Market sentiment slightly improved on Wednesday as the global bond market cooled off after bond yields hit multi-year highs, easing recession fears. This shift was supported by softer U.S. employment data, cautiously optimistic statements from Federal Reserve (Fed) officials, and the release of the Fed's Beige Book, which showed little change in economic activity. Additionally, the lack of new developments in Donald Trump’s legal battles, including his challenge of U.S. court rulings on tariffs, helped bolster market sentiment. Despite these positive factors, Trump continued to issue warnings about geopolitical risks, especially concerning China’s stock trading curbs and its anti-dumping duties on U.S. optical fiber, which briefly unsettled the markets.
Turning to U.S. data, July Factory Orders improved by 1.3% month-over-month, better than the expected -1.4%, while Job Openings (JOLTS) dropped to 7.181 million, the lowest level since March 2021. Fed officials also gave slightly upbeat comments, though their statements failed to drive significant movement in the U.S. Dollar. Raphael Bostic, Atlanta Fed Chief, expressed expectations for a 0.25% rate cut this year, although he noted that businesses are still optimistic about the economy. St. Louis Fed President Alberto Musalem supported the current restrictive policy stance, while Fed Governor Christopher Waller suggested that the Fed could cut rates in the next meeting but may not do so at every meeting. Minneapolis Fed President Neel Kashkari emphasized that the Fed's work to tackle inflation is far from over.
On the global front, the bond market woes eased after long-term yields in the U.S., Japan, Germany, and the UK spiked earlier in the week, raising recession concerns. The cooling in bond yields helped improve risk sentiment, although concerns over geopolitical issues remained. China’s decision to impose new anti-dumping duties of 33.3%–78.2% on U.S. optical fiber imports dampened market sentiment, as did reports suggesting China may curb stock speculation to foster more stable market conditions. This news weighed on Chinese equities and, in turn, reduced risk appetite across the Asia-Pacific region. Meanwhile, Trump continued to criticize China’s relationships with Russia and North Korea, while also defending his tariffs and his decision to fire Fed Governor Lisa Cook, despite a court ruling reinstating the Federal Trade Commission (FTC) head he had fired.
In Japan, trade negotiator Akazawa announced that administrative issues had been resolved with the U.S., and Japan would continue pushing for a presidential order to implement agreements on tariffs. He also mentioned that there was no need for an early leadership election in Japan's ruling Liberal Democratic Party (LDP), easing political fears in Tokyo. However, analysts at MUFG warned that if Prime Minister Ishiba were forced out, a new leader might push for more government spending.
Elsewhere, Bank of England (BoE) Governor Andrew Bailey acknowledged that the underlying driver of the steep UK yield curve was global factors and suggested that interest rates in the UK would likely continue trending down. BoE official Lombardelli noted that the neutral interest rate is likely in the upper half of the 2-4% range. In Australia, the Reserve Bank of Australia (RBA) Governor Michele Bullock warned that there may not be any interest rate cuts yet, despite strong trade balance data and record household spending figures.
Oil prices initially dropped following a report suggesting OPEC+ might consider an additional output increase this weekend, although later reports indicated that OPEC had already increased production by 400,000 barrels per day in August, in line with planned output hikes. This kept oil prices under pressure. Gold prices retreated from their record highs, partly due to selling from China. Meanwhile, cryptocurrencies saw gains due to a weaker U.S. Dollar and speculation surrounding MicroStrategy’s potential inclusion in the S&P 500, a development expected to be announced soon.
On the U.S. stock front, the Nasdaq and S&P 500 snapped a two-day losing streak, while the Dow Jones saw moderate gains. However, Salesforce stock fell 5.58% in after-market trading after the company’s revenue outlook came in weaker than market expectations, despite beating earnings forecasts.
In the currency markets, the U.S. Dollar Index (DXY) pulled back from a one-week high, although it bounced back early on Thursday. The EURUSD pair remained under pressure amid political uncertainties in the European Union and weaker-than-expected August PMIs for both the EU and Germany. The GBPUSD pair also eased, driven by economic concerns, while AUDUSD and NZDUSD failed to gain much traction, despite upbeat data and a reduced dovish stance from their central banks. USDCAD, on the other hand, extended its four-day winning streak, partly due to weaker oil prices, which negatively impacted Canada’s economy, as well as ongoing U.S.-Canada tensions.
In the Asia-Pacific region, equities drifted lower, with Chinese stocks leading the decline, while global bond yields remained subdued.
EURUSD remains under pressure, set for a second consecutive weekly loss, as recent weak EU data and growing EU-US political tensions weigh on the pair. Adding to the downward pressure are concerns ahead of key data releases from both the EU and the U.S., including EU Retail Sales, U.S. ADP Employment Change, Jobless Claims, and ISM Services PMI. Additionally, global tech giants are lobbying their governments, including the U.S., to oppose the EU's technology tax and stringent IT regulations, which further challenge the EURUSD despite its strong performance in August.
