Sell in September, US data impresses, dollar can’t be stopped, Bitcoin below $20k

It seems most of Wall Street believes September will be a month we won’t want to remember. ​ We are less than two weeks away from a pivotal inflation report and three weeks from the FOMC meeting. ​ The repositioning of portfolios is just beginning as the Fed accelerates the balance sheet runoff, while we are barely seeing signs that real economy is starting to feel the impact of tightening.

US stocks are declining after another round of strong labor and manufacturing data confirm the Fed’s hawkish stance that they can remain aggressive with the tightening of policy. If the economy remains resilient over the next few months, the fed-funds futures market might believe the Fed won’t be done tightening at the end of year. ​ Markets might start pricing in a February rate hike as well, if pricing pressures don’t show further signs of easing with the September 13^th inflation report.

​US Data

Key manufacturing data and jobless claims continue to push back the idea that the economy is headed towards a recession. ​ Many were expecting to start to see signs of weakness with the labor market and sluggishness with factory activity, but that apparently didn’t happen in August. ​

Initial jobless claims declined by 5,000 to 232,000, an improvement from the downwardly revised 237,000 prior weekly reading, and much better-than-expected 248,000 consensus estimate. The Challenger, Gray, & Christmas report showed layoffs are low and supports the idea the labor market is still clicking on all cylinders. ​ The ISM manufacturing report also impressed as factory activity attempts to stabilize. The headline ISM gauge of factory activity held steady at a two-year low and prices paid showed they are continuing to decline. ​ The ISM employment component also rebounded back to expansion territory. ​

The US economy is still looking good and that should allow the Fed to remain aggressive with tightening over the coming months. ​ The latest Atlanta Fed GDPNow reading for the third quarter posted a significant increase from 1.57% to 2.59%. It seems like a certainty that the economy will avoid a third consecutive negative GDP reading, which will completely end the debate that the economy is in a recession. ​ ​ ​

FX

It comes as no surprise that the dollar hit a fresh record high on both safe-haven flows from global economic weakness and as a resilient US economy paves the way for the Fed to remain aggressive. ​ King dollar has awoken from a nap ​ and that could spell a lot more pain for the European currencies.

Bitcoin dips below $20,000

Bitcoin is back below the $20,000 level as risk aversion runs wild on Wall Street. ​ Bitcoin’s slide however seems small considering the aggressive selling happening with risky assets. ​ The true test for Bitcoin is if it can stay close to the $20,000 level after the NFP release. A hot labor market report and Fed rate hike bets might surge and that could trigger downward pressure that eyes the summer lows. ​

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