On Wednesday, European markets are expected to open lower as investors continue to focus on the recessionary outlook and inflationary pressures. They will keep an eye on EU GDP figures and the BoE governor's speech. In addition, investors look forward to the Bank of Canada policy meeting and the US Federal Reserve's Beige Book, which summarizes current economic conditions.
US dollar surged
As Chinese trade data disappointed on Wednesday, Asian stocks fell to a two-year low, while the dollar surged as US data reinforced expectations for a rapid increase in the Federal Reserve's interest rates.
Data overnight showed the US services industry picking up in August for the second straight month amid stronger orders growth and employment. Despite the stronger-than-expected services data released overnight, Wall Street indexes fell on Tuesday, with the Nasdaq losing for the seventh straight session, its longest losing streak in almost six years. This is due to markets now pricing in a 75% chance that rates will be hiked by 75 basis points this month.
On the other side of the world, the Asian market suffered from the disappointing China data. As this morning's latest China trade numbers demonstrate, domestic demand is still weak, and GDP is far from the 5.5% target set for the end of the year. Several months have passed with weak import data. The growth rate in July was 2.3%, compared with a rise of 1% in June. It appears that there is a continued lack of confidence on the part of the Chinese consumer, as indicated by today's August statistics. The weaker 0.3% growth rate is due to a lack of demand, well below the 1.1% expected.
Bonds hit a new record
A jump in bond yields on Wednesday morning resulted in the major averages adding to weeks of losses. Overnight, US bond yields surged, with the 10-year US Treasury yield hitting its highest level since June. Rates on 30-year Treasury bonds reached their highest levels since 2014. There is an inverse relationship between bond yields and bond prices.
Events of the day
The latest Q2 GDP of the EU is expected to come in at 0.6%, plus another central bank rate decision.
During the month of July, the Bank of Canada shocked the market by making the unexpected move of raising interest rates by 100bps from 1.5% to 2.5%, as well as saying that there would be more to come in the future.
A growing number of indicators can be found that show that wages are beginning to rise due to the recent surge in inflation. Last month, members of the Canadian Federation of Independent Business announced that they were planning to raise wages considerably due to shortages of workers.
Keep up with the financial markets, know what's happening and what is affecting the markets with our latest market updates. Analyze market movers, trends and build your trading strategies accordingly.