Market Commentary - August 20, 2020
Muddled messaging and lack of clarity from yesterday’s Federal Reserve minutes has tempered recent gains in global indices. Wall Street reacted poorly when meeting minutes revealed a dovish tone short of market sentiment. Asia follow suit with Australia gapping down 0.6%, both Hong Kong and Japan sold off at open. The US dollar parred back losses, sharply appreciating against most majors. While risk-haven assets, bitcoin and gold failed to hold above key psychological levels $12,000 and $2,000 respectively.
Figure 1 (Source: Refinitiv): US Dollar Index Intraday - US Dollar reverses two days of losses over Fed minutes.
Hints that stimulus negotiations between congressional leaders are set to resume provided no support on Wall Street’s decline. More so at best, as a deal could only be struck in September. On the geopolitical front, US – China trade talks will be rescheduled on a latter unknown date. Larry Kudlow, Director of US Economic Council has noted discussions ‘going very well’ amid the US suspending extradition and tax treaties with Hong Kong. Trump had signed the executive orders back in July 14th in retaliation of China interfering with Hong Kong’s autonomy.
Headliner to Review
- Market participants had expected two announcements to come to fruition from yesterdays Federal Reserve minutes. A note from members on the possibility of pushing inflation beyond the 2% target temporarily to compensate for lost growth. And a policy adopting yield curve control. They received neither. Instead policymakers reiterated statements of increased uncertainty as employment whilst improving, is slowing down and the need for continued monetary accommodation. Fed officials further agreed to refine the statement on longer term goals and policy strategy, however fell short on specifics.
- Crude oil figures disappointed markets as signs of inventory build-up has become more prevalent. Analyst had expected a deficit of -2.9M whilst actual figures revealed -1.6M. For the past 3 months demand deficit has shrunk, largely as the impact of a second-wave in coronavirus reverberates through the global economy. Members from the OPEC-JMMC meeting saw an improvement of fundamentals however implored states to adhere to quotas. Especially member states who broke compliance is expected to cut production in coming months as compensation.
- UK saw inflation beating expectations posting 1% from 0.6%. Whilst prices in all categories rose, culture and recreation were the largest contributor.
- Largely a result of falling air travel prices, Canadian CPI fell more than expected with zero inflation while analyst saw 0.4%. Housing and gasoline prices also saw declines..
Headliner to Watch
- Given yesterdays Fed minutes disappointment, investors focus will be on today’s ECB monetary policy meeting minutes account. Thus far, recent macroeconomic data has revealed Europe’s pace of recovery as expected. The ECB has also publicly stated they are in a wait and see mode.
- The rate of decline in US unemployment claims is expected to slow. Analyst see claims falling from 963K to 930K. Businesses continue to be cautious in hiring as uncertainty over the virus persist.
- US Philly Fed manufacturing index set to decline two consecutive months from 24.1 to 21.0.
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Topics: Market Commentary