This Week In Markets: 16th - 20th August 2021 (FX, Stocks, Bonds, Commodities)

Okay, very good morning, Monday the 16th of August. Hope you're doing well and had a great weekend. Going to get up to speed on some of the weekend and overnight news and then an outlook for the week ahead. Starting with China, we've had some weak data overnight, industrial production, retail sales, which we can talk about. The Japanese stock market underperforming on continued outbreak of COVID-19. Melbourne, Australia also seeing a further 2-week rollover of their lockdown restrictions due to COVID. And we're also going to talk about snap elections being called in Canada. Walmart looking to now get a crypto digital currency product lead in, similar-ish to what we saw from Amazon just a few weeks ago. Bitcoin is trading higher this morning in the futures market, over $1,000 at the moment. And then we're going to look at the week ahead. And for the week ahead, we've got major UK data coming out from jobs market, UK CPI and retail sales this week. And then from the US stateside, pretty quiet on Fed speaker schedule, but we do have the likes of US retail sales on Tuesday and the FOMC minutes, of course, on Wednesday night. So before I get into all of that, let's have a look at the charts and how sentiment is here at the European open. And equity index futures just a touch lower this morning on the US side, following the general negative tone that was seen overnight in Asia. The DAX future perhaps slightly underperforming, but that doesn't come as too much of a surprise. The DAX future down 61 after that meteoric rise we saw at Friday's open, which pushed us to an all-time high in that particular index. So just flagging a little bit this morning. As a consequence, the 10-year is up, the US T-note up around 10 ticks. So pretty decent move actually overnight with the general moderate negative sentiment seen overnight in Asia. And also as well, I feel that with a lot of the Fed rhetoric we've had of late, despite the hawkish comments, still the void in the jobs market enough to just keep the market true to the current Fed path of what Powell has been kind of leading us to believe, which is Jackson Hole for the next more important stage for developments on the details around tapering. So continuing to see yields decline, pairing some of that move that we saw on that positive payrolls we had back 10, 10 days or so ago. Elsewhere, the gold market and crude market a little bit lower. The dollar index has picked up a little bit this morning, only up about 1/10, so it has weighed a little bit on the major pairs. But overall, a bit of reversal from what otherwise in the Dixie saw quite a big rejection of the late July resistance levels in the Dixie. And so a bit of a recovery here in the greenback this first thing this morning. And that's just weighed a little bit on the yellow metal. Gold down about $4, but again, just reversing some of the decent outperformance seen at the end of last week on that dollar move. And then WTI crude also down about $1 this morning, trading $67.43. And a few things to update you on there from the latest rig count numbers as they continue to tick up in North America. And also we're on storm watch at the moment in the Atlantic, and a few things to be aware of there as well. But for the moment, WTI just testing its lower bound at the APAC session. and it's S1 in the futures market right now. But let's get straight into the news and let's talk about what has been going on. So in Japan, as I mentioned, the Nikkei was an underperformer. The stock index in Japan was down about 1.7%. Losses elsewhere geographically in the Far East not down anywhere near as much as that, and that has spurred a bit of a safe haven flow into the Japanese yen as well. So dollar-yen trading lower, I'm just finding a bit of support in the, in USD/JPY in the futures market at the S1 in the overnight session. The expectation now there is a virus state of emergency in some regions, including Tokyo, and will be extended after COVID-19 cases recently have topped 20,000 for the first time, which overshadowed better than expected GDP data we've had out of Japan. So in Tokyo, that's what we're seeing in these headlines here in Kyodo. Daily COVID-19 cases totaled 4,295 on Sunday. As it continues to struggle with the strain on its medical system in the capital due to the resurgence of the virus we've been seeing, um, at the moment. Similarly, in terms of Australia, the current lockdown across Melbourne, Australia's second largest city, will be extended and a curfew put in place across the metropolitan area according to the state government, who made that announcement in the overnight session. And then elsewhere, just adding to the slight negative turn overnight in Asia, was overnight we had some major Chinese data come out. So industrial output year on year came in for July 6.4%, expectations were for 7.8%, and retail sales in China 8.5% below the expected 11.5%. So factory output, retail sales growth slowed sharply, missed expectations in July. The rationale there being new COVID-19 outbreaks Floods disrupted business operations as well, adding to signs of the economic recovery in China is starting to lose a bit of momentum at the moment. I think that's what's adding to some of these market moves seen this morning. So again, equity index futures just softening a little bit with the 10-year bid this morning going into the European open, just gone through 7 AM. A few other things then. I did mention briefly Walmart. So the retail giant is seeking to hire a digital cryptocurrency lead. The company looking for someone to develop its digital currency strategy and product roadmap. Sounds very similar to what we had, which really initiated quite a spark for the crypto space when Amazon came out with a similar type of recruitment advertisement piece just a few weeks ago. And again, Bitcoin is trading a little higher this morning, as I mentioned, in the futures space, just finding a bit of short-term resistance at $48K. For the time being, but worth keeping a close eye on. That could well see additional breakout. Next target there most likely will be $50K on the cards. And then in Canada, this is what happened over the weekend, and I'll give you the summary of what you need to be aware of. Canadians are going to go to the polls on September 20th to vote in a snap election, and in fact that is 2 years ahead of schedule. So Trudeau asked the country's Governor General to dissolve the legislature And that's meant that Trudeau's Liberal Party is hoping to capitalize on what has been a very successful COVID-19 vaccination drive to solidify its hold on power after 2 years of a minority government. Now, first of all, the strategy there. Well, here's a look at the share of people who have received at least one dose of COVID-19 vaccine. And this is going back to— this is pretty much year to date. And so Canada, if I highlight it here, is the blue line. So as you can see, Canada has been a real standout. Pretty slow comparative to the UK and Canada after the initial rollouts that were seen. Obviously, the UK was, was particularly quick