Market Commentary - August 14, 2020
A lack of major macroeconomic news in Asia leaves indices and futures actionless. Gold resumed its rally yesterday after finding support as recent filings from Bridgewater revealed the hedge fund had increased holdings in Gold ETF’s by $340M. Rising geo-political tensions between two powerhouse states, an uncontained virus propagates and stimulus induced reflation sees investors holding the precious metal as a hedge against such bleak uncertainties. Oil surprisingly continues to hold its ground amid a report by the International Energy Agency forecasting global demand for oil to stagnate as air travel remains subdued.
Elsewhere, Turkeys finance minister admits expectations of expanding 5% is unlikely to be achieved by the end of 2020. Recent IMF and World Bank forecast instead see the country contracting 3.8% - 5% by years end. It is estimated approximately $65bn in central bank foreign reserves had been spent in defending the depreciation.
Figure 1 (Source: Refinitiv): EURTRY Daily Chart - Depleted foreign currency reserves and a government coming to terms that the Turkish lira's depreciation is inevitable sees EURTRY on a 45 degree upward trajectory.
On the virus front, New Zealand the poster child for COVID-19 crisis management experiences unexplained clusters of infections. Speculation is mounting over the possibility of being carried via refrigerated freight cargo. The nation had celebrated 102 days without transmissions, only to re-enter lock-down after 12 new cases. Authorities decide today whether lock-down measures will be extended. Confirmed cases world-wide now stand at 20.28M with 733K deaths.
Headliner to Review
- After a temporary hitch, US job markets resume its recovery with recent unemployment claims decreasing from 1,191K to 963K. Whilst new applicants are falling, many remain cautious. Employers cautious over hiring beyond uncertain capacities. Economist cautious the drops in claims is solely attributable to the $600 benefits expiration. The unemployed cautious whether Trumps’ executive order to extend benefits is $400 or $300. Trump had hoped of the $400, States would contribute $100. Many have refused to comply.
- Remarks by RBA Governor Lowe today as he testified before the House of Rep. Standing Committee saw him emphasized the absolute need for more fiscal stimulus to revive the coronavirus-stricken economy. Lowe echoed “it is the right thing to do to borrow today to help people, keep them in jobs and boost public investment at a time when private investment is very weak”
- With 5 consecutive quarters of economic contractions, Mexico’s central bank announced cash rates will be lowered by 50 basis points to 4.5%. Recent figures reveal annual growth of GDP plunging to -18.9%
- Retail sales and industrial production figures out of China disappoint. Market consensus had hoped for a slight pickup. Nonetheless, retail sales contracted -1.1% as opposed to an expected 0.1% and industrial production remained at 4.8% YoY.
Headliner to Watch
- Two important data points will be announced in the US today. Retail sales and consumer sentiment. Both expected to see declines as the initial pump in euphoria from easing quarantine restrictions fizzle. Retail sales to decline from 7.5% to 2% whilst sentiment edges lower from 72.5 to 70.
- The Japanese economy set to continue shrinking. Analyst expect a third consecutive quarter of contraction with annualized GDP at -27.2%. Before the pandemic, trade wars and a sales tax hike weighed heavily on the growth. Once the virus struck, following other global nations, Japan’s economy cratered.
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Topics: Market Commentary