It looks like the recent rally in risk assets might be over as recession fears are mounting, while equities seem way overbought and overvalued, considering the current macroeconomic environment.
Although he doesn't think the country is now in a recession, Minneapolis Federal Reserve Neel Kashkari stated that if they keep hiking rates, the likelihood of a recession could increase. However, Jim Bullard, the regular hawk at the Bank of St. Louis, stated that he is inclined to raise interest rates by another 75 basis points in September.
The USD dominates again in the FX market - the EURUSD pair fell below the 1.0100 level and is currently trading close to its daily low of 1.0078. GBPUSD is now trading at about 1.1930, while USDJPY managed to jump above 136.
"Barring some inferior pieces of US data or some surprising recovery stories overseas, we would expect the dollar to consolidate near the recent highs. DXY broke the 107.50 level; however, getting to 108.00 should be significantly more difficult." analysts at ING think the USD will face severe resistance near the 108 level.
Advancing USD has weighed heavily on commodity prices, sending silver below 19.30 USD to one-month lows, while gold fell to 1,750 USD.
EU collapses slowly
Fears of a recession are beginning to grow in Europe as natural gas prices hit record highs on Thursday, adding to inflationary pressures as consumer prices in the Eurozone were confirmed to have risen by an annual 8.9% in July, far exceeding the ECB's 2% target.
This implies that the central bank of the area will have to increase interest rates by another half-point in September in addition to the one in July, which will increase the likelihood of a recession.
On Wednesday, the second quarter's economic growth in the Eurozone was downgraded from 0.7% quarter over quarter to 0.6%.
There are no essential macro data on the agenda today. Thus, investors will likely be influenced by the actual market sentiment, which seemed a bit negative during the London session.