A week of calm ensued after the US/China trade talks were postponed last weekend. This led to the markets opening on Monday at around the levels seen at the close of the week, with the exception of Chinese markets surging at the open, purely on the “no news is good news” theory. Infact, Chinese stocks and currency enjoyed a solid week, as economic data continues to be supportive of economic recovery resulting in the USD/CNY being sold aggressively, as the CNY surged and the US Dollar theme for the week was broadly lower.
It wasn’t all one way traffic for the US Dollar as after a heavy start to the week against most other currencies, there was a surge after the US Federal Reserve (FOMC) released their minutes of the late July meeting on Wednesday night. Very much against Trump's wishes, the FOMC remained cautious to their outlook, as the US struggles to deal with Covid-19. There was perhaps undue hope that they could be more optimistic, but that tone was not evident in the minutes. With the FOMC committee, now on break until September, expectation was that they announce the new strategy at that meeting, again the minutes did not reflect that this would be the case, with it now seeming more likely they perhaps rightly await the outcome of the US election in November.
Naturally, the magnitude of this election bearing significant event risks to the markets, with either the Tax heavy Biden or the unstable Trump bearing different risks, therefore this seems a perfectly viable and sensible plan, with Central Banks naturally being reluctant to release one plan before abruptly changing course.
In the US whilst the virus continues to cause issues in certain states the spread has not been further expansionary this week. Joe Biden was confirmed as candidate for the Democrats as expected and continues to lead in the polls, both through his own personal and party following and those keen on “anyone but Trump”. The stock markets continue to soar, even after the dovish FOMC minutes caused a wobble on Wednesday night and into Thursday morning. As ever these dips merely created further buying opportunities, led by of course the same handful of names with Tesla being the standout performer. The stock hit an incredible high just over 2000, up from just below 400 on the year as the Nasdaq made a new high on Thursday night of 11,52,7 as markets grow tolerant to the fact we are on a gradual march higher into the election. But at what cost thereafter.
With the US Dollar on the back foot, the obvious “go to’s” were the Euro and the Pound, but with further lock downs ensuing across the Eurozone, warnings of slow economic recovery from senior German officials and poor PMI data the Euro struggled this week, the Pound is benefitting heavily from reserve purchases as it surged on the week to make a high at 1.3250 before slowing into the weekend. The populism of the Pound wasn’t aided by the Brexit talks that resumed this week, but it wasn’t hurt, as no progress was made in the key topics of fishing rights and freight, these will likely remain the sticking point as the negotiations continue in the coming weeks. The UK domestically continues to avoid the significant resurgence of the virus that is being seen across Europe, so despite the government, having learned from the slow initial reaction to the virus, and now adopting a slower normalization process, is finally getting something right.
The Week Ahead:
Monday: A very quiet day with just data out of New Zealand with Retail Sales core and non-core and Chinese Leading Index data.
Tuesday: First up is Japanese Core CPI. In the European session we get German GDP and Ifo business climate as well as UK CBI. In the US session we get Consumer Confidence data.
Wednesday: Australian Construction data kicks off the day with a very quiet European session. In the US session we get core and non-core durable goods.
Thursday: Australian Private Capital Expenditure comes first. Again there is little in the way of meaningful data from Europe. In the US session Prelim GDP, Unemployment claims and probably most significantly Jerome Powell speaking at Jackson Hole, which could be pivotal for the week's trading.
Friday: German Gfk and import prices as well as French CPI , GDP and Consumer spending data from Europe comes first. In the afternoon session we get Canadian GDP, US Core PCE and Personal Spending data, before the Chicago PMI and UoM data. Again be mindful of announcements from the Jackson Hole symposium.
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