The US dollar index traded down to its lowest levels this year, touching 101.32 points in yesterday’s session. The weakness in the greenback comes amid expectations that the US Federal Reserve could cut interest rates by 25 basis points in September, with the potential for more cuts to follow in the run into year end.
Fed chair Jerome Powell is speaking at Jackson Hole tomorrow evening, and markets will be listening for any clues about the pace and timing of interest rate changes, or the elements in the US economy that could drive them. That said, it would be unusual for a Fed chair to make explicit policy comments outside of the Federal Open Market Committee (FOMC) meetings. As far as the macroeconomic calendar is concerned, the release of the FOMC minutes at 7pm (UK time) is today’s highlight.
Equity markets cooled slightly yesterday as there were few fresh catalysts, at least on the upside. As noted yesterday, the S&P 500 and the Nasdaq 100 have enjoyed multi-day rallies of late, but that winning streak came to an end on Tuesday with both indices finishing the day down by 0.2%. It was a similar story in Europe, with most major indices posting modest losses. The exception was the Italian MIB, which clawed its way to a 0.6% gain.
There were gainers among the Euro Stoxx 50 constituents, the best of those being Inditex, the owner of the Zara fashion chain, which rallied by 1.3%. Specialty chemicals group BASF gained 0.6% on the session, while lift maker Kone Oyj put on 0.5%. The stock recently bounced away from its 200-day exponential moving average, which has acted as support since May.
Bayer's honeymoon proved to be short-lived, with the biotech group falling by 2.8%. Pernod Ricard bucked the recent positive trend towards consumer discretionary stocks, falling by 2.2%, as did Adidas, which lost 1.6% on the day.
The biggest loser in Europe was BT Group, which fell by 6.4% as Comcast-owned Sky signed a deal with a rival network to provide high-speed broadband services to UK consumers and businesses, bypassing BT’s network completely. That news will have been a slap in the face to India’s Bharti Airtel, who recently acquired a 24% stake in the UK’s largest telecoms provider.
The best performing sector in the US yesterday was consumer staples, which added 0.53%, healthcare added 0.37%, but the energy sector slumped by 2.37%. Oil prices seem to have stabilised in Europe, with both US WTI and Brent crude posting modest gains in early trade today.
Gold had been widely tipped to have a further run, with $2,600 per ounce pencilled in by some as the next major target. However, the yellow metal hasn’t lived up to that promise yet, trading around $2,513 at the time of writing.