(Wednesday Market Open) The U.S. dollar is moving higher once again this morning and pushing towards another 52-week high. As I’ve mentioned many times before, a strong dollar could be a drag on multinational companies.
Potential Market Movers
Equity index futures were pointing to a lower open this morning in reaction to the higher U.S. currency, but investors are also awaiting several economic reports. After the market open, the market will get a good look at the service side of the economy with the latest releases for S&P U.S. Services PMI and the ISM Services Index. Based on consumer spending, the service economy has been solid in the last few months. Analysts are hoping that it continues to boost the economy and offset any slowing in goods consumption.
The JOLTS job openings report also arrives after the open and should provide insights to the overall strength of the economy as well as Friday’s June Employment Situation report.
Finally, the June FOMC Meeting Minutes will come out this afternoon giving analysts a chance to parse the discussion among Fed officials and their views on inflation, expectations for raising rates and the overall strength of the economy.
WTI crude futures were up about 1% this morning, providing a small bounce after yesterday’s sell-off. A debate around commodities is rising. One side sees falling commodity prices as a reaction to the increasing likelihood of recession—the other sees rising rates having strengthened the dollar, and that’s helping curb inflation and bring commodity prices lower.
This is one of these arguments where one doesn’t cancel the other—both sides are probably right.
The discussion over commodities leads to a broader debate around rates and yields. Some argue that yields are coming down because commodities prices are coming down. The other side thinks yields are being pushed lower as recession-fearing investors move toward bonds as a safe haven. Again, the answer is likely both.
The Federal Reserve’s choice to raise the Fed funds rate and start unloading its balance sheet are already having the intended effect of slowing inflation. Whether that will be reflected in the Consumer Price Index (CPI) numbers next week is difficult to say, but the pullback in commodities is a good start.
However, raising rates will slow the economy and the Fed has warned it would continue on this path. The Fed is still attempting to orchestrate a “soft landing,” a tough task under current conditions and the primary reason recession fears are rising.
There’s another influence on the commodity debate: uncertainty around China. A week ago, investors were excited that China appeared to be reopening and that many pandemic measures were finally behind them. ...
Full story available on Benzinga.com