World markets received support at the end of Tuesday's trading, but in general they continue to be in sideways trends against the background of a number of mutually exclusive trends that affect them and do not allow one of them to gain the upper hand.
What mutually exclusive factors affect the markets?
The first main factor supporting them is unprecedented in the history of measures to stimulate national economies from the world's largest banks, led by the Fed. The pumping of local financial systems with a huge amount of liquidity through the purchase of various asset growth and incentive programs has already led to an unjustified rise in demand for company shares and, accordingly, to the growth of stock indices. The actual boundless sea of liquidity does not allow stock markets to collapse under the pressure of the problems of the COVID-19 pandemic, the slowdown in economic growth in China, the United States, and Europe. Investors are well aware that there is a huge amount of money on the market, which allows you to instantly buy out any small drawdowns.
The main negative factor that holds back the irrepressible growth of stock indices is the risk of a sharp change in the monetary rates of these same world central banks after the United States. The reason for this may be the strong increase in inflation in America over the past 13 years. At the moment, according to the latest data, it is at the level of 5.4%, which is significantly higher than the acceptable level of 2.0%.
Why are the markets so afraid of a change in the Fed's monetary policy?
Despite the fact that the American regulator is constantly represented by its leader, J. Powell points out that the course of monetary policy will remain the same, the period of time necessary for the recovery of the labor market and economic growth as a whole will remain, investors are well aware that the continuation of the growth of inflation will become a risk of its developing into hyperinflation with all the ensuing consequences. If the American authorities do not stop supporting the population, they will continue the "helicopter drop", a catastrophe is inevitable. The pressure of the pandemic, the parasitic lifestyle of huge segments of the American population living on unemployment benefits, and financial assistance from Biden will not allow to change the situation on the labor market, and therefore, in general, turning inflation down.
That is why we continue to observe the current, almost unchanged picture in the markets over the past time. We believe that it will not change until the end of this month.
Today, the focus will be on the publication of employment data from ADP in the United States. The number of new jobs is expected to grow at 695,000 in July against 692,000 in June. The values of business activity indices in the non-manufacturing sector and the service sector, as well as the figures of the purchasing managers' index for the non-manufacturing sector from the Institute of Supply (ISM) will also be presented.
How will the market react to the published data?
We believe that lower values will lead to a sell-off in the stock market not only in the United States, but also on other trading platforms, to a decrease in the value of commodity assets, and, oddly enough, to an increase in the dollar, which will be perceived as a safe haven currency along with the Japanese yen and the Swiss franc. But if we imagine that the data as a whole will suddenly be positive, then we will see an increase in demand for risky assets and a decline in the dollar, after its slight strengthening against the background of the figures from ADP. But again, all movements in general will remain limited due to the continuing influence of the factors described above.
Forecast of the day:
The USD/JPY pair is consolidating below the 109.20 mark in anticipation of the publication of economic statistics from the United States. If they turn out to be worse than expected – this will lead to a resumption of the pair's fall to 108.60.
The XAU/USD pair remains in a wide range of 1793.00-1833.00. The weakening of the dollar on the wave of positive data from the US will lead to an increase in the pair to 1833.00. At the same time, if they pump up and the dollar gets support, the pair will fall to 1793.00, continuing to remain in the range.
