Market Commentary – August 25, 2021

Kevin Jock

25th August 2021

Ahead of Jackson Hole’s two-day event, Wall Street positioned higher in anticipation Federal Reserve Chair Jerome Powell will refrain from discussing tapering of the central banks $120bn a month asset purchase program. Meanwhile, after minute obstruction, the U.S. House passed President Biden’s 3.5tn budget bill and infrastructure plan. House Speaker Pelosi had united the previously split Democrats putting the vote to 220-212. Nasdaq and S&P500 notched successive days of record highs whilst Dow Jones remained unchanged.

Mixed session in Europe on low volumes from a lack of major headlines on Tuesday. STOXX60 closed flat, whilst CAC40 lost 0.3%. Among the better performers DAX30 higher by 0.3% and across the channel, FTSE100 settled 0.2% up. Profit-taking prevailed in Australia, Hong Kong and Japan as broad-based benchmarks retreated from gains of recent days.

The U.S. dollar lost ground against majors whilst the Hong Kong dollar came into the limelight as the banded currency fell 0.2% in August thus far. It’s biggest monthly loss since March. A combination of tapering in the U.S and China’s regulatory tech crackdown has driven outflows on the currency. Gold closed just above $1,802 and bitcoin drifted lower to $48,000.

Crude oil rallies for two consecutive days from $62 to $67.70 as the world’s top importer, China, has curbed the Delta outbreak with zero local reported cases following their restrictive zero-COVID strategy.

USDHKD-2

Figure 1 (Source: IS Prime) USDHKD Daily : Hong Kong dollar loses appeal as China’s crackdown fuels outflows from the Hang Seng and prospects of cross-boarder IPO’s.

Headliner to Review

  • Second quarter GDP figures in Germany rose by 1.6%, pretty much align with the forecasted figure of 1.5%. It indicated that German economy has gradually recovered as the restrictions imposed during the pandemic are more and more reduced, which led to a jump in consumption expenditure during the second quarter of 2021.
  • The US Richmond Manufacturing Index has declined substantially from 27 in July to 9 in August but remained in expansionary territory. However, several manufacturers reported deteriorating local business conditions as lead times continued to increase and inventories remained low.

Headliner to Watch

  • The preliminary US second quarter GDP figure is forecasted to accelerate by 6,7%, higher than the previous quarter of 6.5%. The U.S. economy likely gained steam, with the pace of growth reach the fastest level as massive government aid and vaccinations against COVID-19 fuelled spending on travel-related services.
  • US unemployment claims is also due to release, expected to be 345K which is slightly better than the previous week’s figure of 348K.

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Authors:
Antony Tan
Kerry Man