The S&P 500 Index has already rebounded by more than 8 per cent from the bottom reached during ‘Black Monday’ and is now just 2.2 per cent below historic highs. A similar situation is taking place on almost all domestic indices, especially the Japanese Nikkei 225, which has gained more than 22 per cent since the peak of the panic. In order to better understand the current situation and assess whether we are in a recession, let us summarise the most important macroeconomic data from the United States. US GDP grew by 2.8 per cent in the second quarter. The disinflation process continues, although inflation remains above target. Unemployment rose from 3.5 per cent to 4.3 per cent, but is still lower than in most years of rapid growth. Despite the rise in unemployment, there was no increase in new unemployment benefits or a decline in job openings, which may indicate sectoral turnover among workers. Most companies reported an increase in second-quarter earnings, with as many as 75 per cent beating analysts' expectations. PMI leading indicators point to continued growth in the services sector and a slowdown in the industrial sector. Consequently, the current market discount may reflect a worst-case scenario for which we do not yet have confirmation in the data. Even the most sceptical investment bank JP Morgan forecasts the probability of a recession at 35 per cent by the end of this year and 45 per cent by the end of 2025. In the coming week, macroeconomic data releases will start on Tuesday with the July inflation reading in the euro area. On Wednesday, we will learn details of the discussion from the latest meeting of the Federal Open Market Committee (FOMC), responsible for setting interest rate levels in the United States. We will end the week with a confirmation of expectations for the future situation in the US industrial sector, the PMI reading.
Table of contents:
- Eurozone consumer price index (CPI) annualised (July)
- FOMC meeting minutes
- US manufacturing leading indicators (PMIs) for August
Tuesday, 20.08, 11:00 CET, Eurozone consumer price index (CPI) annualised (July)
Inflation in the euro area rose to 2.6 per cent in July 2024 from 2.5 per cent in June, contrary to forecasts of a fall. Energy prices rose significantly and non-energy industrial goods prices also rose faster. However, inflation slowed in services and in the food, alcohol and tobacco categories. Among the largest euro area economies, inflation rose in Germany, France and Italy, but fell in Spain.
Analysts' forecast is for CPI inflation to rise to 2.6 per cent.
Source: Tradingeconomics.com
A higher-than-expected reading could be bullish for the EUR, while a lower-than-expected reading could act bearishly on the EUR.
Impact: EUR/USD, EUR/PLN
Wednesday, 21.08, 20:00 CET, FOMC meeting minutes
At the last FOMC meeting in June, among other things, the market's outlook was discussed, which at that time was still anticipating one possible 25 basis point interest rate cut by the end of the year. Now, following poorer labour market data, these expectations have changed dramatically, rising to three cuts of at least 25 basis points each. Resident FOMC members expect the Federal Reserve's balance sheet reduction to end around April 2025, which could have a positive impact on financial markets. However, the US economy continues to grow at a solid pace. Consumer inflation has declined from last year, but progress towards the 2 per cent inflation target is slow.
A more hawkish tone to the latest minutes could have a bullish impact on the USD, while a more dovish tone could be bearish for the USD.
Impact: EUR/USD, USD/PLN
Thursday, 22.08, 14:30 CET, US manufacturing leading indicators (PMIs) for August
One of the factors that triggered the discount on ‘Black Monday’ was the much worse-than-expected results from the US manufacturing leading indicator, the ISM. On Thursday, we will learn the readings of its counterpart from another agency, which will confirm or deny the expected weakening of manufacturing in the coming quarters. The last PMI reading of 49.6 (50 being the cut-off) spoke of a slowdown in this sector of the economy. When the similarly constructed ISM index fell to 46.8 against expectations of 48.8.
Source: Tradingeconomics.com
A higher-than-expected reading could be bullish for the USD, while a lower-than-expected reading could act bearishly on the USD.
Impact: EUR/USD, USD/PLN
Grzegorz Dróżdż, CAI MPW, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
The above trade publication does not constitute an investment recommendation or information recommending or suggesting an investment strategy within the meaning of Regulation (EU) No. 596/2014 of April 16, 2014. It has been prepared for informational purposes and should not form the basis for investment decisions. Neither the author of the publication nor Conotoxia Ltd. shall be liable for investment decisions made on the basis of the information contained herein. Copying or reproducing this publication without written permission from Conotoxia Ltd. is prohibited. Past performance is not a reliable indicator of future results.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79,03% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
