Daily Market Outlook, August 2, 2022

Overnight Headlines

Asian equity markets are down sharply this morning. US-Sino relations are in focus as US Congressional leader Pelosi seems set to begin a visit to Taiwan today despite objections from China. She may meet with President Tsai tomorrow. A US National Security spokesperson said that the trip should not be seen as a provocation. However, the Chinese have warned of “grave consequences”. The Australian central bank as expected raised interest rates by 50 basis point the fourth consecutive increase since May. It also said that it was committed to bringing inflation down but that rates were “not on a pre-set path”.

There are no major data releases today. However, in the US the June JOLTS survey of job openings and labour market turnover will provide further detail on employment trends. The main monthly report for June that was released a few weeks ago showed employment growth slowing but overall, the message seemed to be that the labour market is still tight. The same message is expected from today’s report. Job openings and turnover are both projected to have slipped but with demand for labour continuing to run ahead of supply. This is important not least because US Federal Reserve policymakers have cited that as evidence the economy is not in recession despite confirmation GDP fell in the first half of 2022. They also remain concerned that labour market tightness may further fuel wage growth.

Several Fed policymakers seem likely to touch on those topics in speeches today. A key theme of last week’s Fed monetary policy update, when interest rates were raised again, is that policymakers are still more concerned about inflationary pressures than they are by signs that economic growth has stalled. Today’s speakers seem set to once again strongly emphasise that message. Financial markets in contrast appear increasingly convinced that a sharp slowdown in growth is the bigger risk. So, it will be very interesting to hear to what extent today’s speakers try to push back against that sentiment.

Overnight Australian retail sales and the China Caixin services index will provide updates on trends in the Asia-Pacific region. Today’s interest rate rise indicates that the Australian central bank is currently more concerned about inflation but markets will be looking for signs that monetary policy tightening may be raising downside growth risks. Meanwhile, the Caixin comes in the wake of other Chinese PMI outturns for July having disappointed.

EURUSD Bias: Bearish below 1.0350

Pelosi inspired geopolitical fears adding to global growth worries
Asia was risk-off and resulted in EUR/JPY selling at various stages
It also weighed on US yields, which helped to underpin the EUR/USD
Resistance 1.0250/60 stronger offers seen to 1.0350/60, support 1.0100-05, 1.0070-75
20 Day VWAP is bullish, 5 Day bullish