Market Commentary – August 18, 2021

Kevin Jock

18th August 2021

Wall Street tumbled on Tuesday following disappointing retail sales figures, depicting regardless of whether the slowdown arises from fading stimulus boost or due to the Delta variant. Either explanation portray a pessimistic outlook especially as the Federal Reserve is set to begin discussion in pulling preliminary monetary support. Whilst Jay Powell spoke on Tuesday at an online town hall event, the Federal Reserve Chair did not discuss topics relating to monetary policy. For the session ahead, investors will focus on the FOMC meeting minutes release in hopes to deduce the centrals banks path for the remainder of 2021.

Though European benchmarks gapped lower on open, both the CAC40 and STOXX50 remained flat during the trading session. Likewise, a volatile session for the FTSE100 but largely unchanged. In Asia, broad-based benchmarks began recovering losses from Tuesday’s session. The S&P200 and Nikkei retraced 0.9% and 0.7% respectively. Hang Seng underperformed, only higher by 0.4%. Jitters still remain as China’s watchdog released its draft rules, banning internet platforms from various activities deemed harmful toward market competition.

Crude oil fell four consecutive days to $66.60 as increasing cases of Delta impede global travel demand. Further depressing prices is OPEC and Russia’s plan to expand barrel production by 400,000 a day this month. With global uncertainty rising, investors drove the U.S. dollar higher on risk-off sentiment. Gold trading at $1,760 and bitcoin slides below $45,000.

AUDUSD-4

Figure 1 (Source: IS Prime) AUDUSD daily : Aussie dollar hits lowest point of the year as outlook for 2021 worsens amid recent outbreak.

Headliner to Review

  • US retail sales fell sharply in July, falling 1.1% month-on-month, primarily because of weaker auto sales. On the other hand, the resurgence in Covid and anxiety over inflation’s impact on spending power has certainly hurt sentiment, but the re-opening, a rebalancing of priorities from goods to services and rising household incomes still means broader spending can continue to grow.
  • The Reserve Bank of Australia (RBA) released the minutes from its most recent policy meeting, in which they maintain the cash rate target at 10 basis points. Health concerns and uncertain outlook are mentioned as well, with the weakening Chinese data continues to weigh on Aussie sentiment.
  • The Reserve Bank of New Zealand left rates unchanged after New Zealand announced a snap lock down after reporting its first community transmission since February.

Headliner to Watch

  • The Australian unemployment rate is forecast to reach 5%, slightly worsened compared to the previous month of 4.9%.
  • The US unemployment claims is expected to continue to fall, from the previous 375K to the forecast value of 362K, as the US labour market continue to recover from the pandemic.

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Authors:
Antony Tan
Kerry Man