Similar to EURUSD, growing economic concerns in the UK, particularly after a sharp rise in 30-year British bond yields, are putting downside pressure on GBPUSD, pushing it toward a third consecutive weekly loss. On Wednesday, the final UK S&P PMIs for August came in stronger than expected, staying above the neutral 50.00 mark. However, early-week bond market fears and subsequent comments from Bank of England (BoE) officials, including Governor Andrew Bailey, have raised doubts, leading traders to worry about the economy’s outlook.
Meanwhile, USDJPY picks up momentum, reversing its previous day’s retreat from a five-week high, though it failed to break the 200-day moving average and ended a three-day winning streak. The pair benefits from a fresh rise in the U.S. Dollar, mixed concerns over potential Bank of Japan (BoJ) rate hikes, and ongoing trade tensions between the U.S. and Japan. These factors, combined with the yen's traditional safe-haven status and technical resistance levels, are making it challenging for buyers to push the pair higher.
AUDUSD struggles to capitalize on hawkish comments from RBA Governor Bullock, along with upbeat trade balance and household spending data, as it reverses Wednesday’s gains early Thursday. The Australian Dollar faces pressure from fresh news out of China, including strict curbs on equities, anti-dumping duties on U.S. fiber optic cables, and concerns over China's ability to sustain economic growth despite strong figures and stimulus measures. Similarly, NZDUSD also drifts lower, following the same trend as its Aussie counterpart, despite the recent easing of the dovish bias from the Reserve Bank of New Zealand (RBNZ).
Meanwhile, USDCAD rises for the fourth straight day to reach a weekly high, driven by softer crude oil prices—Canada’s key export—alongside growing concerns in U.S.-Canada relations and a dovish outlook for the Bank of Canada (BoC). The Canadian Dollar pair overlooks recent optimistic comments from Canadian Prime Minister Mark Carney, as traders remain cautious ahead of Canada’s trade numbers and Friday’s U.S.-Canada jobs reports.
Crude oil saw its biggest drop in five weeks on Wednesday and remains under pressure early Thursday, amid concerns about an OPEC supply increase, as reported by Reuters. The price is also weighed down by a surprise build in weekly inventories, according to the private industry report from API. Further, fears of lower demand due to global trade and political challenges, coupled with speculation about higher Russian oil exports—despite Moscow reporting a 6% drop in its latest oil exports—are keeping prices under pressure.
Gold posted its first daily loss after seven consecutive gains, retreating from its all-time high of $3,578 to $3,533, as the market consolidates ahead of several key U.S. data releases scheduled for Thursday and Friday. The retreat is also fueled by overbought technical indicators. However, despite the pullback, gold remains supported by its safe-haven status, and institutional demand is rising. A clear break above the $3,490 resistance level could reinvigorate buyers, keeping the outlook positive.
Bitcoin (BTC) and Ethereum (ETH) both posted their first daily losses in four and three days, respectively, as the U.S. Dollar strengthened and ECB President Christine Lagarde emphasized the need for stricter cryptocurrency regulations. However, speculation in crypto media outlets that Michael Saylor’s MicroStrategy (Nasdaq: MSTR) could soon be added to the S&P 500, with an announcement expected on Friday, helped maintain some optimism in the market.
In the Asia-Pacific region, equities were slightly lower, with China’s efforts to curb its stock market rally amid bubble concerns weighing on investor sentiment. The market was also impacted by an after-market slump in Salesforce shares, alongside a cautious mood ahead of quarterly earnings reports from Broadcom, Copart, and Lululemon.
In conclusion, market sentiment edged up as bond yields cooled, easing recession fears, while softer U.S. data and Fed comments supported a cautious optimism. However, geopolitical risks, especially involving China, and political tensions in the U.S. kept the upside in check. Oil prices faced pressure from concerns over OPEC output increases, and gold retreated from its record highs as technical factors weighed. Cryptocurrencies took a breather, though speculation around MicroStrategy's S&P 500 potential helped maintain some optimism.
Looking ahead, markets will be closely watching key data releases from the U.S. and the EU, including job reports and economic activity indicators. Geopolitical tensions and further developments in the bond market will also continue to influence sentiment. A cautious outlook is expected to persist until clearer economic signals emerge.
That said, the U.S. Dollar could maintain its recent strength, further pressuring EURUSD, gold, and the antipodean currencies (AUD and NZD). The USDJPY might attract sellers if resistance holds, but cryptocurrencies could behave differently, driven by industry-specific reports and market sentiment, potentially diverging from broader trends.
May the trading luck be with you!
