Daily Broad Market Recap – September 19, 2024

Headlines:

• New Zealand's GDP contracted by 0.2% in Q2 2024, worse than the forecast of -0.4%, with the previous reading downgraded from 0.2% to 0.1%.

• Australia’s August labor market data showed resilience despite high interest rates.

• Switzerland's trade surplus shrank from 4.1 billion CHF to 3.9 billion CHF in August, the smallest since April, as exports fell by 1.2% month-on-month, outpacing the 0.1% decline in imports.

• The State Secretariat for Economic Affairs (SECO) maintains its forecast of 1.2% Swiss GDP growth for 2024, unchanged since June.

• The Euro Area's current account surplus narrowed from €50.5 billion to €39.6 billion in July, below the expected €40.3 billion.

• The Bank of England (BOE) kept rates at 5.00% and emphasized a "gradual" approach to easing.

• ECB member and Bundesbank president Joachim Nagel called for patience, stating that the central bank's stance "must remain sufficiently tight for long enough" to achieve its inflation targets.

• U.S. initial jobless claims fell from 231,000 to 219,000, better than the expected 230,000, for the week ending September 14.

• The Philadelphia Fed manufacturing index surged from -7.0 to 1.7, surpassing the expected -0.8 for September. The employment index rose from -5.7 to 10.7, while prices increased to 34.0, the highest level since December 2022.

• The U.S. current account deficit widened from $241 billion to $267 billion in Q2 2024, primarily due to an expanded goods deficit, and was above the expected $259 billion.

• U.S. existing home sales decreased from 3.96 million to 3.86 million in August, below the expected 3.92 million.

• The U.S. Conference Board leading index improved from -0.6% to -0.2% in August, slightly better than the anticipated -0.3%.

• Japan's national core CPI ticked up from 2.7% to 2.8% year-on-year in August, as expected.

• The People's Bank of China (PBOC) kept its 5-year and 1-year prime loan rates unchanged in September, disappointing hopes for immediate monetary policy support.

Market Price Action:

Thursday’s Asian session kicked off with the Fed announcing a 50 basis point rate cut, igniting interest in "risky" assets. U.S. stock futures rose, and Bitcoin (BTC/USD) surged past $62,000. Initially, the Fed's decision supported the U.S. dollar, leading to a dip in spot gold before the Hong Kong market opened.

However, the dollar soon lost momentum after strong jobs data from Australia and a prevailing risk-on sentiment. U.S. 10-year yields and the Dollar Index declined, while WTI crude, gold, and U.S. stock futures gained ground throughout the European session.

Gold received additional support from escalating tensions in the Middle East linked to Hezbollah incidents, while crude oil prices benefited from shrinking EIA oil inventories.

During the U.S. session, the dollar briefly rebounded on robust initial jobless claims and a solid Philadelphia Fed report, pushing U.S. 10-year yields to 3.77% and causing gold to pull back from highs of $2,590.

Nonetheless, the dollar's gains were short-lived, as traders shifted back to riskier assets. Bitcoin closed the day near $63,000, WTI crude remained around $71.00, and both the Dow and S&P 500 finished at new record highs.

FX Market Behavior: U.S. Dollar vs. Majors

The U.S. dollar experienced significant volatility on Thursday, initially gaining ground after the Fed announced a larger-than-expected rate cut, which was perceived as a positive sign for the U.S. economy.

However, the Greenback quickly reversed its gains after the Hong Kong market opened, as stronger-than-anticipated GDP data from New Zealand and robust jobs figures from Australia created a risk-friendly, anti-USD sentiment during the Asian session. This led to a steady decline in the dollar, which continued into the London session.

In Europe, traders showed more support for the dollar, with positive mid-tier U.S. reports helping to trigger a bullish pullback. The dollar briefly lost ground to the British pound following a less dovish Bank of England decision, allowing GBP/USD to reach levels not seen since March 2022 before pulling back.

By the end of the London session, the dollar faced renewed selling pressure, finishing just above its intraday lows against most major currencies.

The dollar's most significant losses were against risk-sensitive currencies such as the AUD, NZD, and GBP, while it held gains against the JPY and CHF. Notably, USD/JPY, after being rejected twice at the 143.75 zone, extended its decline to 142.55.

Upcoming Potential Catalysts on the Economic Calendar:

• Germany’s PPI reports at 6:00 am GMT
• U.K. retail sales data at 6:00 am GMT
• U.K. public borrowing figures at 6:00 am GMT
• BOE MPC member Catherine Mann to give a speech at 9:00 am GMT
• BOC Governor Tiff Macklem to speak at 12:15 pm GMT
• Canada’s retail sales data at 12:30 pm GMT
• Euro Area consumer confidence at 2:00 pm GMT
• ECB President Lagarde to deliver a speech at 3:00 pm GMT

The British pound may experience volatility with the release of U.K. retail sales and public borrowing data, alongside a speech from BOE’s Catherine Mann.

Later, Bank of Canada Governor Macklem will speak just before Canada’s July retail sales report, which is expected to show stronger figures than June. Additionally, ECB President Lagarde will take the stage for a central banking speech in D.C.

Stay alert for shifts in the GBP, CAD, and EUR trades, and monitor overall market sentiment closely!