Stocks turn negative, US data supports further large rate hikes, Hungary hikes, bitcoin declines as risk aversion firmly in place

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Turnaround Tuesday disappeared faster than dessert does at the Moya household. US stocks turned negative after confidence and job opening data supported the argument for the Fed to stick to an aggressive stance in fighting inflation. ​ The S&P 500 index fell below the 4,000 level as more Fed speakers stood by Chairman Powell’s strong hawkish position. ​ Fed’s Bostic reiterated it is too early to declare victory in the inflation fight and Barkin stated that policy needs to be restrictive. ​ It seems like traders are leaning towards a 75 bp hike in September, a half-point in November and a 25bp increase in December. ​ Over the next few months, if the labor market doesn’t break and the consumer remains resilient, Wall Street might start pricing in rate hikes for February and March.

US data shines

US consumer confidence roared back as Americans started to believe the peak with inflation is in place. ​ The headline confidence reading rose to 103.2, well above the highest estimate and best level since May. Everything improved with the Conference Board’s August report as both the present situation and expectations survey posted hefty gains. ​

Job openings rebounded in July as 11.2 million jobs as employers continue to struggle attracting and retaining workers. ​ This is one critical component of the labor market that will help the Fed justify aggressive rate hikes. ​ If Americans have options to get employed, the Fed can ignore the rapid deterioration with the other economic releases. ​

FX

Hungary raised the benchmark interest rate by a full percentage point to 11.75%, the highest key rate in the EU. While their neighbors appear to be opting for a slower pace of tightening, Hungary’s economy is bracing for surging borrowing costs that will weaken their economy. The central bank is sending a clear message that a “decisive continuation” of its monetary tightening cycle is needed to battle persistent inflation. ​

The Hungarian forint rallied against the euro but is still within shooting distance of the record lows set in early July. ​ The forint might have further room to go against the dollar as peak tightening by the Fed is almost in place, while the ECB might be forced to deliver a couple of massive rate hikes in September and October. ​

Bitcoin

Risk aversion is firmly back in place and that sent Bitcoin below the $20,000 level. ​ If the broad selloff on Wall Street intensifies, bitcoin is looking very vulnerable here. ​ If the S&P declines by 3% over the next few days, that could be the catalyst to send bitcoin back towards the June lows. ​ ​ ​


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