Weekly Market Wrap 31-August to 04-September/2020

Marius Paun | London, UK | Senior dealer | Friday 04th September 2020

The US Non-Farm Payrolls Data Surprises On The Upside Again

The US economy added 1.371 million jobs in August, slightly better than expectations for 1.35 million payrolls gain. The unemployment rate decreased further from 10.2% in July to 8.4% last month, also beating predictions for 9.8% as the American employers continued to bring back workers following coronavirus disruptions. However it should be mentioned that the pace of job gains slowed relative to recent months.

There were indications that Covid-19 relief negotiations remain at a standstill with a major sticking point represented by the funding of local and state governments. Nonetheless the US Treasury Secretary Mnuchin said he hopes a new relief bill will be introduced next week. Elsewhere, S&P and Nasdaq continued to make headlines reaching new records almost daily. Nevertheless, on Thursday we saw a sharp sell off in US stocks which seems to extend going into the weekend.

China’s Caixin PMI was released on Tuesday showing again positive signs for the economy. Manufacturing was 53.1 versus 52.5 expected, the 4th consecutive monthly expansion. New exports orders showed a significant improvement posting the first growth for this year. Companies started to replenish their stocks but employment remained subdued.

Europe’s inflation did not show encouraging signs. August preliminary CPI came in at -0.2% versus +0.2% anticipated as the effects of the pandemic raised fresh deflationary scares. It remains to be seen if/what sort of action the European Central Bank is prepared to take. A stronger euro against the greenback does not help in that scenario.

Back in the UK, the fourth round of trade negotiations with the US will start on September 8th according to UK Trade Secretary Liz Truss. Despite the lockdown, the housing sector shows signs of resilience with August Nationwide house prices index rising 2% versus +0.5% expected. On another note, the Bank of England MPC member Broadbent said ‘there are no signs of inflation expectations drifting away from the target’.

Gold prices have been on the back foot this week trading around $1920 mark on Friday afternoon. Buyers tried a few times to push the price back above $2000 but so far they failed. It seems like a period of consolidation with investors digesting the sharp rally since March. As the Fed changed its monetary policy to target a higher inflation, analysts are fairly confident that gold returning above $2000 is just a matter of time. How fast it will happened is another story.

The US crude prices dropped this week from $43.17 per barrel to test support at $40.00 despite increased demand for oil and gasoline. The US Department of Energy released its weekly inventories report showing a larger than expected drawdown for oil, -9.36 million barrels versus -2 million estimates. Gasoline stocks also indicated a higher than anticipated drawdown -4.3 million barrels versus -3 million barrels predicted.