Wall Street fell on Tuesday as a stronger-than-expected reading on services sector activity fueled expectations that the Fed will keep raising interest rates to curb inflation
A survey by the Institute for Supply Management showed that the US services industry rebounded in August for the second month amid stronger order and job growth, while supply bottlenecks and pressures on prices decreased.
The ISM Non-Manufacturing PMI rose to 56.9 last month, beating market analysts' median forecast of 54.9. The main concern for almost everyone is what will happen to the Federal Reserve and interest rates. US treasury bond yields rebounded strongly yesterday after the ISM PMI non-invoicing data anticipating decisions by the Fed on more aggressive interest rates.
Investors see a more than 70% chance of a third 75 basis point rate hike at the policy meeting later this month.
In Europe, stock market indices surprisingly performed moderately, despite the Russian gas supply cutoff announced just a couple of days ago.
The German DAX index closed the session with an increase of 0.50%, even though Germany would be the country most affected by this stoppage in supply. This counter-intuitive move can be explained by purely technical reasons (the index's high level of overselling and proximity to an important support level).
The Euro currency did not support this good behavior of the European stock markets.
EUR/USD fell more than half a figure to 0.9877, the lowest in the last 20 years, opening expectations of larger declines.
Some investment banks estimate that it could go down to the 0.9500 levels. And all this, even though the ECB will raise interest rates tomorrow by at least 50 bps, which should provide some support for the currency. But the delay in acting by the European Central Bank and the enormous tension in Ukraine, which could lead Europe into recession, weigh more when it comes to evaluating the fundamental elements that affect the currency’s price.
Sources: Bloomberg, Reuters
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