US Stocks Stabilize Amid Economic Concerns; Global Currencies and Commodities React to Mixed Data | Daily Market Analysis

Key events:

• USA - ADP Nonfarm Employment Change (Aug)
• USA - Initial Jobless Claims
• USA - S&P Global Services PMI (Aug)
• USA - ISM Non-Manufacturing PMI (Aug)
• USA - ISM Non-Manufacturing Prices (Aug)
• USA - Crude Oil Inventories

US stocks stabilized on Wednesday as Wall Street sought to recover from the significant losses incurred during the previous session, driven by concerns over a potential economic slowdown. The Dow Jones Industrial Average rose by 121 points (0.3%), the S&P 500 gained 9 points (0.2%), and the Nasdaq Composite increased by 26 points (0.2%).

The sharp declines on Tuesday, following the Labor Day holiday, were prompted by disappointing US manufacturing data that heightened fears about the economic outlook.

In early trading, Nvidia shares experienced a slight recovery after earlier losses. Bloomberg News reported that the company received a subpoena from the US Department of Justice related to an investigation into its dominance in the AI chip market. Nvidia shares had initially dropped 1% in premarket trading.

Investors remain cautious as they await Friday's pivotal US jobs report, which is expected to provide key insights into the American economy and influence the Federal Reserve's decisions on interest rate adjustments. Ahead of this, the Job Openings and Labor Turnover Survey, a key indicator of labor demand, is scheduled for release. It is expected to show a decrease in available positions for July, with a forecasted decline to 8.090 million from 8.184 million in June.

Globally, the Japanese Yen maintained its strength against the US Dollar, buoyed by a second consecutive month of rising real wages in Japan. July's Labor Cash Earnings increased by 3.6% year-on-year, a slowdown from June's 4.5% but still the highest since January 1997, surpassing market expectations of a 3.1% gain. This strong performance has fueled speculation that the Bank of Japan may consider another interest rate hike before the end of 2024. BoJ Board Member Hajime Takata expressed confidence that the inflation target remains within reach, despite some signs of economic weakness and market volatility.

The Australian Dollar edged higher against the US Dollar after better-than-expected Trade Balance data for July, with the surplus expanding to 6,009 million. However, the currency faced downward pressure after recent GDP growth data fell short of expectations, and a private survey showed ongoing contraction in the manufacturing sector, extending a two-year decline.

The NZD/USD pair struggled around 0.6195 during early Thursday trading, weighed down by concerns over China's economic slowdown. Bank of America Global Research lowered China's GDP forecast from 5.0% to 4.8%, raising alarms about the downturn. Additionally, the Chinese Caixin Services PMI for August fell to 51.6 from 52.1 in July, further dampening sentiment. Given China's importance as a major trading partner to New Zealand, this negative outlook could limit the pair's upside.

The GBP/USD pair maintained a positive bias around mid-1.3100s during Thursday's Asian session but lacked strong momentum to surpass the previous day's highs. The British Pound continues to benefit from expectations that the Bank of England's rate-cutting cycle will likely be slower than that of the Eurozone or the United States. This sentiment was reinforced by a British Retail Consortium survey showing a 1.0% year-on-year increase in spending for August, the strongest rise since March. A softer US Dollar also supported the GBP/USD pair.

Gold prices edged higher during Thursday's Asian session, building on the previous night's rebound from the $2,472-2,471 range, a near two-week low. A US labor market report on Wednesday showed job openings falling to a three-and-a-half-year low in July, increasing expectations for a larger interest rate cut by the Federal Reserve in September.

This bolstered the appeal of gold as a safe-haven asset. However, gold prices lacked strong follow-through buying, as traders remained cautious ahead of Friday's crucial US nonfarm payrolls (NFP) report. In the meantime, Thursday's US economic data, including the ADP report on private sector employment, Weekly Jobless Claims, and ISM Services PMI, will be closely monitored for short-term opportunities. Expectations of an imminent start to the Fed's policy easing cycle should continue to support gold prices.