Monday's Bullseye

Here is our week ahead preview for the week commencing 10th August 2020.

August begins with the Market being driven by the same underlying themes as the previous couple of months. The Global market seeks a steady diet of stimulus in the form of decreased interest rates and increase liquidity in the form of bond buying from central banks. Tech companies continue to drive markets higher; Miners are seeing increased cash flows from a commodity rally which seems out of sought as demand for commodities is at its lowest and increased unemployment that is decapitating prospects of economic growth in the coming quarter. Markets continue to trade sideways as more stimulus is needed to keep the markets at these elevated levels. 
 

The BOE kept rates on hold and did not increase their bond buying programme to the dismay of the market. The market is in constant need of fiscal and monetary stimulus to sustain demand in a global economy which there is a threat to demand as consumption is decimated by Covid 19. 
 

In USA, the SINO-US tensions continue to be looked over by the market. The risk of elevated geopolitical tension between the worlds two biggest economies threatens the recovery of the global economy. The president of the USA has ordered Tiktok to no longer operate in the US as elections near and he starts using the rhetoric of China as an enemy to his constituents. He has ordered Tik tok to sell itself to a US company in 6 weeks. 
 

The Democratic party and the Republican are at log a heads on additional fiscal stimulus and the longer the new stimulus deal is not signed to support the economy the market will remain jittery in the upcoming week as it seeks additional support to consumers and business. 
 

Upcoming Week 

Across the Globe, inflation numbers will be released. This will drive the market during the week as we look at the consequences of depressed interest rates and excessive quantitative easing. The normative economic effect of increased money supply equalling increased inflation has never in the past 10 years affected global economies but the sudden shock to money supply may lead to inflation in the near future. In the interim because of depressed economic demand; inflation would not worry global central bankers and they will look at high frequency data to look at signs of recovery in the economy.
 

The Sino US trade war will come to the fore as the two counterparties negotiate the details of the phase 1 deal. Advisers close to the deal say that the trade deal is not at risk as the war on the technology companies heighten in the US. Any rhetoric from any of the sides which puts the deal at jeopardy will spook markets and might cause a sell off in the coming week. Important trading days for FX and Index traders are set below:  
 

Economic Calendar  

10/08/2020 China inflation rate YOY July Forecast 2.8% 

                    China inflation rate MOM July Forecast 0.7% 

12/08/2020 US inflation rate YOY 0.7% 

13/08/2020 Germany Inflation rate July YOY -0.1% MOM -0.5% 

South African Markets in Focus 

During the week, the JSE Top 40 closed at a positive return for the Year of 2020. At the beginning of the year had you predicted that the market would drop by almost 40% and then stage a recovery to trade flat all within 7 months. I would have never believed you. The Gold price and the platinum commodity prices have buoyed our markets to trade higher for the year.Our Tech companies Napsers and Prosus have steamed ahead overlooking a lack lustre economy The JSE traded mixed in line with Global Markets as rising Coronavirus cases held back markets from continuing the upward trend. 
 

Upcoming Week 

In the coming week, the Global macro-economic news in relation to the Sino-US trade war and additional stimulus from governments will be the drivers of our local market. Our market seeks a catalyst to drive it higher and will trade in ranges before there is any breakout to the upside or downside. With Donald trump’s announcement on the banning of We Chat services in the US, Geopolitical tensions will drive risk sentiment and an equity consolidation will be on the cards. Position your trades for heightened volatility as the market has reached levels where there will be a lot of nervousness from market participants as the market recovery was not anticipated at the height of the lockdowns.