Market Commentary - August 25, 2020
Optimism on a phase 1 trade deal and development on vaccine treatments boosted bullish bets on global indices. With Moderna Inc. negotiating a deal across Europe to supply atleast 80m doses and Trump expanding FDA approved blood plasma treatments, markets have seemingly shrugged off mounting sentiment COVID-19 would stall recovery efforts.
Speaking over the phone, US – China officials suggest a trade deal is likely to be achieved by January 2021, though concerns have been raised over the pace of existing purchases, standing at $77bn. China would need to buy another $123bn to comply with terms originally signed back in January 2020.
Alongside the RNC convention, President Trump announced an additional $1bn food purchase program to aid families dealing with economic hardship, unable to meet subsistence levels. The existing $3bn program is set to expire by the end of August.
Both S&P and Nasdaq settled at records highs whilst Dow led gains yesterday, is still 4.5% below all-time highs. On Monday, the CAC40 rallied by 2.29%, EuroStoxx600 by 1.58% and DAX30 by 2.36%. With Japan rallying 1.1% on Asia open, Australia and Hong Kong looked towards a modest start, however later in the session, gains have subsequently retraced back. US dollar holds steady as the next likely driver of direction will be Powell’s speech on Thursday.
Figure 1 (Source: IS Prime): CAD Dollar Index rebased to 100 - Weak exports see demand for the Canadian dollar wane.
Most major currencies have made significant recoveries against the greenback since January's depreciation. Among them, Canada’s loonie thus far has been the under-performer. Weakening not only against the US dollar but also other G7 currencies as bearish bets mount. Since May, the COT report has showed speculators increasingly bearish as oil exports and other Canadian commodities fail to drive exports.
Headliner to Review
- Alongside Abenomics, the BOJ had raised Japan’s inflation target to 2%. However as the pandemic persist, the goal of reaching such a target is becoming highly unlikely as yesterdays BOJ CPI figures see 0% inflation. Worst than the expected 0.1% analyst had forecast.
Headliner to Watch
- Germany set to officially enter recession with two consecutive quarters of negative GDP growth. Expectations see the nation contract -10.1% in the second quarter. Although growth has been dire, forward looking indicators such as German’s ifo business climate is expected to continue rising, with estimates see it increasing from 90.5 to 92.5. Just 3.6 points shy of pre-virus levels.
- The resilience of the American housing market shines through again with new home sales eclipsing pre-pandemic highs, eyeing a nudge higher from 776K to 787K. House prices are also set to gain 0.3% MoM. Given record low interest rates levels, many households have taken advantage of cheap financing and purchases new houses
- Mixed economic conditions see US consumer confidence edge slightly higher from 92.6 to 93.0. As mentioned before, whilst housing has remained healthy, US labour markets see deteriorating conditions as recent unemployment claims hover above 1M.
- Construction work in Australia is expected to decline more than previous months at -6.5%. Largely a result of Victoria entering phase 4 lockdowns.
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Topics: Market Commentary