Market Commentary - August 7, 2020
Global indices slip in Asia as market participants await non-farm payroll due to be announced today. Mix US employment data has left most benchmarks directionless. Whilst ADP on Tuesday saw deteriorating labor markets, yesterday’s claims data showed sizable improvements. Wall Street though remains buoyant on talks of additional fiscal stimulus as opposed to the progress of a deal itself.
Selling in Turkish lira intensifies as USDTRY reaches record highs with attempts by Turkeys central bank to prop up the failing currency. This year alone the lira has depreciated more than 18% against the American greenback. In defending the lira, authorities are burning through dollar cash reserves, of which is nearing depletion. Without raising interest rates soon to stifle the currency’s weakness, the nation will be opening its doors to rising inflation on top an already dysfunction money market.
Figure 1 (Source: Refinitiv): USDTRY Daily Chart - USDTRY breaks above high set in May this year.
Elsewhere, Gold has rallied 13 of the last 15 days, up over $265. $2,100 level seemingly within reach after breaking $2,000 only three days ago. Geopolitical tensions heighten between US and China. Trump has signed an executive order to ban not only TikTok but a plethora of other Chinese owned apps, including WeChat. A popular social messaging platform used worldwide with 1.2 billion in monthly active users. The policy will be enacted in 45 days.
Headliner to Review
- Unemployment claims in the US dropped from 1.43 million to 1.18 million, surprisingly better than the economic consensus of 1.41 million from analyst. Though the figure was the lowest since mid-March an astonishing 31.3 million American’s were still receiving unemployment checks last week. Other recent data still reveal a deteriorating labor market with redundancies increasing 50% in July as businesses shuttered and are cautious about hiring. Some economist though has noted, the sudden drop in claims can be attributed to the expired $600 supplementary benefit. Republicans had previously floated the idea that the $600 benefit on top existing unemployment checks deterred the jobless from seeking employment.
- Although the coronavirus pandemic has been less severe than the expected, RBA’s monetary policy statement illustrate Australia’s economic recovery is still slower than forecast. Reserve Bank of Australia (RBA) Assistant Governor Luci Ellis said, “We now think that even though the initial contraction was smaller, the subsequent recovery is likely to be more protracted and progress on reducing unemployment will be slower,”
- As expected, the UK central bank kept policy rates unchanged at 0.1% and asset purchase facility at 745 billion yesterday. Warning at earliest the UK economy would not return to economic output levels seen in 2019 until 2021.
Headliner to Watch
- Spotlight is on America’s non-employment change statistic and unemployment rate. Markets expect a sizable slowdown in the pace of job additions with figures at 1.53M MoM. The unemployment rate itself set to improve to 10.5% from 11.1%. Largely from a combination of job adds and lower participation rates. Nonetheless investors see’s the importance in July’s figure as catalyst for stimulus talks. A worse than expected announcement would give Democrats firing power to negotiate a $3 trillion aid package. Better than expected stats would give Trump the excuse needed to fire off another executive order favoring Republican-sided policies whilst congress negotiations stalemate.
- Likewise, Canadian employment looking to improve. With an expected 395K finding jobs and a lowering unemployment rate of 11.1% from 12.3%. As retail suffers the brunt of the prevailing crisis, construction is expected to pick up a lot of the slack.
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Topics: Market Commentary