US futures steadily recover on Wednesday thanks to rush impatient buyers which ignore the risk of deeper drawdown. The rally is a bit cautious but both SPX and futures have risen above 3300 level, which I thought would remain resistance for some time, allowing bears to test lower levels before a rebound. The market is once again showing the wonders of climbing and “buy-the-dip” forces definitely should not be underestimated and perhaps they should be placed above other drivers.

The USD index broke through the 94-point cordon on Tuesday thanks to an interesting move by the Fed member Evans. His comments prompted us to rethink the recent revelations of the Fed regarding interest rate path and inflation. The official said yesterday that the Fed's new plan allows for a rate hike before inflation hits 2%. In addition, Evans said that the Central Bank has not yet defined what it means to pursue average inflation, i.e. should it be averaging, or will it remain a purely conceptual notion.

Evans' comments further underscore the fact that the Fed can expect anything, but incoming data can change expectations. Therefore, lower for longer stance is not a commitment but should be rather perceived as the most probable outcome. The Evens remarks will definitely benefit USD. The index is eyeing the level of 94.50.

The EU service sector is starting to feel the pain from new “soft lockdown” measures. Activity in the sector slowed sharply in September, showed the release of preliminary PMI data. Manufacturing has improved, but non-manufacturing dynamics appear to be more important for the euro.

The service sector activity index fell from 50.5 in August to 47.6 points in September (forecast 50.5 points). Interestingly among the drivers of weakening, respondents indicated a recent acceleration in the incidence of Covid-19. By contrast, activity in the manufacturing sector increased. The corresponding index rose from 51.7 to 53.7 points in September.

Interestingly, activity indices in the UK indicated a similar trend: manufacturing activity accelerated, while in services it began to slow down. The composite index was down sharply but still well above 50 points and the Markit report said that unemployment in the country is likely to rise sharply closer to winter. The Central Bank of England predicts an increase in the unemployment rate from the current 4.1% to 7.5%.

Apart from these expectations, we’ve had tightening of lockdown measures in the UK as well - from Tuesday, bars and restaurants will have to close at 10 pm, and workers are again advised to prefer working from home instead of office. All this together determines the weak pound what pushed it lower towards 1.27 level as we discussed earlier. The cable tested 1.2650-1.2670 key support zone and further decline is under question, but the UK currency has got a serious enemy - the government with mild lockdown.

Another major update from today is the US manufacturing activity index, which, together with data from the old world, will help us to assess the recovery in manufacturing sector of developed economies in September.

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