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Risk markets on heightened alert as economic data comes in worse than expected

Equities, fixed income, and forex all shouted risk-off today but following the London close, there has been some backtracking of that bearishness. The commodity pairs are suffering as the US dollar holds up and the Chinese data signals a weakening global economy. Covid continues to disrupt everything so there is little to be optimistic about.

Market Wrap

The overall forex market has been risk-off today, with some fluctuation in the US dollar pairs.

The worsening economic data didn’t stop with Chinese retail sales growth and industrial output, the US NY factory growth also slowed from last month’s record rate.

Expectations for the US NY Fed Manufacturing for August were 29.0 so a reading of 18 is a massive miss. New orders and Employment were a real problem with the previous reading of 33.2 & 20.6 dropping to 14.8 & 12.8 respectively.

The data this last few trading sessions is getting progressively worse for China and the USA, so when you add in some summer market volume and a bit of geopolitical craziness, the markets begin to feel more skittish. Analysts are preparing for the worst and seeing the Nasdaq drop today but bounce back along with Oil and the US dollar, we could be just finding the edges of the trading ranges before the FOMC meeting minutes.

The move into the Japanese yen is also keeping the USDJPY back in step with the US 10 year treasury yields.

Today the US Treasury sold $58bln of the most sort after short-term treasury bills which may have has some reason for the selloff in the yields today. The TLT which is the long bond ETF had made a move higher into an old level of support and resistance but retraced that by the end of the London session.

Keeping an eye on the bonds and fixed income markets will help us gauge how fearful the markets are right now, as a move into fixed income products is also a move into safe-haven protection. In other Fed news, the NY Fed conducted $1.04trn of Reverse Repos today, slightly down from the previous operation. This is when the prime banks have too much money and not enough collateral, which again gives another reason why the treasuries may find a bid.

The US dollar is suspended between recent resistance and support levels and no doubt will stay there unless there is a safe haven move due to a massive macro event or until the FOMC come out super-Hawkish.

Crude is being pushed around by the US dollar bust also fears of the global demand easing due to the continued disruptions from the Covid-19 Delta variant. OPEC+ also announced that it doesn’t need to up supply and that is going against the request of the USA which had called for cruder. That move would have resulted in lower energy prices and would help curtail the inflation of goods and services.

The US equities space is all trading below their opening price but the Dow, S&P, and Nasdaq are all attempting to regain their initial balance range, with the S&P500 and DJIA trading -0.08% & -0.02% respectively at the time of writing.

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