The focus across the week was Jerome Powell and the shift in the Fed’s policy framework that he announced at the first virtual Jackson Hole symposium. The US central bank will adopt a softer approach to inflation, favouring full employment even at the expense of rising prices. The prospect of lower rates for longer sent the USD sliding to 2 year lows, whilst US stock markets soared across the board, with SPX and Nasdaq reaching fresh record highs across the week.
This coming week the focus moves away from central bankers back toward the economic calendar, which offers plenty to keep traders entertained with Chinese manufacturing data, Australia’s GDP and retail sales, global PMI’s and the all-important US non-farm payrolls. Political opinion polls are also likely to gain traction with just two months to go until the US election. And let’s not forget coronavirus statistics, par in Europe.
New daily infections are falling in the US, at 34,000 they are 50% lower than the 70,000 a day cases that were being recorded a few weeks ago. However, cases u=in Europe are rising, particularly tourist destination such as Spain and France. At 7000 and 4000 new covid infections a day respectively, these are considerably fewer than in the US but the trend is moving in the wrong. Whilst the respective governments there are so far showing reluctance to re-impose lockdown measures should those numbers continue climbing anxieties in the markets will grow. On the other hand vaccine news could boost stocks higher.
EUR/USD is $1.20 coming?
EUR/USD managed to climb 0.9% across the week with most gains booked on Friday thanks to the Fed weakened USD. However, with covid cases under the spotlight, any spike in numbers particularly as schools return could hit sentiment. On the economic calendar PMI’s and GDP updates will dominate. German retail sales and factory orders will also be carefully monitored. Recent data from the Eurozone’s largest economy has indicted that the economic recovery is on track, investors will be keen to see that is still the case.
The Dax continues to outperform its European peers trading just 3% lower YTD, the FTSE meanwhile still trades -17% YTD weighed down by its unfavourable composition and many international investors steering clear due to Brexit. However, the FTSE underperformed this week also due to the stronger pound providing an unbeneficial exchange rate to all those multinationals.
Brexit, covid and schools reopening?
GBP has surged 1.5% versus the weaker USD, hitting $1.3356 a YTD high. Fed fuelled USD weakness has overshadowed everything – Brexit concerns, rising fears over the health of the UK labour market and covid numbers. The big question is will it continue?
EU – UK relations are souring fast, emergency Brexit talks could take place mid-week, although no breakthrough is really expected until last minute saloon in October. Coronavirus numbers are also on the rise with some reports saying that the R rate has surpassed 1, the critical level. Attention will be on covid statistics, particularly as schools return. After bank holiday Monday schools are reopening their gates. Schools reopening is critical for the recovery of the economy, a sense of normality and increased productivity. Any backtracking will be frowned upon by market participants.
On the economic calendar PMI’s will be in focus, in additions to a speech from BoE Governor Andrew Bailey. Finally, the UK labour market remains a key concern, with several industry reports revealing that the service sector is haemorrhaging jobs. More jobs cuts being announced particularly as the government withdraws from the job retention scheme could dampen the mood towards GBP.
An end to Abenomics?
Whilst the USD spiralled lower the Japanese yen soared significantly versus the greenback following the resignation of Shinzo Abe. Japan’s longest serving Prime Minister announced that he is stepping down owing to health reasons. Concerns over a move away from Abenoimcs, the county’s expansionary economic policy is driving demand for the safe haven. Developments surrounding his successor will continue to influence the Yen across the coming week.
AUD/USD Bullish momentum ahead of a busy week
AUD/USD surged to an 18-month high after rallying 2.8% across the week following Jerome Powell’s announcement. Rallying stock markets, iron ore and gold have all underpinned the Aussie Dollar, as did progress in the US – China Phase 1 trade talks. Covid numbers in Victoria are also trending lower bringing optimism that the 2nd wave is on its way out.
Australian business spending data showed that business investment fell by less than forecast in Q2 -5.9% better than the -8.4% expected. This bodes well for the Australian Q2 GDP which is due to released on Wednesday. Chinese manufacturing could lift the Australian Dollar early on in the week, whilst Australian retail sales will be in focus later in the week. The RBA are expected to keep rates on hold after restarting bond buying last month and in order to see how the virus containment works out.
Non-farm payrolls are key
The US Dollar was sent lower by the Fed. Data was decidedly mixed. US GDP was revised upwards to -31.7% contraction and new home sales soared to a 13 year high. On the other hand continuing claims remained stubbornly high at 14.5 million and consumer confidence fell to a new pandemic low.
The economic calendar is packed cumulating with the US NFP on Friday. NFP’s are expected to show another month of solid job gains in the region of 1.5 million. This would be down from July’s 1.8 million and June’s 4.8 million. Unemployment is forecast to drop to 10%. The data would be showing a continued but slowing recovery.
A weak NFP could hit stocks and would add pressure to Congress to agree an additional rescue package.
Corporate updates
Corporate earnings are slim pickings this week. In the UK Berkeley Group and Persimmon will provide insight into the state of the housebuilding sector. Stateside results from Macy’s, Broadcom and Docusign are due for release. DocuSign has rallied 180% YTD as lockdown boosted reliance on its products.
Monday
- China Manufacturing PMI (AUG)
- Germany CPI (AUG)
Tuesday
- Global Manufacturing PMI (AUG)
- RBA Rate Decision
- German Unemployment
- Eurozone Inflation
- Eurozone Unemployment
- US ISM Manufacturing PMI
Wednesday
- Australia GDP
- Germany Retail Sales
- US ADP Employment
- UK Inflation Report
- US Factory Orders
- US Fed Beige Book
- Australian Services PMI
Thursday
- Global Services PMI
- EZ Retail Sales
- US Initial Jobless Claims
- US ISM Non-Manufacturing PMI
- BoE Bailey Speech
Friday
- Germany Factory Orders
- US Non-farm Payroll
Chart of the week AUD/USD
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