US equities were flat on Friday while oil was down and gold went up.
A miss on headline retail trade data for August weighed on sentiment, though the detail under the hood was much better than expected.
Markets are opening incredibly quiet this morning as summer trading, or should I say “non-trading” conditions are kicking into full gear. The dog days of summer are officially upon us!
Still, the narrative remains mostly unchanged from last week’s nascent reversal of trend, despite the more robust jobless claim numbers, with volumes even lighter than usual. But last week’s rotation head fake has certainly thrown investors for a loop, but at the same time, they seemed as if most were prepared this time given new levels of exposure within industrials.
As well, after the summer wraps up traders are looking at the US election playbook coming back up though near-term movers are pretty tame as the markets remain propped up on hopes for a US stimulus package.
Stimulus package standstill
Despite the stimulus package appearing to be in a standstill, the markets appear to be taking the view that major fiscal legislation is inevitable, presumably based on the assumption that the Republicans will eventually accept a somewhat larger package in light of their incentive to support the economy ahead of the November election, where President Trump is trailing in the polls.
It is a reasonably quiet calendar this week as we move through the last legs of summer, but the flash PMIs on Friday will be in the spotlight and will provide a glimpse of how the global economy has performed into August.
Otherwise, next week sees the US Fed and the European Central Bank (ECB) release minutes from recent meetings, and we also have a few remaining earnings releases. Finally, politics will get some attention, as, besides the stimulus squabble, the Democratic convention starts up in the US next week.
Given Congress’ failure to reach an agreement on the lineation of the next fiscal package, the focus will be on high-frequency indicators of spending and employment. With the Democratic and Republican nominating conventions taking place over the next couple of weeks, a deal is unlikely to materialise until the end of the month.
This delay presents a bit of a dilemma for monetary policymakers where US Fed Chair Powell in his latest testimony before congress was as blatant as can be about the need for further fiscal support to aid the recovery.
Indeed, the minutes of the July 29 FOMC meeting, released on Wednesday afternoon will likely be the main event for market participants, barring an unexpected breakthrough in the Congressional stalemate.
We are probably seeing a small “Buffet Bandwagon” bounce on gold this morning after Warren Buffet sold Goldman Sachs shares and rotated into Canadian Gold Miner Barrick stocks. Still, this should not be confused with Buffet turning cold on the US or buying bullion.
Barrick stock is offering up sizable dividends with buyback’s looming, given their improved debt situation ideal for Buffet long term strategy. But, the oracle of Omaha still, leaves a pretty big footprint.
Under the surface, this remains positive for gold as it suggests longer-term investors are still looking to diversify from US dollar exposure that they have built over the years due to US asset outperformance.
Still, it could be a challenge for gold markets to regain $+2000 fame as more fixed income traders are willing to short bonds now, which complicates the bullish gold view. The question is whether the back up in yields a rethink on the curve. We will find out soon as the Fed minutes could give us a more detailed view of the FOMC behind the scene, improving views on the vaccine front notwithstanding.
With no apparent new theme emerging, market participants are mostly sticking to existing positions, but trading is expected to remain subdued ahead of the FOMC minutes where he EURUSD is not expected to break out from 1.1800-1.1900 range.
The EUR is holding up above 1.1800 despite the pick-up in COVID-19 cases in Europe raising questions about the pace of recovery from the record GDP drop in Q2. Suggesting the EUR has merely wrestled the title away from the US dollar as the “Cleanest Dirty Shirt in the Laundry Basket.” as traders continue to hedge top side EURUSD risk around the November election date and hedge for what once was expected to be a Fed policy bazooka in September.
The Malaysian Ringgit should hold its own today on the back of improved risk sentiment around the upcoming US-China trade talks and higher oil prices this morning. China’s economic activities continued to recover in July, although the pace of acceleration slowed a bit.
It does, however, suggest the local FX could be rangier until the China data picks up. The MYR fortune this week could be more related to the broader G-10 activities.
We might expect overall activity could be subdued ahead of the release of this week’s FOMC minutes.
International markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp