US recession fears circulate, oil surges
US recession fears are back in focus as the flash services PMI report dropped to 44.1, the lowest report since May 2020. A reading below 50.0 denotes a recession so it was a pronounced fall in activity. The services sector accounts for roughly 70% of US economic output so it is worrying the industry is struggling. Not long after the services data was revealed, the new home sales report came in a 511,000, its lowest reading since 2016. When you take into consideration the dreadful New York Fed manufacturing report earlier this month, it paints a gloomy picture of the US. The country is in a technical recession, but technical recessions can turn into actual recessions. The disappointing economic updates come two days ahead of the Jackson Hole Symposium. Central bankers from around the world will gather at the three-day event and it is often used as an opportunity by policymakers to signal next their moves.
Until a few hours ago, traders were divided over whether the Fed will lift rates by 50-basis points or by 75-basis points next month, but now some feel the Fed might look to ease up on its hiking cycle. CPI in the US has cooled to 8.5%, but it is still a long way from the 2% target set by the central bank. The US dollar tanked because of today’s economic reports. The move was accelerated by the fact it was starting from a high point. EUR/USD slumped to a new 20-year low yesterday and even though it had recovered a little today, it was still a long way off parity. The currency pair jumped above the 1.0000 mark as selling pressure mounted on the greenback, but it has since breached parity again.
Stock markets in the US are broadly a little lower as the prospect of a recession is counteracting the possibility of the Fed taking a less aggressive stance in relation to hiking interest rates. European equities finished in the red as elevated gas prices dampened the mood. There were some subpar economic updates in the continent too - eurozone services grew at its slowest rate in 17-months.
WTI and Brent crude are powering ahead as OPEC+ announced that it might consider cutting oil production, if or when, Iran boosts its output. It has been the second suggestion that OPEC will curtail production in the past 24 hours. Western governments are engaging in talks with Iran about its nuclear programme, it is understood that little progress has been made, so OPEC might not be forced to act.