Market Quick Take - August 27, 2020 Market Quick Take - August 27, 2020 Market Quick Take - August 27, 2020

Market Quick Take - August 27, 2020

John Hardy

Head of FX Strategy

Summary:  On top of a string of positive session, the US equity market actually accelerated its rally yesterday, with the mega-cap Nasdaq 100 index closing over 2% higher to a record high close, even as the broader market stumbled once again and small caps closed lower on the day. Today tells us to what degree the recent ramping higher in equities is driven by anticipation of an important speech from Fed Chair Powell.

What is our trading focus?

  • S&P 500 Index (US500.I) and NASDAQ 100 Index (USNAS100.I) – Nasdaq 100 futures roared 2.3% higher yesterday touching levels above 12,000 for the first time ever. The rally yesterday was clearly not linked to any macro figures or real news items, thus being a strong technical driven momentum rally. If anything, it could have partly been an anticipation of today’s Powell speech where the Fed will lay out it future framework for monetary policy which could include anchoring interest rates at very low levels for an extended period to allow inflation to shoot above the historical 2% target (also called average inflation targeting).

  • STOXX 50 Index (EU50.I) – European equities are still struggling to build up the same strong momentum as US technology stocks. However, since last week the STOXX 50 futures have climbed higher and will have to manage to break above the 3,362 level in order to push higher. This resistance level has proven tough in five trading sessions over the past two weeks.

  • Spot Gold (XAUUSD) & Spot Silver (XAGUSD) yesterday both tested and found support at $1900 and $26 respectively. Some initial dollar strength was reversed when bond yields started to move lower following some recent strength. Ten-year break-even yields reached a seven-month high while real yields slumped back below –1%, both supportive developments for precious metals. Today’s focus being the speech from Fed Chair Powell at the Kansas City Fed’s “virtual Jackson Hole” and its potential impact on dollar and bond yields. At present, the Federal Reserve is widely expected to keep short-term interest rates near zero for five years and the market will be looking for clues about this assumption. Overnight both metals tested and found resistance at $1955 in gold and silver at $27.55.

  • WTI Crude Oil (OILUSOCT20) & Brent Crude Oil (OILUKOCT20) - both maintain a muted bid as Hurricane Laura, now a category 5, slams into the Texas-Louisiana border. The slight change in direction, moving further east of key U.S. refinery installations around the Houston area, saw RBOB Gasoline (GASOLINEUSSEP20) give back some of its earlier gains before receiving a fresh bid after the EIA reported a weekly drop in gasoline stocks. WTI crude holds above $43/b, but so far, no follow-through buying has been seen. Brent meanwhile continues to challenge resistance at the 200-day moving average, currently at $45.9/b.

  • EURUSD traders seem to be holding their collective breath for the important Powell speech today or some other catalyst as we are caught in a very narrow range over the last several sessions. The key technical triggers look to be a close above 1.1900 or below 1.1700 to establish direction as we await an important Powell speech today (see below).

  • EURNOK – watching the sub-10.50 range lows today over the global market reaction to the Powell speech as oil prices are perched near the highs for the cycle, European equities are likewise near range highs (risk appetite and crude oil key factors for NOK upside potential). If we close solidly below 10.50 today, this could open up for a move toward the next key area near 10.25-30 in the days ahead.

  • AUDUSD - the AUDUSD remains a solid proxy within the G10 currencies for risk sentiment and the direction of the USD in general in the wake of Fed Chair Powell’s important speech today (see more below). Yesterday, with the latest surge in risk appetite in the US yesterday, AUDUSD was dragged back close to the cycle high, but worth noting that iron ore prices (important for AUD upside prospects) have weakened for over a week after a blistering run higher and that the main Australian equity market index the ASX-200, has traded sideways for weeks as it skims along the 200-day moving average.

  • Tesla (TSLA:xnas) - Tesla shares tacked on another $130, closing at a new all-time high of 2,153 after a Jefferies analyst raised his target for the stock price from 1,200 to 2,500 to make it the highest target among analysts. In other news, Republicans in the US Senate questioned whether the government should review whether Tesla founder Elon Musk’s other major company SpaceX should be offered government contracts due to Tesla’s Chinese operations and having taken loans from Chinese state-owned banks.

What is going on?

  • Germany is adding $12 billion to a jobs support scheme to keep some in their jobs through 2021. The programme allows workers to nominally remain in their positions and on company payrolls even as most of their pay checks are covered by the government programme.

  • US Secretary of State Pompeo lashed out at HSBC for allegedly closing accounts for customers linked to pro-democracy protests and maintaining accounts for individuals sanctioned by the US. The bank has also been censured by UK Labour party members and reprimanded by the UK foreign secretary Dominic Raab.

  • Inflationary pressures may be brewing from an ongoing rally in food commodities. During the past month all three food sectors: softs, grains and livestock have seen strong gains with the Bloomberg Agriculture index trading up 4%. Not least key crops where strong and continued Chinese buying together with dry weather in parts of the US Midwest have supported soybeans and corn while adverse weather in leading exporting nations is underpinning wheat prices.

What we are watching next?

  • Today’s speech from Fed Chair Powell at the Kansas City Fed’s “virtual Jackson Hole” – Today, Fed Chair Powell will speak about the conclusions of the Fed’s major policy review at this years “virtual Jackson Hole” conference, which will be a video conference rather than taking place in Jackson Hole, Wyoming. Powell is seen likely to announce that the Fed will pursue the already heavily discussed and flagged policy of Average Inflation Targeting (AIT) which would see the Fed slow to respond to rising inflation in order to achieve an average rate over time of 2% after missing that level for years. Powell could also comment further on the Fed’s attitude toward yield-curve-control and some expect strong forward guidance on keeping rates low.

  • Safe haven bond yields steady, but poised near recent highs ahead of Powell’s speech - the bond market deserves considerable attention in the wake of the Fed Chair Powell speech today as bond volatility rising could add energy to other market moves if, for example, bond investors decide that the Fed’s policy stance will eventually lead to higher inflation and even yield-curve-control, making low-yielding bonds undesirable to hold. This in turn could then pressure valuation models for high P/E companies at some point.

  • Hurricane Laura spinning in the Gulf of Mexico with potentially devastating impact – the storm will fortunately hit the east of the key areas containing higher populations and major refineries, but there are still energy-related infrastructure in the path of this monster hurricane, which has spun up to a near-maximum category 5 beast that will strike near the Texas-Louisiana border in the coming hours.

  • US Republican National Convention final day, Trump speech, and election polling – the convention wraps up today after Vice President Pence spoke last night, arguing that a Democratic win would lead to socialism and decline for the US. Polling in the coming couple of weeks should be of increasing interest to see if any new post-convention trends develop, as the implications for markets for a strong Democratic victory versus any kind of weak victory or especially a Republican victory in the election will have huge implications for the market outlook as fiscal spending has become far more the focus in this cycle than monetary policy.

Economic Calendar Highlights for today (times GMT)

  • 1230 – US Q2 GDP Revision
  • 1230 – US Weekly Initial Jobless Claims and Continuing Claims
  • 1310 – Fed Chair Powell to Speak at “virtual Jackson Hole” conference
  • 1430 – EIA's weekly Natural Gas storage change
  • 1515 – Bank of Canada Governor Macklem to Speak
  • 1550 – ECB Chief Economic Lane to Speak
  • 2200 – New Zealand Aug. Consumer Confidence

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

Apple Sportify Soundcloud Stitcher


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 (
- Full disclaimer (

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. 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
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992