPX index daily chart

DJI index daily chart

According to the CME's Fed Watch Tool, there is an approximately 80% chance that the Federal Reserve will maintain borrowing costs within the range of 5.25% to 5.50% in its upcoming September meeting. Meanwhile, the likelihood of a 0.25 percentage point rate increase during the November gathering stands just below 50%. This marks an increase from the previous week's probability of around 35%.

The imminent release of the personal consumption expenditure index, which is the preferred gauge of price growth for the Fed, on Thursday, will offer the central bank an occasion to evaluate the direction of inflation.

US Effective Federal Funds Rate

Furthermore, policymakers will meticulously scrutinize the nonfarm payrolls report for August, which is slated for release on Friday. According to economists' projections, there is an estimated addition of 170,000 jobs in the US during the month, indicating a decline from the 187,000 positions added in July. Concurrently, the unemployment rate is expected to remain steady at 3.5%. Such an outcome might imply that the Fed's succession of rate hikes could be influencing employers' appetite for labor, even as the overall job market maintains its tight characteristics.

While the US Dollar (USD) displayed a relative lack of strength against most G10 currencies, its behavior took a divergent path when compared to the Japanese Yen (JPY). In this context, the JPY's movement was swayed by the prevailing risk-on sentiment within the trading landscape. This sentiment was further influenced by the elevated short-term yields observed in US Treasury bonds.

USD/JPY 8H chart

Out of the myriad of currencies, the Australian Dollar (AUD) emerged as the leader in terms of making strides against the USD. The AUD's substantial strengthening can be ascribed to a convergence of multiple factors. Among these factors, one notable contributor was the affirmative measures undertaken by Chinese authorities to bolster their domestic equity market. Moreover, the AUD's performance was further boosted by robust retail sales data originating from Australia. The intricate interaction of these favorable circumstances coalesced to result in a noteworthy uptick in the Australian Dollar's value within the currency markets.

AUD/USD 8H chart

During the entirety of August, the EUR/USD currency pair has been entangled in the repercussions of a resurgent USD. Concurrent with the overarching shifts of the USD against diverse currencies, a consistent flow of unfavorable news related to the Euro (EUR) has played a substantial role in shaping this evolving trend.

EUR/USD daily chart

Of particular significance is the ongoing downward trend in economic indicators originating from the Eurozone. This trend has exacerbated concerns about the path of the region's predominant economy, Germany, which is experiencing a rapid decline. This deterioration has prompted investors to reconsider their expectations regarding future interest rate hikes by the European Central Bank (ECB). As a result, the prevailing sentiment has shifted, with expectations of any imminent rate hikes now being subdued.