Market Commentary - August 26, 2020
Dow diverges from Wall Street ending the session lower as Apple’s 4-to-1 stock split prompted a reshuffle in the benchmark. American juggernauts Exxon Mobil, Pfizer, and Honeywell ousted by Salesforce, Amgen and Raytheon. Euphoria in the S&P500 and Nasdaq continues as both indices hit fresh highs for 3 consecutive days as the market lacked negative news. Despite a record-breaking US session, Europe was mute whilst indices in Asia are off to a quiet start, though Australia dipped on open from poor performance in banks and coal.
As Hurricane Laura (a category 3) is set to engulf America’s Gulf Coast in the next 48 hours, crude oil celebrates a breakout to the upside after a prolong period of consolidation. Concerns over fuel shortage are rising as numerous refineries in the hurricane’s path have either been shut down or are in the process of closing. 80% of refinery lines across the Gulf of Mexico has also been shut, accounting for 1.5m bpd. Depending on the aftermath, they may not re-open for a while.
Figure 1 (Source: IS Prime): SPT.CO.US Daily - Crude oil breaks out as supply chain is disrupted by hurricane.
Most G7 currencies gained slightly against the greenback as many await for Fed Powell’s remarks on Thursday. A change in forward guidance is expected in relation to inflation targeting. Russian Ruble lost 3% against the dollar in the past 5 days as events surrounding Belarus and poisoning of Russian opposition leader remain in the headlines.
Headliner to Review
- For two consecutive months, American consumer confidence declined. Yesterday figures reveal worse than expected with actual numbers at 84.8 whilst analyst forecasted 93. A combination of stalled stimulus talks, lower weekly unemployment benefits and a persistent virus outbreak has dented overall sentiment. Though the number of daily infections has been declining since peaking in July, hotspots outbreaks continue to affect business operations and slow re-openings.
- US new home sales continue to outperform expectations with announced figures at 901K while estimates saw 787K. Of American households who are still employed, many have taken advantage of cheap credit and purchased new or additional properties of their own. With such resilient demand, MoM house price have also remained positive gaining 0.9%.
- Likewise, Australia posted better than expected construction numbers. Quarterly construction work only saw a decline of -0.7% compared to an expected -6.5% despite the state of Victoria in lockdown. Whilst residential and commercial buildings saw a decline in activity, engineering construction offset losses.
- German ifo business posted positive gains as expected, jumping from 90.4 to 92.6 as Final GDP figures were revised higher from -10.1% to -9.7%.
Headliner to Watch
- For 3 month straights, durable goods in the US is expected to gain 4.4% though has been moderating back to norms. A combination of back-logged orders from lockdown and businesses re-opening has kept demand strong.
- Crude oil inventories will remain in deficit as analyst forecast -3.4M from -1.6M. With global recovery efforts well underway, especially from China’s recent purchases driving demand and production cuts from Iraq alongside refinery closures in the US from hurricane Laura shortening supply, the deficit is expected to remain in coming weeks.
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Topics: Market Commentary