Yields Rise, Equities Struggle Amid Data Surprises

Global financial markets faced pressure as rising yields and unexpected data releases drove equity fluctuations, with significant movements across various sectors.

Key Factors for Today

• US Retail Sales Beat Expectations, Leading to Dow's 1% Decline
• UK Jobs Data Supports BOE Rate Hike, Pushing Cable Higher
• API Reports WTI Draw, China Concerns Trigger Drop in Crude Prices
• RBNZ Announcement Impacts Kiwi, Continuing Losing Streak
• Canada's CPI Weakens, US Dollar Gains Against the Loonie

Market Movers

• The Dow registered a significant 1% drop below the 35k mark, prompted by robust retail sales data, reinforcing the possibility of Fed rate hikes.
• Market optimism about a 25bps rate hike in September pushed up gilts, while cable made modest gains, reaching $1.27.
• Despite API's report of a sizeable WTI draw, concerns about China's shadow banking system caused a 1.77% drop in crude prices, potentially leading to an $80/bbl retest.
• The RBNZ's decision to leave policy unchanged and concerns about a technical recession led to the Kiwi's sixth consecutive day of losses.
• The BOC's closely followed trimmed-mean rate and USD/CAD advanced due to weakening loonie.

Economic Calendar

• UK Inflation
• EA Employment Change
• EA GDP Growth
• Building Permits
• Housing Starts
• Industrial Production
• EIA Crude Oil Stock Change
• FOMC Minutes
• Japan Trade Balance
• Spain Consumer Confidence

The Big News

US Retail Sales Send Dow Tumbling

In a surprising turn, US retail sales for July surpassed expectations, with a robust 0.7% growth compared to the projected 0.4%. However, this positive news led to a 1% drop in the Dow Jones Industrial Average as concerns about an impending interest rate hike by the Federal Reserve gained traction. The Fed's emphasis on a potential rate hike amidst heated retail data cast a shadow over US equities, resulting in the Dow's tumble below the crucial 35,000 mark.

UK Jobs Data Sparks BOE Rate Hike Speculation

Across the Atlantic, the UK jobs market painted a mixed picture. The claimant count, which rose by 29,000 against an anticipated drop of 30,000, raised questions about the strength of the recovery. Yet, rising average earnings at a remarkable 8.2%, above the expected 7.1%, added to the complexity. These figures prompted the market to fully price in a 25-basis-point rate hike by the Bank of England (BOE) in September, with whispers of a bolder 50-basis-point hike gaining momentum. This speculation propelled the British Pound, often referred to as Cable, to a modest increase, touching $1.27.

WTI Draw Offset by China Concerns

The energy sector saw a tug-of-war between supply dynamics and global economic concerns. The American Petroleum Institute (API) reported a substantial drawdown of -6.2 million barrels in weekly inventories, exceeding the forecasted -2.1 million barrels. Despite this promising data, fears of a slowdown in China's economy cast a shadow over crude oil prices. An impending shadow banking crisis in China and the prospect of reduced demand from the world's largest oil importer led to a 1.77% drop in crude prices. This decline pushed the potential retest of $80 per barrel into focus, while support at $79.10 per barrel awaited below.

Kiwi's Consecutive Losses Amid RBNZ's Stance

The New Zealand Dollar, fondly known as Kiwi, continued its sixth day of losses after the Reserve Bank of New Zealand (RBNZ) decision. The central bank left its policy unchanged, expressing confidence in achieving target inflation in due course. Governor Orr clarified that a mention of a future 25-basis-point increase was not indicative of imminent action. Despite the clarification, the RBNZ revised its projections for a technical recession, exerting downward pressure on the Kiwi, which struggled to regain ground against major currencies.

Canada's Inflation Data Weighs on the Loonie

Canada's inflation data painted a divergent picture. While annual inflation for July surged to 3.3%, exceeding both prior figures and forecasts, the closely watched trimmed-mean rate slipped slightly to 3.6%. This mixed data fuelled a 0.27% rise in USD/CAD, putting $1.3570 within reach as bullish momentum gathered strength.