Weekly Market Wrap 24-August to 28-August/2020

Marius Paun | London, UK | Senior dealer | Friday 28th August 2020

The US Inflation Target Of 2% – No More?

It’s official, the US Republicans nominated Donald Trump this week to face Joe Biden in the November Presidential elections. Currently the Democrats candidate has a 6-7% lead but many analysts say it’s still too early to call it. Meanwhile, Nasdaq and S&P closed at record highs again with the Dow within touching distance of its all-time high.

On Thursday we saw the US Fed Chair Jerome Powell speaks at Jackson Hole Symposium discussing inflation and monetary policy. He said the Fed will allow inflation to rise higher than what previously was seen as acceptable before intervening by hiking interest rates. It means they will aim to achieve inflation above the 2% target.

China confirmed that Vice Premier Liu He spoke to US Trade Representative Lighthizer and Treasury Secretary Mnuchin regarding phase 1 trade agreement. Apparently, the discussion went well with both sides ready to push forward the implementation of the trade deal. Elsewhere, China’s central bank reiterated its monetary policy will not change and that it will continue to pump liquidity into the financial system.

Europe’s biggest economy, Germany saw its GDP shrinking less than expected, down 9.7% versus a drop of 10.1% quarter on quarter. It was still the biggest contraction on record. At the same time business morale showed a slight improvement with Ifo business climate Index rising to 92.6 vs 92.1 anticipated.  Interestingly, Germany has also extended its wage support program due to coronavirus to the end of 2021.

The debt has increased significantly in the UK due to Covid-19 to more than £2 trillion. UK borrowing is now above 100% of country’s GDP for the first time since 1963 according to Financial Times. Although rising taxes was mentioned recently as a possible solution for the deficit, the Prime Minister chief adviser Dominic Cummings seems to favour a cut in spending.

Gold prices moved back above $1950 going into the weekend. They tested support just above $1900 mid-week but sellers could not breach that mark so a rebound followed. The Fed Chair statement was considered US dollar bearish which could add extra support for the precious metal. A fresh stimulus package is still being debated. When that will be agreed upon it should be even more of a tailwind for gold.

The US crude prices reached new recent highs this week at $43.85 last seen in early March this year. It was not much of a gain for the week but at least the trend is still up. The US Department of Energy released its weekly inventories report showing a drop of 4.7 million barrels versus expectations for a decline of 3.4 million barrels.