Market Quick Take - August 31, 2021 Market Quick Take - August 31, 2021 Market Quick Take - August 31, 2021

Market Quick Take - August 31, 2021

Macro 6 minutes to read
Saxo Be Invested
Saxo Strategy Team

Summary:  Another day brought another record high for US equities yesterday, and the positive mood extended in places overnight as Japan and Korea rallied steeply, with much of Asia following suit, although Chinese equities have lurched lower once again on new regulatory moves that have unsettled investors as well as a weak August non-manufacturing survey suggesting that the service side of the Chinese economy contracted for the month.


What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - another strong session for the US market yesterday as not only were all-time highs posted, but the price action is taking the broader market beyond the pace of prior already strong gains – a possible “melt-up” scenario that could eventually spell more volatility in both directions.

EURUSD – the price action crept higher as the US dollar dribbled lower on falling Fed rate expectations and strong risk sentiment, and EURUSD has now retraced more than half of the distance to the next key upside pivot just above 1.1900 as we watch for US data for the balance of this week (as noted below) and whether this refreshes the market’s outlook on the US dollar, as the euro trades passively – firmer against the safe havens like the USD, JPY and CHF but neutral elsewhere.

AUDUSD – a very weak Australian building approvals number overnight, and weak Chinese economic data drove a bit of AUD softness in the crosses, particularly in the plunging AUDNZD pair, but AUDUSD managed to tread water and even rise slightly to new local highs as the pair guns for a full reversal of the sell-off wave that started from 0.7427 earlier this month. Tonight sees Australia’s Q2 GDP print, although the critical focus Down Under is the course of the latest Covid outbreak which has been the worst for the cycle and is a challenge to the country’s zero tolerance policy.

Gold (XAUUSD) - is making another attempt to the upside following Friday’s dovish speech from Fed chair Powell. Following a small setback yesterday, both silver and gold climbed higher overnight in response to fresh dollar weakness and softer yields. However, another record high in the S&P 500 and surging global stocks continue to limit demand for gold and silver as a portfolio diversifier. For that to happen, gold needs to find fresh momentum on its own, something that can only be achieved by breaking above the range highs just below 1,835 that were tested three times in July and into early August. If broken it could unlock further gains toward the next key zone above 1,900.

Crude Oil (OILUSOCT21 & OILUKOCT21) - trades flat ahead of Wednesday’s OPEC+ meeting where the group will meet to assess the global supply and demand situation. This despite weaker than expected manufacturing data from China and an expected short-term drop in US refinery demand with hurricane Ida causing power outages and lower mobility from flooding. The OPEC+ group is expected to restore another 400,000 barrels per day, not least considering the delta variant, now fading, has not shown to have a material negative impact on demand. Depending on the outcome, Brent may have another go at resistance above $75.

This week’s non-farm payrolls are key for the bond market (IEF:xnas, TLT:xnas). Powell’s speech at Jackson Hole put a lot of focus on this week’s job numbers as they will influence the central bank’s decision regarding when to begin tapering purchases under the QE program. If job figures exceed expectations, we anticipate a tapering announcement already by September’s FOMC and beginning as soon as October. In that case, we will see yields rising and the yield curve steepening with the 10-year yields rising as high as 1.5% ahead of the Fed meeting. In case job numbers disappoint, tapering may be delayed, giving a boost to US Treasuries. In that case, 10-year yields could drop again to test 1.12%. Any rally would be short-lived as we expect a revival of reflation trade in autumn.

What is going on?

China’s non-manufacturing sector contracted in August, manufacturing also weak. The August Non-manufacturing PMI for China came in at a weaker than expected 47.5, suggesting that the services and construction sector actually contracted in the month, which was marred by an outbreak of Covid that required travel and activity restrictions during the month. The Aug. Manufacturing survey was barely in expansion at 50.1 as the virus outbreak also impacted supply chains.

German Bunds don’t budge highest CPI reading in 13 years, opening up for solid European government bond issuance (IS0L, VGEA). Yesterday, the German CPI harmonised to make it comparable to other European countries, recorded the highest yearly increase at 3.4%. However, German government bonds didn't react to the news and yields actually closed slightly lower on the day. It can be explained by the fact that while yearly inflation figures are high due to a base effect, monthly data show that inflation plunged to the lowest level since November 2020, which could be a sign that monthly inflationary pressures are falling in Europe. Today Italy issues 5- and 10-year BTPS and we expect them to receive solid demand.

In Europe, the cost of gas (GASNLBASEOCT21), emissions (EMISSIONSDEC21) and with that power (POWERDEBASESEP21) continues to climb on low stocks of gas ahead of the peak winter demand season. Concerns about the impact of hurricane Ida’s impact on US LNG export capabilities coupled with lower supplies from Norway and Russia helped send Dutch TTF gas prices towards €50/MWh while the carbon offset contract breached €60/tons for the first time. All adding extra costs on consumers and industry in Europe.

What are we watching next?

Euro Zone preliminary Aug. CPI data today - the German inflation number for August was out yesterday and registered the highest level in nearly 30 years at 3.9% (and as noted above 3.4% for the EU Harmonized reading) but elicited little reaction as the month-on-month reading slipped to 0.0%, even lower than the 0.1% expected. The Euro Zone figure is expected at +0.2% month-on-month and +2.7% year-on-year for the headline and +1.5% YoY for the core vs. 2.2%/0.7% in July.

US Consumer Confidence survey today and US economic data later this week. We’ll closely watch today’s US Conference Board Consumer Confidence survey for August after the University of Michigan survey suffered a massive drop this month, likely on the impact of the delta variant in the US. As well, the covid resurgence possibly contributed to the drop in the preliminary Aug. US Markit Services PMI earlier this month. Later this week, the August US ISM Services survey is out on Friday, as well as the usual focus on payrolls (ADP private payrolls number tomorrow) and the Friday nonfarm payrolls change.

Earnings to watch today. The high-flying cyber-security firm Crowdstrike is out reporting today, as is China’s NetEase, which has stumbled since February and was sent lower still yesterday on news that China will limit online gaming.

  • Today: EMS-Chemie, Crowdstrike, NetEase
  • Wednesday: Pernod Ricard, Veeva Systems
  • Thursday: Broadcom, DocuSign

Economic calendar highlights for today (times GMT)

  • 0755 – Germany Aug. Unemployment Change/Rate
  • 0800 – Poland Aug. CPI
  • 0830 – UK Jul. Mortgage Approvals
  • 0900 – Euro Zone Aug. Preliminary CPI
  • 1230 – Canada Jun. GDP
  • 1230 – ECB Chief Economist Lane to speak
  • 1300 – US Jun. S&P CoreLogic Home Price Index
  • 1345 – US Aug. Chicago PMI
  • 1400 – US Aug. Consumer Confidence
  • 1700 – New Zealand Aug. CoreLogic House Prices
  • 2030 – API’s Weekly Fuel and Oil Stock Report
  • 0130 – Australia Q2 GDP
  • 0145 – China Aug. Caixin PMI

Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app:

Apple Sportify Soundcloud Stitcher

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • 350x200 peter

    Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • 350x200 althea

    Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • 350x200 peter

    Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • 350x200 charu (1)

    FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • 350x200 ole

    Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.