US data shows a sudden slowdown

Interesting data is awaited this week

As we said multiple times over the past few weeks, what matters is the upcoming data, especially after the Jackson Hole Symposium, which gave the market nothing but a repeat of the recent FOMC statement.

Labor market slowdown

Yesterday’s US economic releases might be the first sign that the economy is hitting a brick wall. The JOLTS data showed a significant softening in labor demand, with the 8.827 million job openings coming in way below the 9.5 million expectations. This is a 4.3 standard deviation miss.

Such an outcome suggests that the jobs report data would overstate the strength of the labor market, especially after the recent revisions. The Jobs-per-unemployed ratio has also tumbled to 1.51. This is the lowest level since 2021.

Consumer confidence lower

The Conference Board consumer confidence declined to the lowest level since May at 106.1, down from 114.0. Both the present situation and the expectations unexpectedly dropped to 144.8 and 80.2 respectively, while both were expected to improve.

This is considered a significant change, as consumer spending was thought to be strong during this quarter, which possibly raises downside risks.

Fed fund futures

Right after the announcement yesterday, Fed Fund Futures shifted once again. The market is now pricing in less than a 10% chance of a 25bps rate hike in September, while November’s meeting probability dropped to 50%, down from 64% before the announcement.

In the next few days, probabilities are likely to change further, especially if the Core PCE shows a surprising slowdown, side by side with a softer jobs report.

Market reaction

Stocks soared following the announcement, while the S&P500 had its best day since May, closing higher by 1.45%, the Nasdaq 100 was the biggest winner with over 2.0%, and Dow Jones ended up the day up by 0.85%.

Markets are kind of convinced that the Federal Reserve might not be able to raise rates once again; whether investors are overreacting to yesterday’s news or not, it doesn’t matter. What matters is that evidence is piling up, which keeps investors somehow optimistic, and this is much needed.

The buying area is between 4370 to 4250, which is where SPX bounced back to as high as 4497.64 by the closing bell. In the meantime, a break above 4500 over the next few days might clear the way for further gains, possibly towards 4600 once again.

DXY below 104.0

The US Dollar Index declined sharply on Tuesday below 104.00 and 103.70 support areas, breaking its daily up trendline, which is the first signal that the downside trend has resumed, while it would be better to see a weekly close below 103.0. If so, the resumption of the downtrend would be confirmed, possibly targeting 101.0 and 100.0 in the next few weeks.

If stocks are high, currencies might be an option

A lot of retail investors missed the rally in stocks this year as there was pessimism at the beginning of this year. Back then, everyone was talking about a crash, but here we are at the end of August, and SPX, for example, is up by 17% YTD. If you missed that rally, you might want to take a look at the next big move somewhere else.

One of the options is the currency market, especially after the recent correction. Since the Federal Reserve rate hike cycle is probably over, the next phase would be when the Fed starts cutting rates, and this is the key.

If at any point in time, the data starts to show a faster slowdown, this means that the Fed could act faster as well. However, by the time the first rate cut approaches, the US Dollar might price in such a decision months in advance. Therefore, there could be a great opportunity ahead if you know how to manage your risk. In the upcoming report, we will look at the positioning strategy and which pairs would be the most preferred.

Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial

Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.

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