Market Commentary – August 30, 2021

Kevin Jock

30th August 2021

Gold ends the week on a high, rallying 1.3% to settle beyond $1,816 after Powell’s dovish Jackson Hole speech. Whilst the Fed Chair confirmed expectations that the central bank could start reducing it’s $120bn monthly asset purchases by years end as the 2% inflation goal has been met and full employment showing stable progress. Powell emphasized a distinction in conditions between tapering and eventually raising rates. Remarking the latter is a much higher bar to clear, especially as the world’s largest economy is still fighting remnants of the COVID-19 pandemic.

Despite Friday’s bullish price action, recent ETF outflows paint a different picture. GLD, the world’s largest XAU backed ETF, has had ~$1.7 bn in net outflows since the start of August 2021 and ~$13.5 bn in net outflows since XAUUSD peaked at the start of August 2020. The outflows have exerted consistent downward pressure on XAUUSD prices over the past year. Peripheral drivers include portfolio re-positioning alongside overall risk-on sentiment, particularly in the equity class. Receding 5yr and 10yr breakeven rates from May highs further allude to damping demand for an “inflation hedge”.

On Wall Street, investors eager for direction interpreted Powell’s dovish undertone on rate rises as a signal to propel indices to record closes. The S&P500 rose 0.9%, Nasdaq up by 1.2% and Dow Jones climbed 0.6%. European benchmarks shared similar optimism to broadly end Friday’s session in bullish territory. Notably the STOXX50, on track to record it’s 7 consecutive monthly advances.

Mixed bag thus far amid Monday session as profit-takin endeavors ensured for the S&P200 and Nikkei, regardless of better-than-expected quarterly company operating profits out of the ABS and yearly retail sales from METI. Hong Kong eked higher by 0.1% but still overshadowed by China’s overarching regulatory crackdown on technology companies.

The U.S. dollar largely weakened on Friday, crude just below $69 and bitcoin finds equilibrium around the $48,000 level.

XAUUSD-Aug-30-2021-05-11-44-28-AM

Figure 1 (Source: IS Prime) XAUUSD Daily : Following weeks of subdued volatility, gold breaks out of consolidation to briefly touch $1,819 as Powell’s quells concern of early rate rises.

Headliner to Review

  • The Jackson Hole symposium has come to an end in the weekend, with the Fed chairman Powell performed a balancing act in which he acknowledged the fact that the inflation goal has already been met, while there are clear progress in the maximum employment goal. Most importantly, there are suggestion that the $120bn monthly asset purchase program would be scaled back this year, although there is no clear indication of the specific tapering timeline.

Headliner to Watch

  • The Chinese PMI figure is expected to continue to moderate, with a forecast of 50.2 compared to the last month’s figure of 50.4, given the widespread Delta variant which caused a recent localised movement restrictions.

  • The Canadian monthly GDP growth figure is due to release, the consensus has reached 0.7% which is higher than the previous actual figures of -0.3%.

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Authors:
Antony Tan
Kerry Man
Patrick Powers