Upcoming catalysts this week

We will get the Eurozone PMIs, the US Jobless Claims and US PMIs. On Friday we conclude the week with Fed Chair Powell speaking at the Jackson Hole Symposium.

Eurozone PMIs

Eurozone PMIs significantly impact financial markets by providing crucial insights into economic activity within the region. The Manufacturing and Services PMIs, released monthly, reflect the health of these key sectors, with values above 50 signaling expansion and below 50 indicating contraction. Strong PMI readings suggest economic growth and can lead to increased investor confidence, potentially boosting the euro.

EUR/USD extended its upward momentum, reaching new year-to-date highs above 1.1170, driven by a significant sell-off in the US Dollar. On August 22, the ECB will release its Meeting Accounts, alongside preliminary HCOB Manufacturing and Services PMIs for Germany, the broader euro area, and the flash Consumer Confidence index for the EU, tracked by the European Commission.

Similarly, GBP/USD hit new 2024 highs above the 1.3100 level, influenced by intensified selling pressure on the Greenback. On August 22, the advanced S&P Global Manufacturing and Services PMIs for August will be released, followed by the CBI Industrial Trends Orders.

The US Jobless Claims

Initial applications for US unemployment benefits fell for a second week to the lowest level since early July, despite a recent pullback in hiring.

Initial claims decreased by 7,000 to 227,000 in the week ended Aug. 10, according to Labor Department data released Thursday. The median forecast in a Bloomberg survey of economists called for 235,000 applications.

A jump in the unemployment rate to near a three-year high of 4.3 per cent in July stoked fears of a labor market deterioration, with financial markets betting that the Federal Reserve could cut interest rates by 50 basis points next month. Layoffs, however, remain low by historic standards.

The fourth straight monthly rise in the jobless rate was driven by an immigration-induced increase in labor supply, which is not being matched by hiring. Businesses have scaled back on hiring as the 525 basis points worth of rate hikes from the US
central bank in 2022 and 2023 curb demand.

US PMIs

US PMIs (Purchasing Managers' Indexes) have a significant impact on financial markets as they offer a timely snapshot of the health of the manufacturing and services sectors. Released monthly, these indexes gauge economic activity, with values above 50 indicating expansion and below 50 suggesting contraction. Strong PMI readings can boost market confidence, signaling robust economic growth and potentially driving up the US dollar.

Weaker PMIs may indicate economic slowdown, leading to a decrease in investor confidence and a weaker dollar. These indicators are critical for forecasting economic trends and guiding monetary policy decisions, thus influencing market movements and investment strategies.

Economists predict the S&P Global Services PMI will fall from 55.0 in July to 54.0 in August.
Accounting for over 70% of the US economy, a fall toward 50.0 could fuel speculation about a US economic recession.

Investors should also consider the employment and price subcomponents. Lower input prices and weaker job creation rates could signal a 50-basis point September Fed rate cut to bolster the US economy. Weaker-than-expected PMI numbers could push the USD/JPY down toward 143.

In addition to the headline PMI, investors should consider the employment and price subcomponents. Upward trends in job creation and wages could signal higher household spending, possibly fueling demand-driven inflation.

Fed Chair Powell speaking

Chair Jerome Powell is expected to offer insights into the Fed's economic outlook and future actions during his prominent speech at the Jackson Hole conference in Wyoming on Friday. This annual gathering of central bankers has frequently served as a platform for Powell and his predecessors to indicate shifts in monetary policy or strategic direction.

Powell will likely indicate that the Fed has grown more confident that inflation is headed back to the 2% target, which it has long said would be necessary before rate cuts would begin.

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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.