The week began with a “risk on” theme as President Trump announced that both the COVID-19 plasma treatment and the Astra Zeneca/ Oxford University vaccine would be fast tracked. Although these were not necessarily significant shifts and will not see any tangible results any time soon, global risk assets, such as stocks, took this as a positive as equity markets leapt higher.
The standout move was the S&P 500 future rally that joined the cash index by hitting a new all-time high above the February 2020 peak. The cash index had made this statement the prior week and with both cash and futures markets at record levels and through the 3400 barriers, US equity indices surged higher through the week.
US-China trade talks were scheduled for mid-August, but cancelled at the eleventh hour, but Monday-Tuesday saw an announcement that a call had taken place between U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin with Chinese Vice Premier Liu He. The sounding from both sides were positive, allaying market fears of a potential renewal of trade hostilities and again helping the broader “risk on” theme for share markets.
The trade talks between the UK and the EU continue to be highlighted by impasse and disappointment, with both sides indicating that little progress has been made. This has not, however, had a negative impact on the Pound, which stays strong against the US Dollar and resilient against the Euro.
In the first half of the week, however, the Forex markets and in particular the US Dollar stayed subdued, caught within the near-term ranges that had been established throughout August. Currency markets were in a wait and see mode for the much-anticipated speech from Federal Reserve Chairman, Jerome Powell at the annual Jackson Hole Economic Symposium.
Global financial markets certainly reacted to the Jerome Powell speech on Thursday, with the main focus on the Federal Reserve’s shift to Average Inflation Targeting. In short, this means that the Fed will not have a specific target for inflation, but an average target. This will allow for the inflation rate to run higher (than the previous 2% target), if inflation rates had been notably lower previously. The inference was that this would allow the Fed to target employment and recovery growth, meaning interest rates would be allowed to be left “lower for longer”. Equities rallied further, whilst the US Dollar broadly sold off, with GBPUSD, USDCAD and AUDUSD hitting new multi-month levels.
The end of the week saw the Japanese Prime Minister, Shinzo Abe taken ill and then on Friday announce that he would be standing down due to ill health. This had an immediate impact on markets, with the Nikkei 225 selling off and the Japanese Yen rallying, with a localised repatriation “risk off” move.
The Week Ahead:
UK Bank Holiday observed, with UK financial markets closed. From Asia we get Japanese Industrial Production and Retail Trade data and the Chinese Purchasing Managers Index (PMI) from the China Federation of Logistics and Purchasing (CFLP). In Europe, Germany releases Consumer Price Index (CPI) data. US side data is light.
We get further Chinese PMI data with the Caixin China Manufacturing PMI from Markit. The Reserve Bank of Australia are also in action with their interest rate decision and statement. Through the day, Markit release European, UK and US Manufacturing PMI data, whilst the US Institute of Supply Management (ISM) also post their Manufacturing PMI. This will be punctuated by Eurozone CPI.
Australian post Gross Domestic Product (GDP) for Q2 and Germany releases Retails sales numbers for July. In the US we get the ADP Employment change data.
Throughout the day, Markit post European, UK and US Services and Composite PMI data, whilst the US Institute of Supply Management (ISM) also released their Services and Composite PMI. Weekly US Jobless Claims are also posted.
The end of the week begins with Australian Retails Sales numbers for July, and the always much-watched US Employment report, plus the Canadian Employment report.
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