Market Commentary - September 2, 2020

Posted by Kevin Jock on Sep 2, 2020 8:04:22 AM

   ASX200 rallies on Asia open despite GDP figures cementing Australia first recession in around three decades. Lack of news leaves Japan and Hong Kong relatively mute. Wall Street continues to benefit from Apple’s stock split while Zoom quarterly profits double as more corporate paying clients embrace work-from-home culture. Both S&P500 and Nasdaq again extending grounds into fresh territory by the end of the session. Conversely, European indices ended poorly with four consecutive days of declines. Weak performing blue-chip companies in Britain and lacklustre inflation in the Euro Zone is hampering returns.

   Solid manufacturing data out of America halted the dollar’s decline as the currency gained against majors. Oil continues to have trouble holding above key psychological level $43 after briefly touching before retreating, while gold settles below $2,000 after momentarily surpassing just only a month ago.


EURUSD 12000

Figure 1 (Source: Refinitiv): EURUSD Daily - Euro briefly touches 1.2000 psychological level before retreating lower in the session.

    In focus today, EURUSD attempted to break pass 1.2000 before settling yesterday’s session just above 1.1900. Since March lows, the Euro has gained 11.5% against the greenback. Beyond aggressive easing via rate cuts and expanding central bank balance sheets since the pandemic hit. The US Federal Reserve has shown greater willingness to inject massive amounts of liquidity while ECB’s reluctance has supported the Euro higher.

 

Headliner to Review

  • Better than expected manufacturing PMI figures out of the US, with consensus estimating 54.6 while actual was 56.0. August’s report reveal employment in the sector remains subdued, however new orders and production continue to grow four months on. A healthy backlog of orders is growing as customer inventories seemingly low. Both exports and import are also increasing, a good sign to rising global demand.
  • Australia entered their first recession in three decades as the Bureau of Statistics showed GDP contracted -7.0%, worse than the predicted -6.0%. The figures highlight the impact public health restrictions had on the Australia economy. While the nation took a moderate approach towards COVID-19, stricter than Sweden, but less restrictive than France, private demand dove -7.9% and in turn household expenditure dropped -12.1%. Treasurer Josh Frydenberg reiterated, without government’s stimulus package, consequences would have been greater with as much as an additional 700,000 jobs lost.
  • Worst than expected flash CPI estimate see Europe in deflationary pressure with figures declining from 0.4% to -0.2%. Food, alcohol, tobacco and services continued to post positive gains, however annual inflation for energy took a nosedive at -7.8%.

Headliner to Watch

  • Market consensus sees crude oil inventory continuing a deficit at -2M as hurricane Laura swept through both America’s and Mexico’s coast lines, shutting down refineries and disturbing supply routes. Nonetheless, the aftermath was much better than expected with refineries expected to resume operations early September.
  • BOE Gov Andrew Bailey is expected to testify before the Treasury Select Committee in London. Since taking on the role, Mr Bailey has expanded the BOE’s bond purchasing program by 300bn pounds and cut rates to 0.1 per cent to support the nation amid a crisis. Here, he’s expected to talk about the economic impact of COVID-19 and further enlighten regarding negative rates.
  • ADP non-farm employment change expected to increase from 167K to 1250K. Recent divergence between ADP and official government figures has pulled into question the relevance of the research institutes numbers. Despite being announced 2 days ahead, recent announcements have had mute impact on the US dollar.

 

Any opinions, news, research, analysis, prices, or other information contained on this website is provided as general market commentary, and does not constitute investment advice.

Authors:
Antony Tan
Ben Li
Kevin Jock

Topics: Market Commentary

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