Market Commentary – September 4, 2020

Kevin Jock

4th September 2020

    Risk-off with Nasdaq leading the declines, tumbling 4.9% yesterday, followed by S&P500 down 3.2% and Dow sliding 2.4%. Since March lows, Wall Street has powered ahead on unprecedented levels of fiscal and monetary liquidity. Technology stocks made the quickest recovery as many firms were set to benefit from the new work-from-home culture and social-distancing norms. Thursday’s euphoria waned, pulling back tech heavyweights Amazon, Apple, Microsoft and Tesla as investors reassess recent record-breaking price action. Following the US tech rout, European indices lost most, if not all gains made on Wednesday. Asia’s opening fared no better, with Hong Kong gapping down 0.6% and Australia sliding. Though Nikkei rallied on open as uncertainty surrounding Japan’s next prime minister becomes clearer.

    Sentiment on America’s economic recovery remains weak as the Federal Reserve keeps their pedal on the printing press. Nonetheless the dollar has managed to rebound back gaining ground against other G7 currencies as global central banks consider further easing. Analyst expect the ECB to add an additional 350bn to the existing 1.35tn bond-buying program by the end of the year. While RBNZ Adrian Orr and BOE Deputy Dave Ramsden remarked the need to increase quantitative easing, BOE Governor Bailey is exploring the utility in negative rates. BOJ Masazumi Wakatabe spoke of vigilance against deflationary pressure with more stimulus.


Figure 1 (Source: Refinitiv): USDCNH Daily – China’s yuan steadily gains against the dollar guided by PBOC’s daily reference rate.

    Bucking the trend, the PBOC has allowed the yuan to steadily appreciate against the greenback as the reference rate was set to a 16-month high at 6.8376. A stronger yuan is a step closer to President Xi’s goal of a self-reliant China. Previously worrying over strong yuan affecting the nations exports, focus has been shifted towards boosting imports from America. Evident from China’s recent 480,000 tonne soybean purchase. With a stronger yuan, China also avoids accusations of being label a currency manipulator.

    Elsewhere bitcoin briefly retreated below 10,000 as cryptocurrency exchanges see miners selling more than normal.

Headliner to Review

  • US jobless claims dropped from 1011K to 881K, which was better than the expectation. The decline in jobless claims rate was due to the change in the seasonal adjustment. The figure would remain unchanged if the old calculation is used.
  • US ISM Non-Manufacturing PMI came in at 56.9 in August, compared to 58.1 in July. 15 out of 18 non-manufacturing industries reported growth. People are optimistic about business conditions and the economy as businesses are starting to reopen.
  • The PMI in Eurozone increased slightly from 50.1 to 50.5. Private sector PMI figures for August reflected the effect of the recent spike in new COVID-19 cases in Europe. The PMI may show that there will be a V-shaped economic recovery.

Headliner to Watch

  • All eyes on U.S. non-farm payroll change today, expected to decline from 1763K to 1375K and in turn the unemployment lowering from 10.2% to 9.8%. Tailwind from COVID-19 has seemingly subsided as the pace of infections slowed allow more businesses back to normal operations. However, concern has been raised suggesting August employment figures will be artificially inflated due to the Consensus Bureau hiring temp workers for consensus taking. Barring temporary government jobs, payroll figures would be more dire.
  • Likewise, Canada is expected to add 262.5K Canadian jobs with the unemployment rate declining to 10.1% from 10.9%. The initial spurt in record employment seen in July is set to fade in coming months as those displaced during the crisis, find alternative employment. Over 3 million Canadians lost their jobs, thus far 1.6 million have been re-employed.

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Antony Tan
Ben Li
Kevin Jock