While European markets have struggled for direction this week with a slight downward bias, the FTSE100 is on course for its worst weekly decline in over a month.
US markets came under further pressure in the wake of the release of the latest Fed minutes sliding to one-month lows with the Nasdaq 100 leading the move lower, as both the S&P500 and Nasdaq fell further below their 50-day SMA’s.
The post minutes slide, and the prospect that rates could stay higher for longer looks set to translate into another weak open for Europe, with Asia markets also feeling the pressure over concerns about the prospects for the Chinese economy.
The minutes came across as reasonably hawkish, not altogether surprising given recent commentary from various Fed officials, however there was some surprise that only two members appeared to support keeping rates unchanged.
There was a broader consensus or concern that most participants continued to see significant upside risks to inflation, despite headline inflation having fallen to 3%, and that further rate rises might be needed.
Despite recent hawkish rhetoric from various Fed officials’ markets had got comfortable with the idea that the July rate hike was probably going to the last one.
Last night’s minutes called that assumption into question even as various Fed officials mulled that the risks around monetary policy was becoming two-sided, with some unease about how much further the central bank can go when it comes to further rate rises.
With an expectation that more rate hikes might be coming, US 10-year yields pushed to their highest levels since last October, while the US dollar pushed up to its highest levels in 6 weeks.
Last night’s minutes also serve to shift the market focus on to Jackson Hole next week and whether Fed chair Jay Powell will give any sort of steer on which way the Fed might lean next month.
It wasn’t just US yields that pushed higher yesterday, UK yields also pushed back to their highs of the month, after core CPI for July came in unchanged at 6.9%.
It’s set to be a quiet day data wise with the latest set of weekly jobless claims set to see a modest fall to 240k from last week’s big jump to 248k. Continuing claims, on the other hand fell back towards their lowest levels this year at 1,684k, and could see a move back above 1,700k.
EUR/USD – slipping towards the main support area at the 1.0830 area. Still feels range bound with resistance at the 1.1030 area.
GBP/USD – remains well supported above the recent lows at the 1.2600 area. A break below 1.2600 targets 1.2400. Until then the bias is for a move back above the 1.2800 area through 1.2830 to target 1.3000.
EUR/GBP – slipping further way from the 100-day SMA towards the 0.8530 area. Above the 100-day SMA targets the 0.8720 area.
USD/JPY – continues to edge higher, with support now at the 144.80 area. The move above the previous peaks at 145.10, opens the prospect of further gains towards 147.50.