Traders over in Europe are facing red screens, thanks to the massive sell-off over on Wall Street which was triggered due to the feeble economic reading: the US ISM data. Once again, investors have become anxious about the health of the global economic growth because yesterday’s reading came on the heels of unsatisfactory figures from Europe which we saw earlier this week.
Blame The Fed
The ISM manufacturing data over in the US fell into the contraction territory with a reading of 47.8. A level of 50 separates contraction and expansion. This particular gloomy reading of the US economic data triggered a reaction from the president who wasted no time in lashing out the Fed and blaming them for this. President Trump wants the Fed to push the interest rate to zero or even sub-zero just like other central banks such as the European Central Bank.
Bad News Is Not Good News
The bad news is bad for the time being however this could change rapidly if speculations start to grow for another interest rate cut by the Fed. This could happen as early as Friday, the day when we will have the US NFP reading followed by the Fed chairman’s speech. News about the possibility of another interest rate cut by the Fed could stimulate a rally for the equity markets.
The ADP Data
The apprehensions about the weakness in the US economy have made investors stay on the sideline as they can smell blood on the street. The upcoming US ADP non-farm employment change report usually sets the tone for the US NFP data. Last month we have seen this reading exceeding the expectation meaning: we had more employment in the private sector. The forecast for today is 140K, a fairly low bar. The weakness in the ISM manufacturing data doesn’t support a strong reading, but as we said, the bar is already too low. Hence, a number which is better than the expectations could support the dollar index
Johnson Determined To Pull Out Of Europe
Over in the UK, the British prime minister is still hallucinated and thinks that by him issuing the ultimatum to the EU, he may be able to swing the pendulum his way. In his great plan, he is expected to reveal that the UK is set to leave the EU by the end of this month even if there is no deal on Brexit. His current plan which includes the provision of two borders for four years attracted zero response. In fact, the Irish foreign minister, Simon Coveney called it a non-starter.
The Sterling-dollar pair is still under the selling pressure and the bulls are nowhere close to rescue the currency. It is highly likely that the currency may fall below the 1.22 against the dollar unless we see some major weakness in the dollar index. For the time being, the path of the least resistance for Sterling is skewed to the downside.
