Data tests continue – ING

Markets returned to action after the US Labor Day, with a defensive stance and risk assets under pressure. Markets have seen a return to manual de-risking dynamics in FX: strong safe havens (JPY, CHF, USD) and weak high-beta (AUD, NZD, NOK), notes Francesco Pesole, FX strategist at ING.

The Fed’s Beige Book is coming

“US ISM manufacturing was a mixed bag yesterday. The main index returned slightly less than expected to 47.2 as new orders fell to their lowest level since May 2023. At the same time, prices paid were above expectations at 54.0. We’d be happy to over-interpret a survey that has been in contractionary territory for 20 of the past 21 months: Ultimately, it’s well established that for growth momentum to extend into the second half of the year, it will depend on services to lead it.”

“Today’s main event is the release of US JOLTS job offers, which slowed from 8,184,000 to 8,100,000 in July. That figure feeds into an important measure: the ratio of unemployed to job openings, which rose from a low of 0.5 in 2022-23 to 0.8 in June. In July, unemployment rose to 7.16 million, meaning the ratio will likely round to 0.9 unless job openings surprisingly rise to 8.42 million. In the two years before the pandemic, the average was 0.8-0.9, so a move to 1.0+ in the coming months would be a clear signal of labor market strain. The other event on the US calendar today is the Fed’s Beige Book.”

“We have warned of USD strength in an environment where markets are fully pricing in a 50bp cut by the Fed this year, and we may need to worry more about a US recession to get through much on the dovish side. The key here is that US bearish bets may end up hitting high-beta stocks and currencies more than the USD. We believe the yen and Swiss franc are in a stronger position compared to other G10 currencies.”