This Thursday, investors remain optimistic with mixed US ADP and ISM Services PMI numbers dampening expectations for aggressive Fed rate increases. However, it has barely affected market pricing of a 75 bps Fed rate hike in November, which is now at 65%. US Treasury yields are falling as a result of a lack of clarity regarding the Federal Reserve's tightening agenda, which is underpinning the greenback.
European stocks are expected to open higher on Thursday, following recent global market volatility. Regional markets closed lower on Wednesday, following the decline in global stock prices in recent days, which cemented fears of a recession across the 19-member currency bloc after eurozone PMI data fell to a 20-month low. Stock futures on Thursday were slightly higher despite falling in regular trading and breaking a massive two-day rally, while shares overnight in Asia-Pacific were mixed after Wall Street's rally faded.
The Eurozone Retail Sales report, the ECB minutes, US jobless claims, and Fedspeak are now the main focus of attention. Geopolitical headlines and risk trends will continue to play out, too.
EUR/USD is making minor recovery attempts just above 0.9900 heading into the European open. This is as the dollar licks its wounds following the steep drop seen in the US the last session. As geopolitical tensions escalate between the West and Russia over the Ukraine crisis, EUR bulls remain cautious despite the renewed upside in the major. As part of newly imposed sanctions against Russia, the European Union (EU) backed a price cap for oil on Wednesday. The weakness in the euro is expected to persist. High and rising inflation should continue to weigh on the consumer, and energy supply disruptions could more directly impact manufacturing activity.
GBP/USD faces pressure to test 1.1300 following a resurgence in the US dollar on Thursday. The GBP/USD is expected to encounter a tough barrier around 1.1488 if the upside continues. It has been reported that analysts are divided on the issue, according to a recent poll conducted by Reuters. Their forecast for the battered pound in a year is 3.6% growth and parity between the two currencies.
There is a reasonable chance that the UK economy will experience the biggest increase in borrowing since 1972. This is a result of the rollback of historic tax cuts announced by Finance Minister Kwarteng. However, what has the pound bulls reeling is Fitch Rating's negative outlook on the Bank of England's Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR). It is possible that the recent rally in the pound could be adversely affected by the revised outlook to Negative from Stable, affirming AA-.
In response to recent weakness in crude prices, OPEC and its allies, defying US pressure to increase supply, cut supply by 2 million barrels per day (bpd) on Wednesday. The price of oil rose to a three-week high on Thursday but appeared to have paused since the recent rally, as markets awaited more clarity on how OPEC+ will carry out a massive supply cut, and also the response of the United States to the decision.
In combination with signs that oil inventories in the U.S. have been falling rapidly every week, the move has sparked a sharp rally in oil prices, helping them to recover further from the eight-month low they hit in September.
However, it is unclear which of the members of OPEC+ plans to cut the supply of oil, as well as when the cuts will be implemented. Aside from that, the cartel did not address how the reduction will impact the shortfall in production, which it expects to be 3.5 million bpd, in its daily production target.
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