Market Commentary - August 28, 2020
Mixed reaction from Jerome Powell’s speech as the Federal Chairmen unveiled a new monetary framework in achieving inflation and full employment goals. While the S&P500 and Dow etched out gains, Nasdaq ended the session slightly lower as the market digest remarks by the Fed chair. Despite the new policies implication in overshooting inflation beyond 2%, Gold retreated 1.3% as investors questioned whether existing tools will be able to achieve such a scenario.
In Asia, breaking news of Japan’s Prime Minister Shinzo Abe’s resignation shocked markets with the JP225 index declining as much as -2.9%. JPY crosses rallied on the announcement.
Elsewhere, the dollar index though volatile throughout the Jackson Hole forum, ended relatively unchanged. Though the Aussie and Kiwi rallied against the greenback, losses in Yen offset much of the gains. The Euro and Pound mute from previous sessions close.
Figure 1 (Source: Refinitiv): USDHKD Daily - Demand for HKD expected to continue with foreign investors seeking a piece of upcoming IPO's in the Hong Kong Exchange.
Investors see USDHKD remaining on the lower band 7.75 for the foreseeable future, despite efforts by central authorities in selling $14.8bn USD of HKD to weaken the local currency. Anticipated listings and IPO’s on the HKE from Chinese juggernauts like Ant Group has been a strong factor in driving up demand for Hong Kong dollars. Ant Group is expected to raise $30bn USD
As Hurricane Laura swept through Louisiana, killing 6. Price of crude oil declined with the hurricane downgraded to a tropical storm as it approaches the east coast. US Energy Secretary had noted he was “very happy” as initial assessment lacked any major damages to refineries and ports.
Headliner to Review
- Much anticipated symposium in Jackson Hole confirmed market’s expectations that the Federal Reserve will allow inflation beyond its prevailing guidance. More specifically, Jerome Powell has adjusted the policy framework to state the central bank will seek to average out inflation at 2 percent over the longer term as opposed to targeting 2 percent. In the short term the new approach will provide the Fed leeway in reigning in price growth when it exceeds the 2 percent level. Powell’s remarks though, fell short on specifics and market’s question whether the current central banks toolbox can even achieve beyond 2% inflation.
- America officially enters a recession contracting -31.7% in the 2nd quarter, though better than the consensus -32.5%. Though the pandemic has devastated cyclical businesses across the board, economist prefect Q3 growth to be around 20%. Of concern though, has been the fragile labour market in the US. Yesterday’s figures reveal unemployment claims have risen back up to 1m last week.
- US pending home sales saw 3 months of consecutive gains. Housing continues to remain a strong point in America’s economic recovery.
Headliner to Watch
- Jackson Hole symposium continues Friday with BOE Governor Andrew Bailey set to speak. Markets expect Mr Bailey to elaborate on his remarks surrounding potentially utilizing negative policy rates as a monetary tool.
- MoM GDP in Canada expected to post 2nd month of gains at 5.2%. With much of the initial impact from Coronavirus behind the nation, economic recovery is well underway as business re-open.
- US consumer spending expected to moderate to 1.5% as much of the back-logged purchases passed through the system. Consumer sentiment is also expected to stay below pre-pandemic levels at 72.8, as the worrying trend in labour markets concern households.
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Topics: Market Commentary