The first part of the week ahead is likely to be dominated by the events that unfolded at the back end of the week about to end – namely Powell’s much-hyped speech at the Jackson Hole conference. We have plenty of data on tap throughout the week, which should provide plenty of trading opportunities.
On Friday, we finally heard from the Fed Chairman and the markets loved it, even though he said, what many had expected, that tapering bond purchases could begin before the end of the year. Stocks rallied, along with gold and major currency pairs. Powell confirmed that it “could” be appropriate to begin tapering this year, but re-iterated that it doesn’t carry direct rate-hike timing signal. This was interpreted by the market as the Fed Chair offering no fresh news and people who had betted on him providing some clear tapering timeline, were left disappointed. Ahead of Powell’s speech, all the other Fed speakers had come across as being more hawkish and that caused the dollar to initially rise and gold to fall. It looks like those comments trapped traders and now they are being squeezed.
So, I wouldn’t be surprised if gold were to stage a stronger recovery as we close the week and continue in the week ahead, although at the time of writing it was still contained inside its prior ranges. Concerns over inflation has eased somewhat in recent times, although not by much. On this topic, Powell added that: "Longer-term inflation expectations have moved much less than actual inflation or near-term expectations, suggesting that households, businesses, and market participants also believe that current high inflation readings are likely to prove transitory."
This was a further sign that the Fed will taper QE very gradually and rates won’t rise any time soon. Whether or not tapering will be announced at the September or October meeting will depend on how the virus situation unfolds and on incoming data – making the upcoming data releases very important, with the US jobs report on tap on Friday. But the market seems to have warmed to the idea of tapering. The market knows the vast stimulus programme was going to be reduced and it remained at full throttle longer than many had expected anyway.
Meanwhile, the European Central Bank is likely to keep its emergency measures in place for even longer, and this should keep risk assets supported just as the Fed starts to taper. In particular, European stocks may extend their gains in the week ahead, especially as the Eurozone economy is faring better relative to some of the other regions in the world, with delta variant kept at bay.
Economic data highlights
- UK bank holiday
- German and Spanish preliminary CPI
- US Pending Home Sales
- Chinese manufacturing PMI
- Eurozone CPI flash estimate and GDP from France
- US Consumer Confidence (CB) and Chicago PMI
- Australian GDP, Chinese Caixin Manufacturing PMI
- German Retail Sales, Eurozone Final Manufacturing PMIs
- OPEC Meetings
- ADP Non-Farm Employment Change, ISM Manufacturing PMI
- Australia retail sales
- Eurozone final services PMIs
- US nonfarm payrolls reports
- US ISM Services PMI
Chart to watch: Gold
Gold broke its bearish trend line on Friday, but it remained to be seen whether it would hold the breakout. If it can, we may very well see further technical buying as the bulls aim for liquidity resting above $1830, which if re-captured, could potentially set up an eventual drive towards $1900 next. However, if the breakout fails and price moves back below $1774, this would be a bearish outcome.
Source: ThinkMarkets and TradingView.com
The South African Markets in Focus
By Kearabilwe Nonyana
The Market have clawed all the loses which were accumulated last week and we are close to the record highs on our benchmark JSE Top 40. We have seen a slew of results which were released from different corporations listed on the JSE and I have yet to see any bad results. Most of the corporates are beating their estimates and this has benefited shareholders for investing in the local market.
Sibanye Still water reported stellar numbers to the market with an improved operational performance as well as higher commodity prices resulted in the interim profits being higher by more than 100%. The company recorded an interim profit of R25.32bn, which is higher than the record interim profit recorded in the second half of 2020. SSW paid out more than 30% of its earnings in dividends. The new interim dividend will take the dividend yield over 10%. With a stock being so earnings accretive you would perhaps believe that it has returned great YTD returns for shareholders, but this is not true. The market continues to mis price this stock, and I feel this provides great opportunities to acquire great companies at very cheap valuations. The stock currently trades at a 5.57 P/E ratio and in comparison to its competitors, it remains truly under valued at least when we use this valuation method.
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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