Market Commentary – August 4, 2020

Kevin Jock

4th August 2020

    NASDAQ continues to outperform global indices as the index closes at record highs. Amid rising tension between the US and China over TikTok, a Chinese-owned video social media app. The White House has taken a step back. As opposed to an absolute ban, the administration will allow a deal between Bytedance (TikTok’s owner) and Microsoft. Microsoft will be able to acquire the full operation of the app in the US. Both American and Chinese tech stocks surged on the prospect that geopolitics will force further buyouts in the horizon.


Figure 1 (Source: IS Prime): US100 Intra-Day – US100 settles around record highs during Asia.


    A $65 bn debt restructuring deal nearing completion with bondholders as Argentina edges closer to August 4th. Upon which the South American country would legally default, locking the nation out of credit markets for years to come. Rumors suggest the negotiated percentage ranges between 54.8 – 56.5 on the dollar.

    Congressional Democrats and Trump administration official continue negotiations on the stimulus aid package with rhetoric up a notch from both sides after missing last month’s deadline. Tens of millions of jobless Americans will be without the extra $600 a week starting this month. Fed policy makers have urged both parties to discard partisan talks and compromise a quick deal. Without additional stimulus acting as fundamental foundations to a strong recovery, consumer and business spending would depress immediately.

Headliner to Review

  • As expected, today’s RBA board keeps the cash rate unchanged at 25 basis points. The board re-iterating commitment to a super-accommodative monetary policy until “progress is being made towards full employment and…inflation…sustainably within…2-3 per cent”. Surprisingly though, no mention of the strong Australian dollar and potential future impact on trade.
  • Factory activity across the Eurozone expanded in the previous month, reflecting overall improvement in the industry after the virus hit. As most member states cement figures over the 50 threshold, point to improved domestic and international demand. Nonetheless optimism surrounding a rebound remains subdued from fresh outbreaks across Europe.
    • Spanish manufacturing PMI jumped from 49.0 to 53.5
    • Italian manufacturing PMI rose from 47.5 to 51.9
    • French final manufacturing PMI edged higher from 50.0 to 52.4
    • German final manufacturing PMI increased from 50.0 to 51.0
    • Swiss manufacturing PMI higher from 41.9 to 49.2
    • Eurozone final manufacturing PMI slightly higher from 51.1 to 51.8
  • Updated factory data out of the US was mixed. Final manufacturing PMI from Markit institute saw a decline to 50.9 from 51.3 whilst ISM data saw a rise from 52.6 to 54.2. Regardless both datasets indicate an expansion in the overall US economy.

Headliner to Watch

  • Spanish unemployment change expected to increase to 19.5K MoM following last month’s additional 5.1K unemployed. Whilst recent manufacturing figures reveal the sector is picking up more than expected, the country’s tourism industry has been hit hard which makes up 14% of Spain’s GDP. Data suggest tourist visits down 95% in June. Fresh waves of virus outbreaks will leave the industry decimated.
  • Market consensus set to show New Zealand’s unemployment rate jump from 4.2% to 5.5% in Q2. On the back of wage subsidies, jobless numbers still better than expected from previous estimates compared to the start of the crisis. Coming September elections, both Labour and ACT parties have committed to sustained unemployment insurance schemes if elected.

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Antony Tan
Ben Li
Kevin Jock