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On July 28, the Monetary Authority of Singapore (MAS) warned that the uncertainty surrounding continued massive investments in artificial intelligence (AI) is a key risk to global growth and financial markets, while also citing the threat of a prolonged escalation of conflict in the Middle East. MAS Managing Director, Cheah Chan, stated that the surge in investment in data centers, chips, computing infrastructure, and semiconductor capacity has driven global economic growth, which has remained resilient despite shocks ranging from high tariffs to war. Cheah pointed out that whether the AI boom continues or funding is significantly reduced, it will have a major impact. A sharp correction could severely weaken global economic growth. He added that financial stability risks could also stem from the exposure of equity, credit, and lending markets to unsustainable business models that lead to deteriorating cash flow and weak credit conditions within complex financing structures. Conversely, a prolonged AI boom will impact income, demand, and inflation. Global growth, investment, and financial market performance are already highly dependent on forecasts of continued large-scale increases in data center and semiconductor chip investment over the long term. This is particularly evident in US capital markets and Asian economies that export semiconductors.On July 28, Meta Platforms (META.O) and BlackRock announced a joint investment in and ownership of a data center campus in El Paso, Texas. The campus, currently under construction, will have 1 gigawatt of computing power. Meta will provide construction management, administration, and property management services and will be the first and sole user upon completion. The transaction is expected to close in the coming days, with the project scheduled to begin operations in 2028. The El Paso data center is a project representing over $10 billion in investment for Meta and will support over 4,000 construction jobs and 300 operations jobs at peak times. Currently, over 2,300 workers are on site. A fund managed by BlackRock will hold an 80% stake in the joint venture, while Meta will retain the remaining 20%. Both companies have committed to jointly contributing approximately $14 billion in development costs for the campuss buildings and long-term power, cooling, and communications infrastructure.BlackRock: Meta will provide a total of $13 billion in residual value guarantees.BlackRock: Meta will receive a one-time allocation of approximately $1 billion.BlackRock: Meta will lease the entire campus for an initial term of four years, with four renewal options.

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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