DAX & EUR/USD rise ahead of eurozone inflation

DAX pushes above 13000 and EUR/USD closed above parity for the first time in a week as attention turns to eurozone inflation data, which is expected to reach a record high of 9%.

·         Chinese PMI data beats forecasts boosting AUD/USD towards 0.69

·         US ADP payrolls are expected to rise by 200k, strong data could boost aggressive Fed bets & pull stocks lower

·         Oil steadies after falling 5% in the US – Iran nuclear deal revival reports.

US stocks plummeted yesterday after stronger than forecast US consumer confidence and JOLTS job openings gave the Federal Reserve a green card to keep hiking rates aggressively to rein in inflation. US consumer confidence jumped to 103.3 in August, up from 95.3 in July and well ahead of the 97.7 forecast. Meanwhile, vacancies in the US unexpectedly surged back to over 11 million, raising hopes of a solid non-farm payrolls on Friday. An upbeat consumer and a tight labour market keep inflationary pressures rising, fuelling hawkish Fed bets.

The Nasdaq again led the selloff, closing 1.1% lower, its third straight day of losses.

Chinese manufacturing

Today the market mood is improving thanks partly due to better-than-expected Chinese manufacturing PMI data, which showed that activity in the sector contracted for a second straight month, but at a slower pace than initially forecast. The official Chinese manufacturing PMI was 49.4 in August, up from 49.0 in July and ahead of the 49.2 forecast. The level 50 separates expansion from contraction. The official services PMI fell to 52.6 in August, down from 53.8 in July but was also ahead of the 52.2 forecast.

After the stronger US data, AUD/USD was one of the worst-performing major pairs on Tuesday, falling 0.7%. However, today the pair is rebounding to 0.69 after the upbeat Chinese data. Attention will now turn to the RBA rate decision next week, where the central bank is expected to announce the third consecutive 50 basis point hike.

Eurozone inflation

European stocks are heading for a firmer open after a mixed close yesterday. The DAX closed higher, despite German inflation reaching a new 40-year high of 8.8%. Attention today will be on inflation data in the eurozone, which is expected to rise to 9%, a record high. Hot inflation would pressure the ECB to hike rates by 75 basis points next week.

The DAX is set to open 0.8% higher, above 13000, and the FTSE is pointing to a 0.5% rise, taking the UK index towards 7400.

EUR/USD closed over parity for the first time in a week and is pushing toward 1.0050 ahead of the data release.

ADP payrolls

Looking ahead, US ADP Payroll data could provide some clues as to how the private sector’s labour market is holding up ahead of Friday’s non-farm payroll report. Expectations are for 200k ADP payrolls. Using yesterday as an example, strong data could spark a deeper selloff in stocks as investors fear a more aggressive Fed.

Oil

Oil prices are edging higher after falling 5% in the previous session. Reports on Iranian TV that Iran and US have agreed to revive the nuclear deal pulled oil sharply lower. While these reports haven’t been confirmed by the US, if they prove correct, sanctions on Iran could soon be lifted, allowing Iranian oil to flood back into the market. 

Iran has millions of barrels in floating storage and could ramp up production to over 1 million barrels a day. In this case, we could see Saudi Arabia cut oil production after it floated the idea last week. Today prices are edging higher; WTI trades at $92.50 at the time of writing after API oil inventories unexpectedly rose. EIA stockpile data is due later.

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

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