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Negative Shift in Global Equity Markets

STOCK INDEX FUTURES

After maintaining a positive tone for most of this week, global markets have taken a negative shift in tone coming into this morning’s action. Rising totals in new COVID case counts for several Asian nations have cast a shadow over global risk sentiment. Asian stock market were mostly lower and were led to the downside by a moderate loss in the Shanghai Composite. European data included a lower than expected German Gfk survey and a slightly higher than forecast reading on French business climate. The North American session will start out with a weekly reading on initial jobless claims which are expected to have a minimal uptick from the previous 348,000 reading.

Ongoing jobless claims are forecast to have a moderate weekly decline from the previous 2.820 million reading. Second quarter gross domestic product is expected to have a modest uptick from the previous 6.3% annualized rate. Second quarter core personal consumption expenditures (a key Fed inflation gauge) are forecast to be in-line with their previous 6.1% reading. The Kansas City Fed’s August manufacturing index is expected to have a moderate decline from July’s 41 reading.

S&P 500: A third day of record highs yesterday is an impressive feat as the market is pricing in near ideal conditions. However, traders are having second thoughts overnight with weakness developing in Asia and Europe. China stock markets experienced heavy losses with blue chips down 1.47%. Asia is seeing a surge in Covid cases with Vietnam and Philippines posting record high case counts this week. A terror threat at the Afghanistan airport added to the uneasiness. The market does not seem to be reacting to news that the House of Representatives will push forward on ideas of a $5 trillion infrastructure package which includes 3.5 trillion in human infrastructure. There is still no technical sign of a peak with 4525.50 as next upside target. There is some light resistance at 4493.75, with support back at 4441.00 for the September E-mini S&P 500.

 CURRENCY FUTURES

DOLLAR: The Dollar has been able to regain a mildly positive tone this morning, but is holding within a fairly tight trading range in front of today’s US data and tomorrow’s speech by Fed Chair Powell at the Jackson Hole Symposium. Concern over rising COVID case counts in Asia has dampened global risk sentiment, and that has benefited the Dollar early today. Although there will be updated GDP and jobless claims readings for the market to digest, it may be the second quarter core PCE result that has the largest impact on the Dollar today as that data point is a key inflation gauge for the Fed. Near-term support is at 92.75 as the Dollar will need to see some surprisingly positive results from US economic numbers to break out of its tight pre-Jackson Hole trading range.

SWISS: The Swiss franc has fallen back on the defensive this morning as it has not benefited from safe-haven support while global markets shift into a modest “risk off” mood. Today’s Swiss employment reading came in higher than expected, and that adds to recent positive results in Swiss economic numbers. However, the SNB’s negative interest rate policy and intervention threats continue to be a source of pressure on the Swiss franc. Near-term resistance is at 1.0960 as the Swiss franc may have to wait on tomorrow’s Fed Chair Powell speech to regain upside momentum.

INTEREST RATES

Treasuries have held within a tight early trading range, but continue to hold onto a negative tone that they have seen since Tuesday. While the agenda for the Jackson Hole Fed Symposium will not be released until this evening, the fact that this year’s event is being held virtually (instead of in Jackson Hole, Wyoming) has injected some COVID-based anxiety into the market that has underpinned Treasury prices. However, uncertainty over what Fed Chair Powell will say tomorrow morning has helped to keep prices fairly stable in front of today’s US data. A negative shift in global risk sentiment due in part to rising COVID case counts in Asia has provided some underlying support to Bonds and Notes, but not enough to lift prices up into positive territory.

The latest readings for US durable goods and durable goods ex transportation were higher than forecast which gave a mild boost to risk appetites. The Treasury’s latest 5-year note auction on Wednesday saw a bid-to-offer close to the 6-month average, but also saw a slightly higher yield that the when-issued yield which indicates some softening of demand. The North American session will start out with a weekly reading on initial jobless claims which are expected to have a minimal uptick from the previous 348,000 reading. Ongoing jobless claims are forecast to have a moderate weekly decline from the previous 2.820 million reading. Second quarter gross domestic product is expected to have a modest uptick from the previous 6.3% annualized rate. Second quarter core personal consumption expenditures (a key Fed inflation gauge) are forecast to be in-line with their previous 6.1% reading. The Kansas City Fed’s August manufacturing index is expected to have a moderate decline from July’s 41 reading.

Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.

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