Market Commentary – September 1, 2020

Kevin Jock

1st September 2020

    Apple’s 4-for-1 stock split propels Nasdaq above 12,000 psychological level, while Dow nursed losses weighed down by a delaying TikTok deal. Concerns arose when China implemented new rules impeding the app’s sale to foreign companies like Microsoft and Walmart without Beijing’s approval. European indices retreated by the end of US session on deflationary data coming out of Germany and Spain.

    Following summer bank holiday, UK futures gapped down 1.6% on Asia open but has since recovered some ground. Asia-Pacific markets looking at a mixed session, with Australia down as much as 1.5%, Hong Kong up 0.4% and Japan up 0.6%.

    Disappointing performance from the American greenback continues after Fed Vice Chair Richard Clarida elaborated on Powell’s remarks from last week. Clarifying the new framework allows leeway in not triggering higher policy rates even amid a low unemployment rate environment.


Figure 1 (Source: Refinitiv): EURTRY Daily – Euro nearing historic highs against the Turkish Lira as economic disparity between the two nations see confidence in Europe recovering faster than Turkey.

A pair to look out for, EURTRY as the currency briefly breached historic highs made two weeks ago. Monday’s GDP figure reveal Turkey contracted 11% in Q2 stemming from lockdowns and travel restrictions. The largest decline on record since the data was published back in 1998. Yet, Turkish finance minister Berat Albayrak reiterated “the foundations of Turkey’s economy are robust, it’s dynamics are strong”. The nation has combated the pandemic through a credit stimulus reliant on foreign financing that, consequently, destabilises the lira.

Elsewhere crude oil briefly touched $43 but continues in a tight range.

Headliner to Review

  • Caixin Manufacturing PMI increased to 53.1, compared with the previous data 52.8 and the expected 52.6. The increase in PMI revealed a fourth consecutive month of manufacturing expansion in new orders and output, pushing the PMI to a new high. Further signalling China’s sustained recovery as official COVID-19 infections remain low.
  • Mixed results out of Japan with:
    • Final manufacturing PMI rising from 46.6 in July to 47.2 in August, which is better than the forecast 46.6. The coronavirus pandemic continued to limit the performance of the sector, with firms feeling pressured to cut prices due to weak demand. With the index below 50.0 threshold that separates contraction from expansion for 16th consecutive months, Japan’s factory activity is recovering but at a snail’s pace.
    • Capital spending dropped from 0.1% to -11.3%, the biggest drop since the first quarter of 2010. With demand persistently weak, companies have cut spending on factories and equipment. The government expects that the economy will recover to the levels before coronavirus in 2022.
    • Jobless rate rising to 2.9% from 2.8%. To make matters worse, job availability also declined in July.
  • As expected, the RBA has left policy rates unchanged but will extend the term funding facility to ensure funding cost are kept low, assisting credit supply to households and businesses. Building approvals in Australia increased 12% last month. It’s a first gain since May as the coronavirus posed an obstacle in construction activity.

Headliner to Watch

  • Inflationary pressures in Europe are expected to slow from 0.4% to 0.2% while the unemployment looks to rise from 7.8% to 8%. A persisting pandemic continues to hamper economic recovery despite the ECB’s 750bn recovery fund.
  • Manufacturing PMI in the US set to increase slightly from 54.2 to 54.6. America’s rebound is in full effect, but the significant pace of the recovery seen in past months is expected to moderate.
  • Australia to officially enter recession as QoQ GDP sees a -6% contraction. Despite figures being so dire, GDP is considered a lagging indicator. Recent forward-looking indicators see country on the path to recovery.

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Antony Tan
Ben Li
Kevin Jock