Dollar slips, yields rise on slowing US economic data

  • US new home sales plunge to 6½ year low
  • PMI data bolsters expectations of a European recession
  • Investors wonder how hawkish the Fed will be in Jackson Hole
  • Oil rebounds as Saudis talk production cuts

NEW YORK, Aug 23 (Reuters) – The dollar eased and yields initially fell on Tuesday as data showing slower economic growth sparked initial hopes the Federal Reserve would back off on its aggressive rate hike of interest at its banking symposium in Jackson Hole on Friday.

But then yields rose and stocks fell as the Fed’s hawkish message had more influence.

Gold ended a six-game losing streak as the dollar weakened while oil rose nearly 4% after Saudi Arabia floated the idea of ​​production cuts from the of the Petroleum Exporting Countries and its allies.

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Sales of new single-family homes in the United States plunged to a 6.5-year low in July, while an S&P Global survey showed its measure of private sector business activity fell to a low. 27 months, suggesting that the Fed’s efforts to control inflation were working.

“Animal minds were better for risk over the summer based on the view that we were near the end of the hiking cycle,” said Marvin Loh, senior global market strategist at State Street. in Boston, adding that this view is no longer widely held.

The Fed faces changing the market’s view without significantly altering its projections when policymakers meet in Jackson Hole, Wyoming.

“The Fed has been pretty consistent in trying to sound as hawkish as possible,” Loh said. “Instead of fighting the Fed, I think the market is in perfect agreement with the Fed.”

The U.S. economy appears headed for another energy price shock this winter, with natural gas prices at their highest level since 2008, said Bill Adams, chief economist at Comerica Bank in Dallas.

With demand cooling, another big negative shock looks likely and a recession is also more likely than not by mid-2023, if not already underway, Adams said.

The Dow Jones Industrial Average (.DJI) fell 0.37%, the S&P 500 (.SPX) lost 0.03% and the Nasdaq Composite (.IXIC) added 0.29%.

The dollar index fell 0.358% as the euro rebounded, rising 0.19% to $0.996 and the 10-year Treasury yield rose 1.3 basis points to 3.048%.

Earlier, the euro fell to new two-decade lows after data showed eurozone business activity contracted for a second straight month in August as war in Ukraine was expected to ensure that the outlook for the European economy remains bleak.

The Chinese yuan weakened to its lowest level in two years and the pound briefly touched its lowest level since March 2020, which benefited the dollar.

While the S&P Flash Composite Purchasing Managers’ Index (PMI) of business activity in Europe was not as bad as expected, analysts said darker news for the economy is likely given how gas prices reached record highs before winter. Read more

The MSCI global equity index (.MIWD00000PUS) slid 0.14%, while the STOXX index (.STOXX) of European company stocks closed down 0.42%, after falling for nearly one week.

Benchmark gas prices in the European Union jumped 13% overnight to a record high, having doubled in just one month to be 14 times higher than the average for the past decade.

Europe has braced for another disruption of energy supplies from Russia. Read more

“I don’t see the end of the war in Ukraine anytime soon, that would be the catalyst for a market rally. It will keep pressure on energy prices and like the euro, the only way is down,” said Michael Hewson, head of markets at CMC Markets.

Stocks had started to rally on bets that the Fed would step away from its rate hike path next year.

Markets are hesitant to know whether the Fed will raise rates by 50 or 75 basis points next month. The probability of a 75 basis point hike has reversed to 52.5% and the smallest upside is now 47.5%.

Euro tumbles to 20-year low against strong dollar


Asian stocks fell for a seventh straight session on Tuesday after Europe’s renewed energy price spike stoked recession fears and pushed bond yields higher, while sending the euro to a low level in 20 years.

Unease about China’s economy continued to seep in as a cut in lending rates and talk of a new round of official loans to property developers underscored tensions in the sector.

Chinese blue chips (.CSI300) fell 0.5%, while the yuan fell to a near two-year low.

The Nikkei (.N225) lost 1.2% after a PMI survey showed factory activity in Japan slowed to a 19-month low in August. Read more

Crude prices rose as Saudi Arabia warned that the OPEC+ producer alliance could cut production.

U.S. crude futures rose $3.38 to settle at $93.74 a barrel and Brent rose $3.74 at $100.22.

US gold futures rose 0.7% to $1,761.20.

Relapse of American assets
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Reporting by Herbert Lash, additional reporting by Huw Jones, Ashitha Shivaprasad and Wayne Cole; Editing by Mike Harrison, Chizu Nomiyama, Josie Kao and Alison Williams

Our standards: The Thomson Reuters Trust Principles.

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