MARKETS BRACE FOR VOLATILITY AFTER WALL STREET SELLOFF
US stocks just posted their biggest one-day loss in three months, as political jitters and mixed earnings drove heavy selling on Wall Street. The reverberations of the selloff are already being felt in the futures market, with European equities already in the red.
The Dow Jones Industrial Average plunged 274 points on Thursday with all 30 of its components finishing lower. That’s the first such occurrence since September.
Surprisingly, haven assets such as precious metals only saw limited upside and were little changed ahead of European trade.
The US dollar index (DXY) has also weakened in recent sessions, but is on track for a weekly gain of around 0.6%. The euro remains under pressure while the British pound searches for direction.
A steady stream of economic data will make headlines on Friday. Action begins at 06:00 GMT with German producer inflation figures. The producer price index (PPI) is expected to come in flat for July, translating into a year-over-year gain of 2.2%.
Two hours later, the European Commission’s statistical agency will release the current account deficit for the month of June. At 09:00 GMT, Eurozone construction data will also make headlines.
In North America, Statistics Canada will release the latest inflation numbers for the world’s eleventh-largest economy. The Canadian consumer price index (CPI) is forecast to rise 1.2% annually in July, compared with 1% the previous month. However, CPI is expected to go unchanged month-over-month.
In US data, the University of Michigan will release the closely-watched consumer sentiment index at 14:00 GMT. Sentiment data are used by investors to gauge consumer spending, which accounts for more than two-thirds of US economic output.
Energy traders will also be monitoring the weekly rig-count report from Baker Hughes Inc., which is due at 17:00 GMT.
In monetary policy, Federal Open Market Committee (FOMC) member Robert Kaplan will deliver a speech that will be closely monitored by the financial markets.
The euro ran into volatility on Thursday after the European Central Bank (ECB) released the minutes of last month’s policy meeting. The EUR/USD was last seen trading around 1.1730, where it faces immediate support at 1.1687.
The USD/CAD suffered a sharp reversal on Thursday following weeks of steady progress. After peaking at 1.2764 in mid-week trade, the pair briefly fell below 1.2600 on Thursday. The short-term outlook will depend on Canadian data and the sustainability of the greenback’s latest recovery attempt.
The Dow Jones index fell 1.2% on Thursday and is currently trading at more than three-week lows. The sharp reversal is a clear sign that investors are becoming nervous about political developments surrounding President Trump. At the same time, however, the technical and fundamental pictures suggest the Dow is still primed to push higher.