Volatile Moves, Tech Surges, and Central Bank Remarks Shape the Landscape | Daily Market Analysis

Key events:

• USA - ADP Nonfarm Employment Change (Aug)
• USA - GDP (QoQ) (Q2)   
• USA - Pending Home Sales (MoM) (Jul)
• USA - Crude Oil Inventories

On Tuesday, Wall Street experienced a surge in activity, accompanied by a decline in Treasury yields. This occurred within the context of light trading just before a holiday, prompted by a set of underwhelming data that compelled investors to recalibrate their projections regarding US monetary policy.

All three major US stock indices concluded the session with significant gains, with investors casting their gaze forward to pivotal economic data scheduled for later in the week. This data carries the potential to influence the Federal Reserve's decisions on interest rates in the forthcoming months.

The allure of big tech was evident as falling Treasury yields, which render higher-valued growth stocks, including tech and consumer-oriented ones, more appealing, contributed to the broader market's upward trajectory.

Meta Platforms Inc. (NASDAQ: META) and Alphabet (NASDAQ: GOOGL) spearheaded this upward movement. Alphabet initiated its three-day cloud event, during which it unveiled strategies to integrate artificial intelligence more extensively into its suite of cloud products.

The prevailing sentiment towards the technology sector remains positive, as underscored by a recent Bank of America survey revealing that tech was among the prime sectors driving a $3.7 billion influx into stocks during the past week.

Treasury yields maintained their downward trajectory as the most recent economic indicators unveiled an unforeseen decline in consumer confidence and an unexpected drop in job openings. These developments have fueled speculations that the Federal Reserve is inclined to maintain the status quo on interest rates come September.

The Conference Board's consumer confidence index retreated to 106.1 in August from the previous month's 114, defying economists' projections of 116.

The US Labor Department's recent report on Job Openings and Labor Turnover Survey (JOLTs), a gauge of labor demand, demonstrated that job openings in July diminished to approximately 8.8 million, falling short of the anticipated 9.46 million.

In the aftermath of this less-than-anticipated data, indicative of the potential impact of the Fed's previous rate hikes, the likelihood of a Fed pause in September saw a substantial increase, surging to nearly 90% from the 80% mark recorded in the previous week.

The foreign exchange (FX) markets initiated the week at a leisurely pace. Trading exhibited subdued activity, primarily attributed to the closure of the UK's markets in observance of a national holiday on Monday. This absence contributed to reduced trading volumes. Furthermore, the economic calendar lacked noteworthy key data releases during this period.

Presently, the DXY (Dollar Index) is situated around the elevated range of 103.50, a level previously observed in both May and June. Investors may opt to exercise caution and await validation from forthcoming jobs data before initiating significant maneuvers aimed at propelling the dollar to higher levels from its current stance. An approach of watchful anticipation could potentially dominate the FX markets as they progress toward the impending Friday release of the payrolls report.

In the context of the Japanese Yen, the US Dollar (USD/JPY) experienced a decline of 0.5%, with the exchange rate dropping from its opening level of 146.45 yesterday to 145.82. Within a volatile trading environment, the USD/JPY pair underwent a notable surge, reaching an overnight peak and attaining a level not seen in 9 months, namely 147.38.

The British pound commenced the week with a moderate upswing, partly attributed to the hawkish remarks articulated by Bank of England Deputy Governor Ben Broadbent during the Jackson Hole event. Broadbent underscored that the projected deceleration in inflation's pace is anticipated to be more gradual than its initial surge, justifying the need for an extended period of restrictive monetary policy. Furthermore, the pound's momentum is being augmented by a tentative shift toward risk-taking sentiment and a weakened US dollar. This shift is particularly notable as London markets resume activity following the UK's national holiday.

Given the relatively sparse UK economic calendar for the week, external factors will likely continue to be the predominant influencers on the pound's trajectory. An event of significance to monitor is the upcoming speech on Thursday by BoE Chief Economist Huw Pill.