Market Commentary – August 27, 2020

Kevin Jock

27th August 2020

    ASX 200 rallied on open whilst Hong Kong and Japan dipped despite continual record-breaking gains on Wall Street. Mega-cap tech firms like Apple, Alphabet, Amazon, and Microsoft led the charge as the S&P500 and Nasdaq recorded their fourth day all-time high. Investor sentiment thus far seemingly unfazed by COVID-19 as tech has proven resilient throughout the pandemic. Europe also followed suit, notching higher just under 1% at the end of their session.

    The US dollar resumed its declines after durable goods far exceeded expectations. In spite of a deteriorating labour market, forward looking indicators remain healthy raising concerns over inflationary pressures. Gold rose as geopolitical tensions between US – China grabbed headlines with Beijing testing four missiles in South China Sea. US in turn announced trade and visa sanctions on 24 companies over their role in constructing islands for China in disputed waterways.


Figure 1 (Source: Refinitiv): USDMXN Daily – USDMXN consolidates within a triangle as negative economic factors offset any visible long-term direction.

    Diverging forces has kept USDMXN in a tight range. Whilst selling pressure in the greenback resumes, demand for peso’s is bare as Mexico faces an economic slump reminiscent of the Great Depression. The nation is expected to contract 13% this year and in a worst-case scenario, rebound only 1.3% next. Central bank authorities have already cut rates to 4.5%, its lowest level in four years with more cuts expected, stifling the currency’s attractiveness.

    As Hurricane Laura bored down refinery facilities across American and Mexican coast lines, price of crude oil remains hinged. Even so, as yesterday’s inventory figures reveal a larger than expected deficit.

Headliner to Review

  • Both US core and non-core durable goods orders posted significantly better than expected results with the former at 2.4% and latter 11.2% respectively, whilst analyst forecasted 1.9% and 4.4%. Though demand persist amid uncertainty, figures show an uneven recovery with motor vehicle and household electronic seeing a significant boost. However, spending in services industry related equipment such as restaurants and bars suffered. Unsurprisingly orders for aircraft goods showed zero.
  • Elsewhere, capital expenditure in Australia fell -5.9%. Though better than the expected -8.2% consensus, categories across the board contracted. Leading the declines, services weakened -8.4%, equipment spending lost -7.6%, buildings and structures dropped -4.4%.
  • Crude Oil inventories surprised markets with a deficit at -4.7M, worse than the expected -3.4M. Despite the large drop, total barrels still accumulate to 507.8m. With refinery lines further affected by Hurricane Laura, on-going deficits is to be expected.

Headliner to Watch

  • Central bank authorities will converge virtually for the annual Jackson Hole symposium. An annual forum to deliberate on high stake matters at hand. Last year’s focal points revolved around the US – China trade and Brexit. This year, the challenge is in sustaining recovery efforts and exploring alternative tools as the traditional monetary arsenal dwindles. Many expect Powell to discuss adjusting forward guidance allowing inflation to overshoot historic targets. Other’s seek to hear BOE’s Bailey agenda on utilizing negative rates, whilst other await insight from ECB members if further quantitative easing is on the table.
  • America is expected to officially enter recession with consecutive quarter contractions. Analyst expect a quarterly decline of -32.5%, resulting from the impact of the coronavirus.
  • US unemployment claims predicted to stay above 1M. Recent figures have raised concerns over a resurgence of layoffs with hotspot outbreak slowing businesses in re-opening.


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Antony Tan
Ben Li
Kevin Jock