Market Commentary – August 19, 2020

Kevin Jock

19th August 2020

    Wall Street upbeat as the S&P500 caps off a 50% percent rally from March lows and sits comfortably above record highs made back in February. The bounce back marks the fastest bear-market recovery in the index’s history. Following suit, global indices and futures rallied higher in Asia’s open whilst Hong Kong slumps on news the US State Department has informed university administrations to divest their endowment holdings away from Chinese companies. A letter was sent to university boards as a warning that further sanctions and restrictions towards Chinese firms is currently in the mix.

SP500 High

Figure 1 (Source: Refinitiv): S&P 500 Chart – S&P500 capping off a 50% percent rally from March lows, settling above highs made in February.

    Elsewhere, gold briefly touched 2,000 again but could not hold ground, even in the midst of the US dollar hitting multi-week lows against other majors. While a fiscal package deal continues to elude congress, massive quantitative easing has kept pressure on the greenback. Reflecting market conditions, the PBOC has set the yuan’s mid-point lower from 6.9325 to 6.9168. Tensions between China and the US were turned up a notch yesterday as Trump cancelled trade talks with Beijing scheduled for Saturday. The administrations tough stance on China has been a major focal point for Trump’s re-election campaign. New polling suggests Biden’s lead has narrowed down to 4 points.

Headliner to Review

  • Recovery is American housing is well underway. Yesterdays building permits and housing starts well exceeding market consensus. The former posted 1.50M compared to an expected 1.33M whilst the latter showed 1.50M compared to 1.23M. Most gains were seen in construction starts in the Northeast and South. The abrupt slump in May from COVID-19, in hindsight now a blip. Record low rates has helped sustain resilient homebuilding, however without further fiscal stimulus, analyst expect the upside may be limited.
  • Depressed conditions continue to hamper Japan’s core machinery orders. Expected to see a 2.1% gain this month. Actual figures instead reveal a decline of -7.6%. On the other hand, trade showed a sizeable improvement towards a possible surplus in proceeding months. Yesterdays figures showed an increase from -0.41T to -0.03T. Largely attributable to a 8.2% increase in exports to China of whom sees demand in chip-manufacturing equipment and cars.

Headliner to Watch

  • All eyes on OPEC-JMMC meeting of whom Russia will be in attendance. No surprises are to be expected from today’s routine delegation. Members will be reviewing each party’s performance in complying with production cuts previous pledged back in April. Countries breaking compliance will have to compensate via cuts in subsequent months.
  • Thus far, production cuts have been successful in boosting the price of oil. Crude oil inventory figures today are also expected to remain in a deficit at 2.9M with four weeks running.
  • FOMC meeting minutes to be released. Federal Reserve chairmen Jay Powell has consistently in public stated the Fed will not deviate from its current super accommodative monetary policy until conditions for a clear recovery is met.
  • CPI figures set to be announced by UK, EU and Canada today. Britain and Europe inflation figures expected to find a trough, staying relatively unchanged from previous months stats. However, Canada expected to see deflationary pressures as CPI falls from 0.8% to 0.4% MoM.


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Antony Tan
Ben Li
Kevin Jock