Market Commentary – August 13, 2020

Kevin Jock

13th August 2020

    US dollar decline resumes after getting a little reprieve these past 2 days. Gold too has found support just above the 1,860 level, bouncing back from its single 1-day biggest decline. Despite the increase in volatility, the precious metal is still one of the best performing assets this year. In focus is still stimulus talks in Washington. Accusations have been thrown between President Trump, the Republicans and the Democrats in not wanting to negotiate.

    Nonetheless, S&P500 ended the session up just a hair below record highs from February. A third of the indices rise attributable to gains in Apple, Amazon and Microsoft. As we move towards US presidential elections in November, market sentiment had been cautious to potential risk. Only to be relieved as Democratic ticket Joe Biden, announced Kamala Harris as his running mate. Both of whom seen as centralist, with policies friendly to financial markets.


Figure 1 (Source: Refinitiv): S&P500 Daily Chart – S&P500 just off its historical high made in February. Vaccine hopes, additional stimulus and a super-accommodating monetary policy aided the indices’ rebound from March lows.


Headliner to Review

  • UK officially enters recession with consecutive quarter contractions of -2.2% and -20.4%. The nations’ largest single quarter decline experienced and even among the world. Tough times ahead for ordinary Brits, especially considering the expiration in government support come October. Employment recovery thus far has been lackluster with recent claimant changes spiking. Businesses will also be taking a hit when business rate collection resumes after months of deferred payment. Much of the services sector which accounts for 80% of GDP still in tatters.
  • US inflation surprised markets boasting a continual MoM increase of 0.6%. Beating consensus of 0.3%. Gasoline contributed a quarter of the gains. As the US unwinds from COVID-19 measures amid a still uncontrolled outbreak. Prices remained positive over continual economic activity. However, risk of reflation is rising from a combination of extraordinary monetary easing by the Fed and expectations an additional fiscal package will be signed.
  • Australia beats market estimates, with better than expect employment figures. The country added 114.7K more workers than the estimated 30K. In turn, the unemployment rate crept up 7.5% instead of 7.8%. Much of the pickup was from reflected in part-time workers. However, the labour force is still off numbers from pre-pandemic levels. Of more concern is these figures do not encompass recent phase four lockdowns in Victoria and interstate border closures by NSW and Queensland. Analyst expects gains experienced in July to unwind in August statistics.
  • US crude oil inventory remain in short supply at -4.5M last week. The global unwind in lockdown measures have helped support demand thus far.

Headliner to Watch

  • For the lack of major macroeconomic news today, all eyes will be on US unemployment claims figures. A recent spout of positive news out of the labour market has kept household sentiment upbeat. Markets will be looking for whether the US economy can continue its recovery despite worsening developments surrounding coronavirus.
  • Expect China to see YoY retail sales finally stepping into positive territory at 0.1% after 5 consecutive months of declines since March. Online commerce has benefited greatly since the pandemic started. And now foot traffic is increasing as citizens become more assured the virus has been contained.
  • Of miscellaneous news. RBA Governor Philip Lowe will testify before the House of Representative Standing Committee on economics. On the agenda, a call for tax reforms and industrial relations supporting businesses through such dire times.

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Antony Tan
Ben Li
Kevin Jock