U.S., UK And EU Economies Under Pressure, Reveals PMI data

Traders continue to wait eagerly for the Jackson Hole Symposium, where the Federal Reserve and other Central Banks will speak. Although the event is not made public, comments shared by the officials can impact the market. The Federal Reserve is one of many powerful and influential institutions that will attend.

The US dollar index has declined slightly after the release of the British, German, and French Purchasing Managers’ Index (PMI) reports. The PMI for all three countries showed economic pressure but partially performed better than expected. Currently, the dollar index is priced at 109.00, which is 0.02% lower than the daily open price.

The market is now waiting for the release of the US Services and Manufacturing PMI, which are both deemed to be major price drivers. New Home Sales and the Richmond Manufacturing Index are also scheduled to be released later today. These are known to have a weaker effect on the dollar but can still influence the price.

Crude oil reached a new weekly high and has corrected back to prices seen before the significant decline on Aug. 12. Currently, the price is at $92.05. It has been supported by comments from the Saudi Arabian Energy Minister. This morning, the minister advised that the Organization of the Petroleum Exporting Countries (OPEC) may potentially cut output if the price significantly declines and remains volatile.

As mentioned above, the main influential factor released throughout the day so far is the UK’s PMI report. The Manufacturing PMI was extremely negative and came in much lower than initially predicted by the market. The indicator fell from 52.1 points to 46.0 points in the industrial sector, technically in the contraction zone.

This marked its lowest since May 2020 in the depths of a pandemic-related lockdown, amid lower consumer demand, staff shortages, and likely due to strikes that have occurred recently.

Even though the Services PMI was higher than initially expected, it is still slightly lower compared to the previous month. Analysts have advised that inflation will likely significantly pressure Services PMI levels within all economies.

Jan Hatzius, the Chief Economist at Goldman Sachs, advised Bloomberg that the Services sector is seeing significant inflation levels, such as rent prices. He also added that the Eurozone, UK, and China are at greater risk of falling into a recession when compared to the US.

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Over the past month, many economists have advised that the US dollar is more attractive than the Great British pound. This may be true as the Fed has been more hawkish and the dollar also holds the status of a “safe-haven currency”. However, traders need to note that there have been signs of weakness in the economy within certain US sectors, such as the construction industry and mortgage market.

h2 S&P 500 View/h2

The S&P 500 has shown signs of gains in this morning’s futures market and is currently slightly higher than the price at the market open. Traders eagerly await the reaction after the New York Exchange bell rings. So far, the Index has declined in appetite and confidence within the market.

For example, Starbucks (NASDAQ:SBUX) has declined by 3.42% over the past 2 days. The decline occurred even though the company earnings were positive, and demand increased for its products throughout July and early August.

The earnings per share amounted to $0.84, which exceeded the consensus estimate of $0.77. The company's revenue grew by more than 7.0%. So, we can see here how investor confidence within the market can overshadow fundamentals. 

Written By: NAGA