Market Commentary – August 19, 2021

Kevin Jock

19th August 2021

Wall Street accelerated losses on Wednesday following release of minutes from the most recent FOMC meeting showed increasing hawkish sentiment among central bank officials. “Most participants noted that, provided that the economy were to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year”. At the same time, several stragglers noted an uncertain outlook largely attributable to the Delta variants impact on labour market recovery. Suggesting postponing tapering till early next year. The S&P500 led declines losing 1.1%, Dow Jones recorded -1% and Nasdaq down 0.9%.

In Europe, Spain bucked the trend to rally 1.7% after receiving their first tranche of EU recovery funds equating 9bn euros. They will receive another 10bn euros in December. Meanwhile, German DAX was marginally lower whilst remaining major indices tumbled. CAC40 closed down 0.7%, STOXX50 lower by 0.6% and FTSE100 at -0.7%. Overnight risk-off appetite flowed into Asia as the S&P200 gapped lower 0.4% and Hang Seng broke monthly lows. The Nikkei outperformed via remaining unchanged.

Pressure from Delta variants economic pessimism saw crude posting its 5th consecutive day of losses to $64.40 as recent stats reveal a surprise increase in U.S. gasoline inventories. Both gold and bitcoin fluctuated around $1,787 and $44,500 respectively.

Risk-off appetite fuelled the U.S. dollar index to highs untouched since November 2020. The EURCHF garners attention today after strongly bouncing off the 1.0700 level despite heavy FX intervention from the SNB in recent weeks. Rumours rife that the central bank is looking to maintain an exchange rate above 1.0500, effectively an implied peg. However, as the Federal Reserve draws closer to tapering and the correlation between EURCHF and EURUSD tightens, the Swiss National Bank is one again on a precipice akin to the dilemma faced in 2015.

EURCHF

Figure 1 (Source: IS Prime) EURCHF Weekly : Swiss Franc accelerate losses against the Euro and heads towards 1.05, the implied peg by the SNB despite heavy FX intervention.

Headliner to Review

  • The Reserve Bank of New Zealand (RBNZ) has decided to leave the official cash rate at its current level of 0.25%, which is a surprised move as there was a near-unanimous consensus from the market that the RBNZ would raise rates to 0.5%. Such a major shift is due to the newly reported local Covid cases which confirmed new lockdowns and as a result, the RBNZ wouldn’t cut rates this time period.
  • The Canadian CPI figure has overshot expectations of 0.3%, now up to 0.6% in the current month, which increased the average core inflation to 2.5% y/y and it continues to push above Bank of Canada (BoC)’s target. Such contribution may likely come from the housing market since it has become more inflationary in last month as rent has hiked as well.

Headliner to Watch

  • The UK retail sales rate is forecasted to grow by 0.2%, after the whole country is on course for a consumer-driven rebound as households make up for lost time due to the loosening lockdown rules.

Any opinions, news, research, analysis, prices, or other information contained on this website is provided as general market commentary, and does not constitute investment advice.

Authors:
Antony Tan
Kerry Man