Global markets are scrambling to find direction after the US private-sector employment data came below expectations, calling into question the economic growth of the country, while concerns over artificial intelligence (AI) regulations came to the fore.
The ADP private-sector employment in the US showed a rise of 44,000 in July, according to data released on Wednesday.
The loss of momentum dampened expectations of further Fed rate hikes, while it also signaled a slowdown in employment.
The Fed’s likelihood to raise its policy rate by 25 basis points next month fell to 55%, while the possibility of an October rate hike dropped to 80%, money market estimates showed.
US nonfarm payrolls and other employment figures will be released on Friday, expected to boost volatility in estimating Fed’s next moves.
Markets view the US labor data as bad but with good outcome, while reports about AI and hawkish Fed members’ statements dampen risk appetite.
Minneapolis Fed President Neel Kashkari is one of the three who voted for a rate hike at the bank’s latest meeting. He said he believes the Fed should start gradually raising rates.
Fed Board Member Lisa Cook also signaled she’s prepared to hike rates if inflation does not slow down.
Meta AI models
Meanwhile, US tech giant Meta said one of its AI models in development hacked a company during testing.
Similar incidents that had already occurred surfaced following Meta’s announcement, fueling concerns over controlling AI.
The developments brought to the fore the possibility of stricter regulations, while the long-debated overvaluation risks in the sector came back into the spotlight, leading to a selloff in tech stocks.
Chipmaker AMD’s sales dropped 7% on Wednesday despite better-than-expected second-quarter financial results.
Strait of Hormuz to reopen soon: Trump
Meanwhile, US President Donald Trump said talks with Iran were progressing well, assuring that the Strait of Hormuz would reopen very soon.
Trump said he prefers to make a deal with Tehran but resorting to using force remains an option if diplomacy fails.
Iranian deputy foreign minister Kazem Gharibabadi said the negotiations with Oman over the Strait of Hormuz reached final stage, while the route under discussion is a temporary one expected to last two to four months, and that the full reopening of the Strait of Hormuz would depend on the US’ stance.
Following these developments, the US 10-Year Treasury yield traded flat at 4.61% and the US Dollar Index continues to hover around the 99 level on Thursday.
Gold surges
Gold surged 4.2% on Wednesday to $4,246 per ounce amid fading hawkish expectations from the Fed and renewed hopes for peace in the Middle East, while gaining 0.3% to $4,260 on Thursday, marking a roughly two-month high.
Gold is trading at $4,135 per ounce on Thursday, marking a 1.4% increase amid the US dollar’s depreciation and easing bonds.
At the same time, the S&P 500 dropped 0.17% and the Nasdaq fell 0.83%, while the Dow Jones Industrial Average set a new record at the close and surged 0.49% on Wednesday. American indexes started Friday on a mixed course.
European stocks mixed
Meanwhile, European stock markets were mixed, while concerns over future inflation eased as the eurozone’s Producer Price Index (PPI) fell 0.3% month-on-month in June.
The European Central Bank’s (ECB) likelihood to hike its policy rates next month fell from 85% to 70% in money market estimates.
Europe’s retail sales will be closely watched for signals into consumer demand on Thursday.
The eurozone’s composite Purchasing Managers’ Index (PMI) climbed 52 basis points to its highest of eight months in July, data showed on Wednesday.
The EU announced that the €1.4 billion ($1.6 billion) of revenue generated from the Russian central bank’s frozen assets will be used to support Ukraine.
The UK's FTSE 100 climbed 0.08%, while France's CAC 40 traded flat, Italy's FTSE MIB 30 declined 0.18%, and Germany's DAX 40 dropped 0.29% on Wednesday. European indexes started Thursday on a positive note.
Asian markets see selloff
Asian equity markets saw a selloff except for China, while Japanese investors made net purchases of foreign bonds totaling around $3.2 billion last month, and the US dollar/Japanese yen exchange rate is trading flat at 157.76 after intervention.
Mounting regulatory and oversight risks over AI systems and some US firms earning below expectations fueled the selling pressure in the region’s semiconductor sector.
South Korea’s SK Hynix shares lost 9%, while Samsung Electronics shares dropped 5.7%.
Japan’s Tokyo Electron shares declined 5% and Renesas Electronics shares contracted 3%.
Near Thursday’s close, Japan’s Nikkei 225 fell 0.7%, South Korea’s Kospi declined 3.7%, and Hong Kong's Hang Seng was down 1.8%, while China's Shanghai Composite grew 0.2%.
