In a whirlwind of economic activity, the financial markets displayed noteworthy trends on Wednesday. The Dow Jones surged by 185 points, while the S&P 500 and Nasdaq experienced gains of 1.1% and 1.6%, respectively. These movements were primarily fueled by weak PMI data from both the United States and Europe, which has led to heightened expectations that major central banks will pause their interest rate hikes to safeguard against a potential recession. In this article, we will delve deeper into these market developments and their implications.
Weak PMI Data Spurs Stock Market Surge
Flash PMI data revealed a sluggish increase in output for US firms in August, with overall activity levels nearing stagnation. This data was instrumental in driving the stock market gains as it bolstered expectations that major central banks. Including the Federal Reserve, would halt their interest rate hikes to avert a recession.
Big tech companies, such as Apple and Microsoft, led the gains in anticipation of Nvidia’s quarterly results. Which were scheduled to be released after the closing bell. Apple saw a rise of 2.2%, Microsoft gained 1.4%, and Nvidia jumped an impressive 3.2%.
On the flip side, Foot Locker’s stock plummeted by a significant 28.3% following a reduction in its 2023 earnings projection and the suspension of its dividends. Similarly, Peloton shares tumbled 22.6% after announcing revenue figures smaller than what was anticipated.
Robust Housing Sales in the US
Sales of new single-family houses in the United States painted a contrasting picture, climbing by 4.4% to reach a seasonally adjusted annualized rate of 714 thousand in July 2023. This figure marked the highest level since February 2022 and surpassed market consensus, which had estimated 705 thousand.
The West and Midwest regions saw particularly impressive sales growth, with increases of 21.5% and 47.4%, respectively. However, sales in the South declined by 6.3% to 416 thousand, and those in the Northeast dropped 2.9% to 33 thousand.
The median price of new houses sold was $436,700, while the average sales price was $513,000. These figures reflected an increase compared to the previous year, underscoring the robustness of the housing market.
S&P Global US Composite PMI Declines
The S&P Global US Composite PMI declined to 50.4 in August 2023, falling short of market expectations of 52.0, according to a preliminary estimate. This reading indicated the weakest upturn in private sector activity since February. A deepening contraction in the manufacturing sector and slower growth in service sector output were contributing factors.
Total new orders fell for the first time in six months, and job creation slowed to an over three-year low due to sustained pressure from inflation and high interest rates. Backlogs of work contracted at the sharpest rate since May 2020. Input cost inflation quickened, driven by higher fuel, wage, and raw material costs, while selling price inflation eased. Despite these challenges, US firms remained cautiously optimistic about the future, citing hopes of stabilization in interest rates, increased client demand, and a moderation in price pressures.
Dollar’s Decline and Global Economic Concerns
The dollar experienced a slight decline, hovering just below 103.5, as concerns arose over the strength of US economic growth in the third quarter. This followed the release of the weak PMI data, which raised doubts about the pace of recovery.
Additionally, market participants awaited Federal Reserve Chair Jerome Powell’s address at the central bank’s annual symposium in Jackson Hole for further insights into the future direction of interest rates. These factors contributed to a sense of caution in the market.
Oil Prices Fall Amid Economic Worries
Oil prices continued their decline for the third consecutive session, with WTI crude futures dropping to below $79 per barrel. This marked the lowest level in four weeks and was driven by concerns over a restrictive monetary policy in the US and an economic slowdown in China, which could impact energy demand.
The focus has now shifted to the upcoming annual symposium of central bankers at Jackson Hole, where policymakers may provide insights into the future direction of interest rates. Sluggish demand in China, combined with the absence of forceful policy measures from Beijing to boost growth, also weighed on market sentiment. Additionally, EIA data showed a larger-than-expected drop of about 6.135 million barrels in US crude inventories, further influencing oil prices.
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In the ORCL position place Stop loss order @112.10: