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Week Ahead: August 23, 2021

Fawad Razaqzada Fawad Razaqzada 20/08/2021
Week Ahead: August 23, 2021 Week Ahead: August 23, 2021
Week Ahead: August 23, 2021 Fawad Razaqzada
One of the most eagerly-anticipated events – the Jackson Hole conference – is taking place on Thursday of the week ahead, which could provide some volatility in the markets as the Fed is seen spilling the beans on tapering timeline. We also have a handful of other important macro events, not least the global manufacturing PMIs at the start of the week.
 
Heading into the week, sentiment has turned quite sour with the big falls in commodity prices. Investors are concerned that demand for crude oil and copper will be weaker than expected this year, owing to a resurgent coronavirus, with the delta variant proving to be more infectious and resilient than expected. The virus is spreading fast across the US, with hospitalisation and deaths climbing. On top of this, the dollar has rallied on speculation the Federal Reserve is getting closer to taper its asset purchases. And to make the situation even worse, the latest macro data from China hasn’t been great either as we found out at the start of this week, raising concerns that the world’s largest consumer of copper and many other commodities, is struggling to sustain its recovery. The soft US retail sales report we saw earlier this week underscores the impact of the Delta variant, while Friday’s unexpected drop in UK July sales (-2.5%) could be a sign that the recovery is slowing down here, too.
  

Global manufacturing PMIs (Monday)

The first major data in the week ahead will be Monday’s publication of the manufacturing PMIs, which could trigger further volatility. Sentiment will be shaky after the recent sell-off in some key commodity prices such as crude oil and copper that was triggered, at least in part, by anxiety about the economic impact of the coronavirus spread and global supply chains. The PMIs will provide us forward-looking data as businesses react quickly to market conditions, and their purchasing managers are likely to hold the most current insight into the company's view of the economy. In particular, the Eurozone PMIs will be monitored closely because growth in the sector cooled somewhat in July. This was mainly because manufacturers were struggling to boost production fast enough to meet demand. But new orders remained strong. Purchasing managers were concerned about the spread of Delta variant. As the virus has spread more since, let’s see if it has weighed on business sentiment again, causing further slowdown in the PMI expansion. If so, we may see further weakness for the euro. 
 

US Preliminary GDP and Jobless Claims (Wednesday)

Last week, the number of Americans filing for initial jobless claims fell to 348K, the lowest level since the pandemic began, reflecting the steady progress in employment and economic recovery in general. Further improvement in the labour market could hasten the Fed’s policy normalisation processes and support the dollar.

The GDP estimate is for the second quarter, and it will be the second estimate, after the “advance” estimate revealed the world’s largest economy had grown by 6.4%.  Unless we see a sizeable revision, the market won’t be paying too much attention to what is backward-looking data. Instead, the focus will be on what’s to come the next – Jackson Hole (see below).
 

Jackson Hole Symposium (Thursday)

Over the past few months, speculation about tapering has been rife. Market commentators have been banging on about the possibility of the Fed providing us with solid plans at the annual Economic Policy Symposium, held in Jackson Hole. Judging by the latest communication from the Fed, it looks the US central bank is planning to pull back the pace of its monthly bond purchases before the end of the year, although “some” members – according to the minutes of the FOMC’s July meeting – prefer to wait until early in 2022 to start tapering. With inflation surging in recent months, the economy has already reached and surpassed its goal on inflation, and the Fed is “close to being satisfied” with the progress of jobs growth.

So, it is possible Fed Chair Jay Powell may provide us with a rough timeline of its tapering process on Thursday, which could then lead to some volatility in the markets. But if it chooses not to, then the focus will be the September meeting, when we will also have the updated economic and interest rate projections from the Fed. Either way, we are very close to finding out what the Fed’s next plans are.

But with the dollar already rising in anticipation of tapering, the greenback may not rise too much if the Fed does indeed inform us of its plans in the coming weeks. Indeed, policymakers at the Fed have been very clear about one thing: that tapering of QE purchases does not necessarily mean an imminent rate hike. For that to happen, the Fed will want to see “substantial further progress” in employment, something which the Fed does not feel has been achieved yet. Indeed, officials want to complete tapering of asset purchases first, before starting a hiking cycle.
 

US data dump (Friday)


The last day of the week will see the release of US Core PCE Price Index; Personal Income and Spending, and UoM’s revised Consumer Sentiment and Inflation Expectations surveys. Among these, the PCE Price Index is going to be the most important given it is the Fed’s favourite measure of inflation.  Now how much of a reaction we will get from Friday’s data releases will be dependent on what Fed Chairman Powell will have said at the Jackson Hole symposium regarding tapering on Wednesday. For example, if he chooses not to provide the timeline for tapering and says the Fed is waiting for the release of more data, then it will be logical to expect more of a reaction from the data releases.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Meet our contributors
Fawad Razaqzada
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Fawad Razaqzada
Market Analyst, London

Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms. He leverages years of market knowledge to provide retail and professional traders worldwide with succinct fundamental & technical analysis. Fawad also offers trading education to help shorten the learning curves of developing traders.
 
His colleagues consider him an expert at reading price action on the charts. This together with his deep understanding of economics and fundamental analysis, and trading experience, puts him in a great position to forecast short term price movements. Fawad covers a wide range of markets, including FX, commodities, stock indices and cryptocurrencies and his comments are regularly quoted by the leading financial publications such as Reuters and Market Watch. In addition to ThinkMarkets, Fawad also provides analysis and premium trade signals on his own website at TradingCandles.com.
 
 

Carl Capolingua
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Carl Capolingua
Market Analyst, Melbourne

Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions. Specialising in Australian and US stock markets in particular, Carl uses a top-down approach to assess the global macro picture before using both technical and fundamental techniques to select stocks. He regularly appears as an expert commentator on a number of media outlets throughout the Asia-Pacific region.
 
 
 

Kearabilwe
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Kearabilwe Nonyana
Market Analyst, South Africa

Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives. His career in the financial markets has seen him hold various positions in global investment banks and global CFD and Spread betting firms. He has deep interest in using quantitative methods to help him understand and teach the fundamental drivers of asset prices.
 
 
 

Fawad Razaqzada
Fawad Razaqzada
Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms.
Carl Capolingua
Carl Capolingua
Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions.
Kearabilwe
Kearabilwe Nonyana
Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives.

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Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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