Market Commentary - August 3, 2020

Posted by Kevin Jock on Aug 3, 2020 6:48:47 AM

    Gold edges closer to 2,000 with inflation expected on the horizon as Asia opens mixed. Initial improvements in sentiment is waning. Previous boosts in global macroeconomic figures from pent-up demand when economies re-opened back up seems more likely a one-off now. With re-surging global cases continuing to hamper recovery, tourism which represents 10% of global output is left decimated. Recent attempts to restart the industry met with failure when an Arctic expedition cruise was hit with a large-scale Corona-virus outbreak.

    Concerns grow over a potential oversupply glut in oil. Coming August, the agreed upon production cut between OPEC members will expire. In total, OPEC is expected to increase output by 1.5 million barrels per day. Even on the back of supply curbs in June and July, oil remained mute consolidating around the $40 range. With increasing worldwide cases in COVID-19, fears surround whether there will be demand to meet new supply.

Crude Oil 3082020

Figure 1 (Source: IS Prime): Crude Oil Daily - Crude Oil meets resistance from prospect of August production increases.

    For the week ahead central banks will deliberate on further guidance for the coming month. Considerations include quantitative easing for the BOE, strength of the Aussie dollar for the RBA, rate cuts in Brazil and India, and no changes in Thailand and Czech Republic.

Headliner to Review

  • The corona-virus cases in Philippines have reached more than 100,000. The Philippines will reimpose a stricter lock-down for two weeks from Tuesday. Australia imposed a nightly curfew and all trips outdoors in Melbourne.
  • In China there is a larger outbreak of corona-virus in Xinjiang. There are more than 500 cases since the middle of July in Xinjiang. China has sent law enforcement officers and high-tech tools to Xinjiang. Chinese medical experts have arrived in Hong Kong to assist with testing.
  • Alvise Lennkh, deputy head of sovereign and public sector ratings at Scope said, “The European fiscal will increase the increase the availability of highly rated euro-denominated securities from around EUR 5 trillion to almost EUR 7.5 trillion by 2024.”
  • China Caixin manufacturing PMI increased from 51.2 to 52.8, which is better than the forecast 51.1, marking the biggest increase since Jan 2011 and the sectors 3rd consecutive month of growth. The 50 mark separates growth from contraction.
  • US Chicago PMI jumped from 36.6 to 51.9, exceeding expectations of 44.0. Any reading below 50 indicates worsening conditions. Higher readings of PMI mean new output and orders have a great improvement.
  • Canadian GDP grew from -11.7% to 4.5%, which is better than the forecast 3.5%. It indicated that the recovery pickup up in June.

Headliner to Watch

  • No rate changes expected from the RBA, however, worries grow over the strength of the Aussie dollar. Of which has yet to impact exports, as the trade balance is predicted to be increase MoM from 8.03B to 8.80B. Considerable measures have already been implemented to support the Australia economy. Cash rate at 25 basis points. Market operations targeting 0.25% yields on government bonds. 0.25% term funding facilities for the banking system. For now the central bank will wait and see, especially with Australia's state of Melbourne entering stricter lock-down.
  • ISM manufacturing PMI out of the US set to increase to 53.6 from 52.6 amid efforts to craft a compromise over the $1 - $3 trillion aid package.

 

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Authors:
Antony Tan
Ben Li
Kevin Jock

Topics: Market Commentary

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