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Rate hike fears persist

Rate hike fears persist

Wall Street's main indices started higher yesterday as growth and technology stocks rallied after a three-day slide driven by fears of aggressive interest rate hikes

The last day of the month is not usually a very important date in market analysis since there are portfolio adjustment flows that do not correspond to fundamental factors. However, yesterday the weaker-than-expected ADP data was published and, along with a drop in oil prices, had a positive effect on the market, helping alleviate some concerns about inflation.

The national employment report from ADP showed that private payrolls increased by 132,000 jobs in August, below economists' forecast for job growth of 288,000.

Yet yesterday was extremely volatile, with continual ups and downs and no clear direction for most assets.

Today, the first day of September, the ISM manufacturing PMI data for August will be published. Given the current circumstances in which the Federal Reserve has its sights set on the evolution of the US economy and inflation, the leading indicator will have relevance to the market performance. In this case, just like what may happen with tomorrow's NFP number, a weak figure could push back expectations of rate hikes and therefore be welcomed by stock markets. Paradoxically, negative data are viewed positively by the market.

The most volatile movements in the market yesterday were in the foreign exchange one, as usually happens at the end of the month because of the rebalancing of fund portfolios.

The EUR/USD pair, which had remained under pressure throughout the day around parity, even after a high European inflation figure was published, experienced a strong buying impulse. Around 17:00 CEST, the pair traded at 1.0080, a full figure higher than where it was trading midday in Europe with no positive Euro news to justify the move. This marked a clear example of the volatility at the end of the month.

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Sources: Bloomberg, reuters

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