S&P 500 — US Large Cap Index
FTSE 100 — UK Blue Chips
Euro Stoxx 50 — Eurozone Leaders
DAX 40 — German Equities
CAC 40 — French Market Index
Nikkei 225 — Japan Benchmark
Hang Seng — Hong Kong Index
Shanghai Composite — China Mainland
ASX 200 — Australian Market
TSX Composite — Canada Index
Nifty 50 — India Large Cap
STI Index — Singapore Market
KOSPI — South Korea Index
Bovespa — Brazil Equities
JSE Top 40 — South Africa Index
IPC Index — Mexico Market
Commerzbank’s Thu Lan Nguyen notes that the latest US labour market report does not materially alter expectations for a September Fed rate move, leaving August US inflation as the key driver. Market pricing of roughly a 60% probability for a hike suggests divided positioning, with potential for significant USD volatility around the Fed meeting depending on how inflation prints relative to forecasts.
Fed pricing keeps USD on edge
“Ultimately, there is only one important conclusion to draw from Friday’s US labour market report, which delivered a surprisingly strong increase in employment: it does not stand in the way of a Fed rate hike this month, but neither does it make such a move significantly more likely. “
“As we argued last week already, this week’s US inflation data for August are likely to be the key determinant of the Fed’s upcoming policy decision. Unsurprisingly, the dollar’s post-payrolls rally proved short-lived.”
“As for the inflation data, there is currently little room for interpretation. If the figures come in broadly in line with analysts’ expectations, markets are likely to maintain their current assessment until the Fed meeting, barring any materially different signals from FOMC officials.”
“At present, markets are pricing in a probability of just under 60% that the Fed will raise rates in less than two weeks. An upside inflation surprise would likely increase expectations of a rate hike further and support the US dollar, while weaker-than-expected inflation would have the opposite effect.”
“If, by contrast, the inflation figures push market expectations clearly in one direction or the other, the risk for an increase in volatility may initially rise ahead of the meeting, as investors would have to face the risk that the Fed ultimately disappoints those newly established expectations.”
“As a result, a substantial share of market participants would be caught off guard by the Fed’s eventual decision. In that case, pronounced volatility in USD exchange rates on the day of the Fed meeting would once again be likely, much as it was following the previous policy decision.”
