Market Commentary - September 7, 2020
Risk-off sentiment continued into Friday as global indices fells sharply during the first half of the U.S. session before recovering lost ground in the latter half. Wild swings on Nasdaq with the tech benchmark losing 4.8% however ending the session down only 1.5%. Similar price action was observed in other Wall Street and European indices. Speculation afloat after Softbank grabbed headlines with their recent regulatory filings unveiling a $4bn option bet on U.S. tech darlings like Amazon, Microsoft, Netflix and Tesla. The $4bn in options is roughly equivalent to $50bn in stock exposure. With an aggressive option bet of that size, an ensuing feedback loop can drive stocks higher as options sellers are forced to hedge by purchasing the same shares. As experienced in the recent bull market. Hong Kong and Japan were little changed on Asia open, while Australia rallied as much as 1%. Upcoming U.S. Labour day is expected to keep futures relatively mute for the rest of Monday.
Despite better than expected jobless numbers, the US dollar ended mostly unchanged amid the whipsawing price seen throughout Friday. Gold has seemingly found a sweet spot between $1,900 and $2,000 for the past 3 weeks, while bitcoin tumbled, briefly touching 10,000. Seen by many as an important psychological level.
Figure 1 (Source: IS Prime): SPT.CO.US Daily - Oil breaks down after months of consolidation as the impact of OPEC production cuts subside.
After weathering the brunt and evaluating the aftermath of Hurricane Laura, crude oil prices dropped 4.2% on U.S. session close. Optimism about demand recovery is fading as Saudi Arabia made substantial price cuts to exports in Asia. Their largest squeeze in margins since May. Recent coordinated production cuts from OPEC States drove prices back into the 40’s encouraging previously unprofitable closed wells to be re-opened by drillers is also weighing down prices.
For the week ahead, Central Banks from Europe, Canada, Serbia, Malaysia and Peru will announce changes, if any, to monetary policy.
Headliner to Review
- The US labour market has entered a slower phase of recovery. The unemployment rate dropped from 10.2% to 8.4%, much better than the expectations 9.8%. Non-Farm Employment Change increased by 1.371 million jobs in August after advancing 1.734 million job in July. Average Hourly earnings rose 0.4% in August after the increase of 0.1% in July. Boston Federal Reserve President Eric Rosengren noted, a full recovery hinged entirely on a resolution for the coronavirus pandemic.
- The economy of Canada fell in a deep recession after the lockdown due to coronavirus pandemic in April and May. The economy is recovering as the number of Canadians working from home decline nonetheless the announced jobless figures were worse than the expectations. The employment change dropped from 418.5k from 245.8k. The unemployment rate dropped from 10.9% to 10.2%.
Headliner to Watch
- Australian business confidence expected to remain pessimistic amid lockdown in Victoria and border closures in NSW and Queensland. Spurts of inflections has kept States cautious, however neither has yet to implement further restrictions.
- Japan’s revised GDP will see the nation contract -8.1% last quarter as the people elect a new Prime Minister. Forward looking indicators like average cash earnings and household spending continue to paint a dire picture with the former expected to decline -1.6% and likewise the latter -3.6%
- German industrial expected to moderate to 4.5% from 8.9%, still above historic norms as the nation grapples with recovery.
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Topics: Market Commentary