The DAX is paring losses from yesterday as Germany, and the EU are set to reach gas storage targets two months ahead of schedule. European natural gas prices fell sharply.
· German inflation data is expected to rise to 8.8% YoY, up from 8.5%
· GBP/USD remains depressed near 2-year lows at 1.17
· US JOLTS job openings are expected to be 10.6 million; a tight jobs market could hurt demand for stocks
Global stocks closed lower yesterday as investors continued digesting Federal Reserve Chair Powell’s speech at Jackson Hole. The message was clear: the Fed is willing to keep interest rates elevated to stamp out inflation and prevent elevated prices from becoming a permanent fixture in the US economy.
The Nasdaq closed a further 1% lower, and the S&P 500 booked losses of 0.7%. Meanwhile, the USD briefly rose above 109.00 to a fresh 2-decade high.
GBP/USD was a clear loser, dropping to 1.1667, its lowest level since May 2020, despite expectations that the BoE will hike rates aggressively in September. Recession fears are mounting after Ofgem’s 80% increase of the energy price cap. This move will hit household disposable incomes hard at a time when consumers are already under significant pressure. GBP/USD trades flat at 1.17
EUR/USD rose off session lows to close 0.3% higher, helped by a hawkish message from ECB policymakers who are prepared to keep hiking rates even if the region falls into recession.
EU gas storage target met.
Today the market mood is cautiously buoyant. The FTSE points to a 0.3% rise on the open, and the DAX is set to open 0.5% higher, rising from a 6-week low of 12705 reached yesterday.
News that Germany and the EU are reaching their gas storage target early pulled European natural gas prices sharply lower and has boosted the market mood. The EU set the goal to fill reserves by 80% by November as Russia cut supplies. This goal is to be achieved two months ahead of forecasts helping ease energy security fears and inflation worries. Surging gas prices amid tight and falling supply have been key contributors to the cost of living crisis, inflation, and recession fears.
German inflation
Attention will now turn to German inflation data, which is expected to show that prices rose again in August to 8.8% YoY, up from 8.5% in July, as energy and food bills climbed. With PPI at 37.2% and expected to feed into consumer prices, peak inflation doesn’t appear to have passed in Germany. Hot inflation data will fuel expectations that the ECB will hike rates by 75 basis points in the September meeting rather than 50 basis points.
Looking ahead
Looking ahead to the US session, US consumer confidence data is expected to rise off record lows. The Conference Board data will likely rise to 97.9, up from 95.7, potentially supported by the strong US jobs market.
Jobs will also be in focus with JOLTS job openings, which are expected to show that vacancies remain very high at 10.6 million. While the data is expected to highlight the ongoing tightness in the labour market, vacancies are also down from 11.5 million at the start of the summer. The data comes ahead of Friday’s critical jobs report. A strong jobs market will likely encourage the Fed to keep hiking rates aggressively, which could be bad news for stocks but supportive of the USD.
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