Weekly Market Wrap 03-August to 07-August/2020

Marius Paun | London, UK | Senior dealer | Friday 07th August 2020

 

The US Employment Keeps Surprising The Market On The Upside

 

We had the US non-farm payrolls report for July out on Friday showing payrolls increased by 1.8 million jobs better than forecasts for 1.48 million jobs added. On the other hand, the unemployment rate fell to 10.2% versus predictions of 10.5% despite a rise in coronavirus cases across the US. The main reason for those gains seems to be the return of the laid-off workers when the country went into lockdown. The immediate reaction in the markets was rather subdued with stocks opening slightly lower.

Nasdaq 100 keeps on defying gravity, reaching new all-time highs on a regular basis in a sign that technology and e-commerce remain highly in demand. S&P 500 is also closing the gap to its respective record high with only Dow lagging. But as long as investors are still hungry for US stocks, many say the Dow could be neutral at worst!

On Monday, China released its Caixin manufacturing PMI figures for July coming in at 52.8 versus 51.2 expected. It pointed to a stronger expansion than the previous month, but overseas demand remains subdued due to the impact of coronavirus outside the country. At the same time employment stayed in the negative territory for the seventh consecutive month.

As it was widely anticipated, the Bank of England left its benchmark interest rate unchanged at 0.1% during its monetary policy meeting held on August the 6th. In a unanimous vote the central bank also maintained the asset purchasing facility at 745 billion pounds. Governor Andrew Bailey also clarified that ‘negative interest rates are in the toolbox, but that is not the current plan’ – But they are in the toolbox !!!….. and things can sometimes get a lot worse than initially thought?

The European Central Bank reaffirmed its commitment to providing the stimulus needed to support the economic recovery. ECB Chief Economist Philip Lane added the outlook remains highly uncertain and that the inflation will play an important role in determining the policy going forward.

In a historic move, Gold prices moved above the $2000 per once mark and moved to a new high of $2074.9 on Thursday. We have seen some profit-taking going into the weekend which has pushed gold to a low of $2020 at the time of writing. However, the combination of a weaker US dollar, falling real interest rates coupled with yet another stimulus package are likely to continue to offer support. Any retracement may be seen as a buying opportunity.

The US crude prices moved higher this week, currently trading around $41.5 per barrel handle. Mirroring the display in the previous few weeks, it dropped below $40 early in the week which attracted enough hunters buying power to spur a break back above it. The Department of Energy released its oil inventories report for the week ending July 31st showing a drop of 7.4 million barrels versus a drop of 3.4 million barrels estimated.