Market Commentary - August 6, 2020
Wall street pushes higher with earnings season on its last legs whilst Asia starts off mixed. For the data ahead in the remaining week, topic of interest for global indices will remain on progress in stimulus talks in America. Recent Central Bank announcements have illustrated most policy makers reluctant to expand monetary easing programs as many sit tight and observe. With fresh outbreaks, cracks in the global recovery is appearing but have yet to unhinge the positive momentum in recent manufacturing statistics.
Growing concerns as investors worry China may trip itself over their own feet. China thus far, has been a global exception in GDP growth. Prices in base metals have jumped to multi month highs on China’s renewed demand boosted by government financed infrastructure and construction projects. Supply shortages resulting from coronavirus have also contributed to the price rise. Nevertheless, recent crackdowns in shadow bank lending have small and medium businesses fearful. Most of whom, do not qualify for traditional banking. Plans to cap rates at 15% have been announced the Supreme Court will cut such enterprises off from crucial finances.
Figure 1 (Source: Refinitiv): Platinum Daily Chart - Platinum dragged higher alongside base metals making multi month highs.
Elsewhere, Japan and Britain eager to secure a new bilateral trade deal post-Brexit. Estimated to contribute an additional much needed 0.07% in GDP. Especially as the economic impact from the coronavirus shrunk Q2 GDP by 25%. Much of deal centres on Japan wanting lower tariffs on Japanese cars while Britain on British agricultural exports.
Headliner to Review
- US ADP Non-Farm Employment Change from 4,314,000 to 167,000, highly disappointing figures than the forecast 1,200,000 by analyst. American sentiment is becoming more fearful as the recovery in labour markets slows.
- US Final Services PMI increase slightly from 49.6 to 50.0 and US ISM Non-Manufacturing PMI increased from 57.1 to 58.1. The reading came in above the forecast 55.0. This reading represents growth in the sector for the 2nd straight month after the contraction in May.
- US Crude Oil Inventories decreased from -10.6M to -7.4M, which dropped more than the forecast -3.4M. Oil prices rose to five-month high as the effects of the 2nd wave of coronavirus pandemic has yet to impact fuel demand.
- Inflation Expectations New Zealand increased from 1.24% to 1.43%. The inflation expectations measure business managers’ expectations of the annual consumer price index two years from now. With the increase in inflation expectations closing in on the 2% policy target. RBNZ would be pressured to consider removing liquidity during a fragile economic recovery.
Headliner to Watch
- Bank of England set to announce no changes in policy today. Previous meetings have already resulted in an additional 100bn in quantitative easing. Of which policy makers have expressed is adequate to facilitate healthy liquidity throughout the financial sector.
- Current market consensus expects US unemployment claims to remain relatively unchanged from 1.434M to 1.410M. However, with yesterday’s disappointing ADP employment change, expect drastic revisions today. Sentiment is already turning, as economists see “that the economy has lost momentum in recent weeks following a period of strong growth”.
- Out of Australia, the RBA will release their monetary policy statement. Much of the details on monetary policy has been anticipated by market participants. However, one note of interest, is the central bank has yet to comment on the ever-appreciating Aussie dollar.
- Trade balance from China expected to moderate back to norms (291B) after a sharp rise to 443B in June.
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Topics: Market Commentary