Today is an important day for markets as today’s economic events can bring a lot of fireworks for investors and traders. To begin the day, the economic docket shows that the German Ifo Business Climate number is coming out at 08:00 GMT. The data is set to record another weaker recording which will adversely influence the Euro and the DAX index. As Russia continues to weaponize the flow of gas through Nord Stream 1, it would be remarkable if these crucial economic indicators did not deteriorate further. Services and manufacturing are contracting, and energy costs are soaring to high levels.
As the economy began to reopen after the Covid lockdown, the IFO business climate dropped to its lowest level since June 2020 in July. With all the challenges the German economy is experiencing and the lowering Rhine river levels, it is unlikely that a further decline will come as a surprise; the only issue is by how much.
Remember, the Euro has been under tremendous selling pressure against the dollar, and only in the past two days have we seen a bear market rally which many believe is nothing more than a dead cat bounce.
At 12:30, we have the ECB’s Monetary Policy Meeting Accounts which traders will dissect to know if the ECB is ready to increase the interest rate by a full percentage point or if the rate hike will be only 50 basis points. Looking at the inflation data and PMI readings for the Eurozone, the odds are that ECB is likely to push the curve as much as the ECB can. We may see some serious canon fire from the ECB regarding their hawkish language.
At 12:30 GMT, the trading world will focus on only one data point. The US GDP Prem q/q number and the latest revision are expected to display the contraction of the US economy by -0.9%, which is higher than the market expectations of 0.7%. Although most US data is likely to paint a very gloomy picture, the silver lining is likely to be in the personal consumption number, which is expected to increase by 0.5% from 1% to 1.5%. Today’s numbers will create more confusion among investors and traders and send another mixed signal: the US economy is facing a technical recession, which will freak traders out. Still, at the same time, it will tell us a story that the labour market is robust. This is because, at 12:30, we also have the US Unemployment Claims data. For the past month or so, the number has fallen from its 8-month peak of 261K to nearly 250K, indicating that the US labour market is rock solid.
The data is very much going to set the tone for the main event for today, which traders have been waiting for, the Jackson Hole Symposium. All the spotlight will be on the Chairman of the Federal Reserve and his tone about the monetary policy. Market players have kept things in a tight range for the past few days as not many were ready to place bigger bets without knowing what the Fed has up its sleeves to lower inflation. The Fed Chairman will likely show his hawkish side in this event, given that inflation is orbiting near its 40-year high. The big question is how long will it take for the Fed to bring it back to its normal level, or will the markets have to adjust to a new normal level and what is that new normal level for inflation and its consequences for the US economy. It is possible that after the event, traders will be left with more questions than answers, and that could be a dangerous situation for US markets.
Oil traders are focused on two things and two things only, which is the possibility of the Iranian nuclear deal taking place, which could bring Iranian oil on the market. And secondly, and more importantly, the output from the OPEC cartel. There are a lot of rumours in the market that Iran’s nuclear deal is highly possible as the country has dropped some important demands from its deal. The tone from the US and its European allies seems highly positive and indicates that an agreement is likely to be reached. Saudi Arabia, a key player in OPEC output, has also started to talk about scaling back OPEC’s oil output. This addresses the core of concern among traders worried that Iranian oil could de-stabilize the oil supply and demand curve.
Both Brent and Crude oil prices are trading higher for now, and this is undoubtedly good news for oil traders but not so much good news for central banks trying to lower inflation.