By the end of last week, the vast majority of world stock indices were under pressure, the US dollar rose, and commodity assets showed extremely high trading volatility.The main reason for this behavior is the still existing uncertainty factor of how the Fed will raise interest rates this fall (and, consequently, other world central banks) since September. The question of whether it is worth considering the possibility of continuing, as the Fed members demand, an aggressive increase in interest rates is still in force. The market also poses some of the most important defining issues, where inflation and energy prices remain the main ones.
The latest data on consumer inflation showed a downward correction in Europe and the States, except for Britain, where it broke the 10% mark, consolidating at the end of July at 10.1%. The dynamics of inflation depend on food prices, which have soared to price heights unprecedented in recent decades in the West. Moreover, the local decline in energy prices allowed statistical agencies in continental Europe and the United States to "draw" a decrease in inflationary pressure. On this wave, Western trading platforms got excited and began a local rally in the stock markets, accompanied by a weakening dollar. The July meeting minutes published on Wednesday only added fuel to the fire of uncertainty and the global risk of the global economy falling into recession.
What will happen next, and what event will play the most important role for the markets in the coming week?
Yes, the published data on production indicators will attract attention. Still, the market will focus on the speech of J. Powell, the head of the Fed, at a symposium in Jackson Hole, where Central Bank leaders traditionally summarize the semi-annual results and announce plans for the next six months. Investors will follow the speaker's intonation and speech to understand whether the regulator will really carry out further aggressive interest rate increases or whether it simply scares the markets and the real sector of the economy. Thus, the number of people willing to borrow money will decrease, thereby cooling the national economy.
By the way, there may also be such a scenario. Earlier in the era of A. Greenspan, the long-term head of the Fed, the bank actively verbally manipulated the markets and the sphere of lending to achieve the desired effect without taking real actions. Time will tell how it will be this time.
As for today's dynamics in the markets, we believe that the negative start of trading in Europe may put pressure on the exchange rates of European currencies, which will support the demand for the dollar, which, in turn, is growing against the background of rising yields of treasuries.
Forecast of the day:
GBPUSD pair
The pair is testing the 1.1800 mark. The fall in demand for risky assets on the eve of an important event - the speech of J. Powell at a symposium in Jackson Hole - puts pressure on the pair, supporting the dollar as a safe-haven currency. The pair's fall and consolidation below this level may decline to 1.1700.
USDCAD pair
The pair is just above the 1.3000 level. The fall in crude oil prices and the general rejection of risk buying by the markets may lead to local growth of the pair to 1.3080.