on the global comparison. But Canada really started to ramp things up through April, May. And that has seen them as one of the highest countries in the world. In fact, only with some of the selection I've got here of major countries is Spain higher at this present point in time. But, um, the Canadian Prime Minister then looking to take advantage of that and to take a minority government into perhaps what could be something then could constitute a majority. And so he looked to consolidate power. So Canada has administered basically nearly 51 vaccine doses. It's around 63% of the population has fully vaccinated, and that is one of the highest rates in the world. Polls show the party is likely to gain seats at the expense of Conservatives and within striking distance of a majority. The Liberals hold 155 seats in Parliament, which is 15 shy of the 170 needed for an overall majority. And so hence the, the kind of more aggressive action here from Trudeau to, to call a snap election. Elsewhere in the oil market, I did say it's a little bit lower this morning, and Couple of things here. So the Delta variant globally obviously started to weigh again in terms of a fairly consistent theme that we're seeing that evident as well overnight in, in China. Not only to mention the weak data, technology stocks again were slumping after more criticism on the online gaming space that we heard just a few weeks ago from state media again last night. But a lot of the data there showing that the economic recovery in China is losing bit of momentum. As I said, in Japan, elsewhere, Australia, the demand implications on the persistency of, of COVID-19 Delta variant is causing a bit of a renewed cause for concern here. And this comes in context as well, as you can see here, US rigs rising. If you haven't looked at that in a while, this is what that looks like. This is looking at the Baker Hughes rig count, which comes out every Friday. And on this chart here, you can see basically the last 2 years So you can see the onset of the pandemic. So going back to really March of 2020, we were currently tracking at just shy of 700 active operational rigs in North America. In the lowest point going back to August, the summer of 2020, that number came down to around 172, and we've continued to move higher ever since really Q3 of last year, and we're back up to 400 now. So pretty much having doubled from where we were at the, the actual low seen last summer, this time last year. And so, yeah, just keeping an eye on that as well. I don't think that this particularly comes as a surprise, but obviously it's— we, what we did see was that rigs coming back online as US shale producers are ramping up activities actually rose by 10 last week, and that marked the biggest weekly jump we've seen since April. In terms of rigs coming back. So again, another factor in play a few people are talking about. On the flip side though, um, what another thing to look out for on the weather systems is, um, two tropical storms, Fred and Grace. This is having a look at, um, this is Tropical Storm Fred first, which as you can see, and the two of these are in, in location of the Gulf of Mexico. Grace, as you can see here, is a lot more further out. And over the weekend, um, it was going over Puerto Rico and Dominican Republic at this current point in time, but is projected to move towards the Gulf of Mexico towards the back end of this week on Thursday and Friday. So something's worth just keeping a half an eye on in terms of the week ahead. Just giving you a quick overview, but again, if you go on my Twitter account here, you see my handle, You can get the full, more detailed rundown. But as far as today is concerned, and we've already had the Chinese data, so US Empire Manufacturing is out later this afternoon, worth keeping an eye on. Otherwise, going on to Tuesday, we get UK jobs data in the morning. The reopening has triggered a sharp rise in job adverts. Saw further news on that this morning, in fact, in the UK. And recent payroll data suggests that that's led to a decent employment bounce. Over the past couple of months. So just giving a bit of context around that. But Tuesday really is going to be centered on the release of US retail sales for July, month-to-month expected at -0.2%, as supply chain issues in the auto sector weighing on voter— motor vehicle sales. However, the core measure is expected to have risen 0.2% after 1.1% rise that was seen in June. Um, according to RBC Capital Markets, and I've seen a few other banks mention this, they said the month started out strong, but they've seen from high-frequency credit card data that spending slowed into the end of July. So we should see how that data comes out on Tuesday. Otherwise, you've also got industrial production on Tuesday, should post a decent increase for manufacturing, likely rebounding after June's decline. But again, supply chain issues might well continue to exert some strong headwinds on the, the size of the growth that we could expect in IP. And then going to Wednesday, UK CPI data. Reopenings at the same time last year lifted prices, which likely weren't matched this July. That means that the lower— and you could see a lower annual rate of inflation for that figure. But this is probably one of the main highlights of the week, FOMC minutes coming coming out on Wednesday night, and they should offer some more details. At least that's what the market's going to be looking for on the conditions under which the central bank will begin withdrawing its stimulus, i.e., tapering. Chair Powell, in his statement at the end of July, said the Fed was looking for more progress in the labor market recovery before it was prepared to start easing on that $120 billion worth of monthly, monthly bond purchases. But since Powell's press conference, multiple Fed officials have adopted, of course, a much more hawkish tone, including the vice chair Richard Clarida that we saw about a week and a half ago. So a lot of people looking at that with some interest on Wednesday night. And then you've got Philly Fed on Thursday. You've got the regular weekly jobless claims. Last week saw the third continuous drop that we've seen in that figure. And so be interested to see how that comes out. Having moved closer now to pandemic lows that were reached towards the end of June. And then we've got UK retail sales to wrap things up on Friday. So that's pretty much it. There's no major Fed speakers that are scheduled, at least at this point. Fed Chair Jerome Powell is making an appearance this week but is not discussing monetary policy. And also, just as a footnote, Christine Lagarde Bank of England Governor Andrew Bailey have both said they will not be attending Jackson Hole for other reasons. But again, all the more reason that really that's going to be used as the event for— to be dominated by Jerome Powell and the Fed taper update, I'm sure. Okay, that is it. Let you guys get on with things. Enjoy the rest of your day. Have a good week. And if anything I can help with, any questions at all, feel free to drop a comment below and I'll be sure to get back to you later today. Alright guys, take care.