Market Commentary – August 12, 2020

Kevin Jock

12th August 2020

    Gold tumbles over $100 in a single day as the stalemate in Washington continues. Deteriorating relationships between congressional parties has seen a lack of talks since last Friday. Wall Street followed the decline as markets become increasingly concerned a compromise in further fiscal aid is getting harder to achieve. Expectations now see a deal more likely to be struck in September.

    Asia though has opened choppy with investor sentiment mixed. Nikkei rose as exporters benefited from the recent depreciation in the yen whilst Hong Kong and Sydney ticked lower on weakening household sentiment.

Gold Tumble

Figure 1 (Source: Refinitiv): Gold Daily Chart – Gold tumbles back down below $2,000 as stimulus talks stall.


    On the COVID front, New Zealand re-enters coronavirus lockdown when four unexplainable cases emerged in a family of whom have never traveled. Alongside France in extending measures to ensure mask wearing in public becomes obligatory, Ireland will now also fine the public $2,500 if the policy is not heed to. Australia’s Victoria experienced their deadliest day with 21 fatalities. The outbreak in America remains uncontained with California reporting its second highest single day jump in new infections. Possible reprieve in the foreseeable future, when yesterday Russia announced its first regulatory approved COVID-19 vaccine. Elsewhere, China and US vaccines development lag behind, currently in phase-three clinical trials. Nonetheless vaccine candidate Moderna has already negotiated a $1.525bn deal the Trump administration for 100 million doses.

Headliner to Review

  • Reserve Bank of New Zealand surprised markets by expanding the quantitative easing program up to $100bn. Cash rate was left unchanged at 0.25 percent. Of the 9 economist surveyed, only 3 estimated an increase whilst the remainder believed the program will remain unchanged. Of concern to the central bank was the economic impact international border restrictions had on the domestic tourism industry.
  • Consumer sentiment in Australia continued its declines. Falling another -9.5% MoM. No surprises, especially considering an entire state in stage 4 lockdown, interstate borders in NSW and Queensland closed, with NSW potentially going into lockdown if infection rate worsens. And ultimately grim job prospects as wage growth slows to its lowest pace on record.
  • Elsewhere Europe’s economic sentiment exceed market expectations climbing higher to 64 from 59.6. Of the experts surveyed, many see the economic slump behind them. The recovery although slow, will continue in coming months.
  • UK claimant count change figures shocked markets, posting a staggering 94.4K increase compared to an expected 9.7K. Unemployment left unchanged as many exit the labor market, discouraged from finding jobs in such grim economic conditions. Since the pandemic, 730,000 Brits have lost their jobs. Of those currently furloughed, many expect to be relieved of positions once job retention programs end in October.

Headliner to Watch

  • UK expected to officially enter recession with Q3 preliminary GDP to contract -20.5%. The descent solely a result of the outbreak and subsequent nationwide lockdown. Nonetheless a U – shaped recovery is expected in proceeding months as the government attempts to strike a balance between relaxing lockdown restrictions and re-opening businesses.
  • Inflation set to slow in the US with CPI declining from 0.6% to 0.3%. Recent gains can largely be attributed to gasoline prices as crude oil recovered from April lows.
  • Speaking of oil, US inventories expected to continue declines but at a slower pace. Markets expects figures to be around -3.4M. Renewed global demand has seen oil storage vacancies rising.
  • Employment change in Australia looking dire with the unemployment rate set to jump to 7.8% and job additions slowing down to 30K a month from 210.8K. Demand in the labor market largely dragged down by fresh lock-down restrictions and border closures whilst the number of Australia wanting employment is rising.

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Antony Tan
Ben Li
Kevin Jock