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The Eurozones ZEW economic sentiment index for July was 23.4, down from 9.5 in the previous month.Germanys ZEW Economic Situation Index for July was -77.6, compared to a forecast of -77.8 and a previous reading of -81.Germanys ZEW economic sentiment index for July was 26.3, below the expected 17.5 and the previous reading of 10.5.HSBCs chief multi-asset strategist, Max Kettner, stated that a market correction is possible as market sentiment overheats, the effects of fiscal stimulus diminish, and uncertainty surrounding the US midterm elections rises. Investors should consider moderately reducing their equity positions after the earnings season ends. Kettner, who has maintained a top-weighted overweight rating on equities since mid-March, noted that current positioning and market sentiment are approaching levels seen during the economic reopening trading period in 2021, while some US credit card data indicates that consumer spending has begun to slow. He pointed out that the fiscal stimulus from the "Big and Beautiful Act" is comparable to that of the 2009 financial crisis, but the stimulus is primarily concentrated in the first half of 2026, with limited incremental support available in the future. Regarding specific midterm election risks, Kettner pointed out that current polls show a close Senate race, increasing uncertainty surrounding AI and data center regulations. This uncertainty could drag down the entire technology sector, not just the divergence between semiconductors and hyperscale cloud service providers; technology stocks as a whole could be affected. However, he also believes that such a correction could present buying opportunities.The ZEW economic sentiment index for Germany and the Eurozone in July will be released in ten minutes.

Investor attention is on the Fed's minutes as recession fears drive the US Dollar Index towards 107.00

Daniel Rogers

Aug 16, 2022 11:47

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The US Dollar Index (DXY) rises for a third day in a row during Tuesday's Asian session, gaining bids to 106.58. Thus, the greenback's signal captures the market's rush for risk-free assets in response to worries about the US and China's economies as well as worries about geopolitics in the Middle East, China, and Russia. It is noteworthy that aggressive Fed remarks and weaker US data enhance market trepidation and help DXY bulls.

 

Despite this, the DXY bulls closely monitor the gloomy statistics coming out of China and the US, particularly in light of the recession fears.

 

In August, the US NY Empire State Manufacturing Index fell from 11.1 in July to 31.3, below market estimates of 8.5. The August NAHB homebuilder confidence index in the US fell from 55 to 49, the lowest level since the start of 2020.

 

In other news, China's retail sales slowed in July to 2.7% YoY from 3.1% earlier and 5.0% forecast, while industrial production (IP) fell to 3.8% from 3.8% previously and 4.0% market estimates. Additionally, in an effort to counter bearishness, the People's Bank of China (PBOC) shocked the markets on Monday by reducing the rates on its medium-term lending facility (MLF) by 10 basis points (bps).

 

It should be emphasized that news stories about deteriorating coronavirus conditions in Shanghai, China's financial center, and the restart of Russian bond trading on Wall Street did not spur investors' desire to take risks. The Wall Street Journal's (WSJ) rumors of a potential meeting between US Vice President Joe Biden and his Chinese counterpart Xi Jinping may also encourage investors to take more risks. In a similar vein, Chinese President Xi proposed new efforts to revive the second-largest economy in the world.

 

The Pentagon said on Monday that the US, South Korea, and Japan took part in a missile warning and ballistic missile search and tracking exercise last week off the coast of Hawaii. Between August 22 and September 1, the US and South Korea will collaborate on military drills. The DXY rises as a result of the additional stress that geopolitical worries place on market sentiment.

 

The three-day downtrend in US 10-year Treasury yields is around 2.775%, while S&P 500 Futures are down at least 0.13 percent day-to-day.

 

Moving on, the secondary US housing and activity data released today should be of interest to DXY traders ahead of the release of the FOMC Minutes on Wednesday. The dollar's gauge might remain on the bear's radar if US data keep getting worse.

 

The three-week-old resistance line, which is now support at 106.35, would need to be broken for an extended period of time for DXY bulls to hit the monthly high above 107.00. However, in order to approach July's yearly high close to 109, the bulls need confirmation from late July's peak at 107.45.


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