Monday’s Bullseye: 24 August 2020

The sell-off in the dollar finally came to a halt this week, causing gold to remain under pressure for the second week running, although it did bounce noticeably off its lows late in the day on Friday when this report was written. Both the pound and the euro were hit the hardest as concerns over Brexit added to worries about the re-emergence of coronavirus cases in Europe. Friday’s publication of weak Eurozone PMI data suggested the return of coronavirus in parts of Europe was already impacting the economic recovery. The news sent the euro tumbling, while European stocks also fell, before bouncing back a little along with US indices. The Italian-German 10-year yield spread, a key gauge of risk in the region, rose nearly 3% on the week as investors moved into the relative safety of German bonds from riskier Italian debt. But is one month’s worth of data enough to completely reverse the trend for the euro, and more generally risk assets?

There are reasons to be cautiously optimistic

Virus cases and deaths in the U.S. have started to drop again, potentially suggesting the peak has passed. There is always the possibility that authorities could soon approve an effective vaccine for Covid-19. So, the rally for risk assets may not be done just yet. However, as we near the upcoming US presidential election, investors may reduce their exposure to US equites on the grounds that there is a real chance of business-friendly Donald Trump losing to Joe Biden. It is impossible to say when that motion may start, but it is best to be prepared for such a possibility nonetheless.

All eyes and ears on Jackson Hole

Traders will need keep a very close eye on the upcoming Jackson Hole symposium which starts on Thursday and will likely be the week’s main macro event. The symposium is attended by central bankers, finance ministers and other key figures from around the world. Historically, some key policy hints have emerged from speeches by leaders of major central banks at these meetings and investors will be looking for similar clues this time. With the world economy suffering from the pandemic, don’t expect to hear any hawkish messages. Instead, if any of the major central bank heads such as Christine Lagarde of the ECB or Jay Powell of the Fed promise to provide more stimulus then this should provide some support for the stock markets and potentially gold.

Economic calendar

The economic calendar is quite light at the start of the week but will get busier with the release of US macro pointers in mid-week. The latter parts of the week will be dominated by central bank speeches as the Jackson Hole Symposium starts. Here are the week’s macro highlights:

Monday

 
So, in the week ahead, the main events are (1) the Jackson Hole symposium and the central bank speeches that will accompany it and (2) the resurging virus cases in Europe. Both have the potential to move the markets sharply.

Source: ThinkTrader

South African Markets in focus
by Kearabilwe Nonyana

South African stocks are set for a soft week as global risk factors take their toll on our market. It remains to be seen how corporates in sectors which are affected by the mass unemployment and decreased disposable income will perform. The first signs of weakness in the economy are starting to be seen with Tickers like Sasol and Standard bank group showing declines in profits over the week. The JSE all share index is set to close of lower for the week for the first time in the past month. Market participants are starting to be weary of weakness in demand and a declining financial position of consumers in the economy. For the first time in 5 months all sectors in the economy are starting to operate as President Cyril Ramaphosa announced a relaxation in lockdown regulations.
 
South African markets the week ahead

Over the past couple of weeks, I have been particularly interested in seeing the Month on Month inflation for different global economies in the EU and the US and if the accommodative monetary policy will lead to demand in the economy. This will be a sign of how long the accommodative monetary policy will persist. The SARB in its modelling does not see inflation on the horizon. Excess money supply has shown to not cause an inflation hangover over the past 10 years but because economies have been closed off the ease of importing cheaper products offshore and having to bring back the manufacturing supply chain local may lead to an economy which has cost push inflation.

Global macro economics will remain a driver of our market as risk is starting to be evaluated by market participants; the excess yield our economy offers to offshore money may no longer be attractive when you weigh up the risk of a twin deficit( Current account and budget deficit) and decreasing disposable income due to high unemployment. The risk of renewed tensions between the US and China will also be watched closely

I expect the local market to trade sideways in line with global markets as the market looks for new catalysts.

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