Market Quick Take - August 30, 2021

Market Quick Take - August 30, 2021

Macro 6 minutes to read
Saxo Strategy Team

Summary:  Markets closed last week on a high note after US Federal Reserve Chair Powell firmly stated the case that the recent bout of high inflation will prove transitory, indicating no rush to begin tapering asset purchases, though he agreed with the majority of Fed members who favour starting a tapering of purchases before year-end. The US dollar was sharply weaker on the news. In energy markets, a huge shutdown of US refinery capacity is in focus on a major hurricane strike in Louisiana.


What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - the dovish Jackson Hole event disappointed the bond bears and sent equities higher with Nasdaq 100 futures posting a new all-time high on the close on Friday. Nasdaq 100 futures are extending the gains in early European trading sitting around the 15,440 level.

EURUSD – the reversal and close near 1.1800 on Friday in the wake of the dovish speech from Fed Chair Powell supports the bullish case as it more firmly reverses the recent attempt below the key 1.1700 area. At the start of this week, it will be important for bulls to see follow through to the upside toward the range high since June just above 1.1900, while a reversal back below 1.1750 would represent a disappointment and keep the tactical outlook in limbo.

AUDUSD – as with other USD pairs, the move into the close on Friday in the wake of the Fed Chair Powell speech and whether it holds is the critical tactical focus at the start of the week. That Friday action took AUDUSD into the key 0.7300+ area that reverses most of the prior sell-off wave, but the price action is not sufficiently clear of the 0.7304 Fib level (61.8% retracement of the wave from the Aug high to recent 0.7106 low) to fully neutralize the latest leg of the down-trend just yet. In fact, a fairly modest move back below 0.7250 could topple last week’s reversal attempt – in either case, we are in a pivotal zone.

Gold (XAUUSD) - Gold cleared the recent high above 1,2800 and the 200-day moving average a bit higher still near 1,810 on Friday in the wake of the dovish speech from Fed Chair Powell, with traders now focusing on the range highs just below 1,835 that were tested three times in July and into early August as the key to unlocking further gains toward the next key zone above 1,900.

Crude Oil (OILUSOCT21 & OILUKOCT21) - oil futures were modestly bid ahead of the weekend on top of the huge snap-back rally from multi-month lows last week. But after gapping higher overnight on the powerful hurricane hitting a region in the US with significant refining capacity (more below), the price action has faded as traders await assessments of any damage done. Some 1.75M barrels/day of US oil production capacity was also shut ahead of the storm impact.

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?

Powerful Hurricane Ida goes ashore in the US near New Orleans. The storm is a powerful Category 4 storm packing a stronger punch than the costliest storm in US history that hit the same area – Hurricane Katrina in 2005 ($176 billion). In preparation for the storm, some 1.75M barrels/day of oil production in the Gulf of Mexico and on-shore were shut in, while the path of the storm is near some 12% of total US refining capacity.

US Fed Chair Powell laid out case for transitory inflation in speech on Friday at Jackson Hole symposium on Friday, saying that the rebalancing of the economy in coming quarters is likely to see a reversion to the mean in consumption of durable goods that drove a supply-side crunch and higher prices, while the services side of the economy rebound has been held back by the lingering effects of the pandemic. US rate expectations fell slightly, and the US dollar was weaker in the wake of the speech.

There are already 33 declared candidates for the 2022 French presidential election. Last week, former EU Brexit negotiator Michel Barnier announced he would participate in his centre-right camp's probable primaries for the presidential election. The centre-right primaries are due in October or November. Former Hollande minister of the economy and industrial renewal, Arnaud Montebourg, is expected to confirm his candidacy later this week (see our Guide to the French Presidential Election, July 2022).

What are we watching next?

Does the reaction to Powell’s speech on Friday hold? This is the tactical question at the start of the week and as we enter the last week of the summer, by traditional US measures (the week before Labor Day weekend, with US markets shut next Monday. But as we note below, the economic calendar in the US is heavy this week.

US economic data this week, especially the August jobs & earnings data and ISM Services survey on Friday. The impact of the delta variant in the US may have been behind a massive drop in the August University of Michigan sentiment survey that was noted last week, and possibly in the preliminary Aug. US Markit Services PMI earlier this month. This week, we will watch the US Consumer Confidence survey tomorrow for whether it confirms the Michigan survey, and the August US ISM Services survey out on Friday, as well as the usual focus on payrolls mid-week with the ADP private payrolls number and the Friday nonfarm payrolls change.

Earnings to watch today. The earnings season is tapering off with the four most interesting earnings this week being Meituan and Zoom reporting today, and then Crowdstrike and NetEase on Wednesday.

  • Monday: Fortesque Metals Group, Meituan, Agricultural Bank of China, Bank of China, Zoom Video Communications, Li Auto
  • Tuesday: EMS-Chemie, Crowdstrike, NetEase
  • Wednesday: Pernod Ricard, Veeva Systems
  • Thursday: Broadcom, DocuSign

Economic calendar highlights for today (times GMT)

  • 0900 – Euro Zone Aug. Confidence surveys
  • 1200 – Germany Flash Aug. CPI
  • 1430 – US Aug. Dallas Fed Manufacturing survey
  • 2245 – New Zealand Jul. Building Permits
  • 2350 – Japan Jul. Industrial Production
  • 0100 – China Aug. Manufacturing and Non-manufacturing PMI

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

Apple Sportify Soundcloud Stitcher

Disclaimer

The Saxo 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 is not intended to and does not change or expand on this. 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 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 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 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 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 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/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Saxo Markets
Most of our staff in Singapore are working from home to help limit the spread of the coronavirus. We remain at your service on the details below. Thank you for your understanding.

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.