The Fed minutes that were released on Wednesday dominated the narrative yesterday as the US central bank expressed concern the pandemic could greatly impact the US economy in the medium term.
The minutes also reiterated the need for government assistance in the form of fiscal policy, so that acted as a painful reminder to dealers that US lawmakers have yet to reach an agreement with regards to the coronavirus stimulus package. Earlier in the week, Nancy Pelosi, the House speaker, indicated the Democrats might scale back on some of their demands as a way of trying to reach a compromise with Republicans. The mood in Europe was downbeat yesterday as the FTSE 100, DAX 30 and the CAC 40 all lost over 1%. The Fed’s update didn’t really provide anything that wasn’t already known, but dealers were spoked by it all the same.
Equities in the US had a broadly positive finish despite the cautious language in the Fed minutes. The tech sector continues to be on a roll as the NASDAQ 100 ended up 1.4% to post a new record close. The S&P 500 registered a modest gain, while the Russell 2000 finished the session almost 0.5% in the red. Once again, the small cap index underperformed, highlighting the fact there is negative sentiment in certain quarters of the market.
Traders embraced risk-off sentiment, so there was an increase in demand for classic safe-haven plays such as gold, the Japanese yen, and the Swiss franc.
The positive move in gold was assisted by the weakness in the US dollar – the greenback was in positive territory for much of yesterday but the sentiment turned after lunchtime, and it finished in the red. On Wednesday, the dollar index enjoyed a decent move higher, but lately it has a track record of turning over on itself after staging a rebound, so the wider bearish trend might continue.
Stocks markets in the Far East are in positive territory. Yesterday, the Chinese ministry of commerce said that trade talks with the US will be held ‘in the coming days’, but no further details were given.
Pfizer said its potential vaccine for Covid-19 is on track for regulatory review in October.
We saw mixed messages from the US labour market yesterday as the jobless claims report increased, while the continuing claims report fell. The jobless claims update came in at 1.1 million, up from 971,000, while economists were expecting 925,000. The continuing claims metric slipped from 15.58 million to 14.84 million. The jobless claims report is one week ahead of the continuing claims update, so it gives a more up to date picture of the labour market. It also highlights the need to reach a stimulus package. The Philly Fed manufacturing index reading for August was 17.2. Keep in mind the June level surged to 27.5 when states reopened their economies again, so it is clear the recovery is cooling.
Oil and industrial metals sold-off yesterday as pessimistic sentiment was doing the rounds. WTI and Brent crude finished in the red, although they finished well off the lows of the session. Platinum endured a big fall, and copper retreated from its highest level in over 25 months – which was achieved on Wednesday.
At 7am (UK time), British retail sales will be posted and the monthly July reading is tipped to be 2%, and that would be a big drop from the 13.9% posted in June. The report that strips out fuel is tipped to be 0.2%, which would be significantly lower than the 13.5% registered in the previous report. It is worth noting the latest CPI and core CPI reports jumped, but so demand is firm. It is possible the retail sales numbers could be more bullish than expected.
At the same time, the UK public sector net borrowing figure will be published and economists are expecting it to be £29.3 billion, down from £34.8 billion in the previous report.
A number of major European economies will publish their flash manufacturing and service PMI reports for August between 8.15am (UK time) and 9.30am (UK time). In relation to manufacturing, the French, German and UK reports are expected to be 53.7, 52.5 and 53.9 respectively. On the services front, the French, German and UK updates are anticipated to be 56 3, 55.1 and 57 respectively.
The CBI industrial orders expectations report is anticipated to improve to -35 from -46. The report will be published at 11am (UK time).
Canadian retail sales for June is expected to be 24.5%, and that would be an increase on the 18.7% posted in May. The report that strips auto sales is anticipated to be 15%. The readings will be posted at 1.30pm (UK time).
The US flash manufacturing and services PMI reports will be announced at 2.45pm (UK time) and the consensus estimate is 51.9 and 51 respectively. The US existing home sales report is predicted to be 5.38 million. Keep in mind that the latest building permits and housing starts reports were well received. The housing data will be posted at 3pm (UK time).
EUR/USD – has been in an uptrend since April and if the bullish run continues it should target 1.2000. A pullback might find support at 1.1696 or at the 1.1600 zone.
GBP/USD – while it holds above the 1.3000 mark, the bullish trend that has been in place since late June should continue, and it might target 1.3284. A move back below 1.3000, could see it target the 1.2800 zone.
EUR/GBP – it has been largely range bound in August, but yesterday’s candle has the potential to be a bearish engulfing, and if it moves lower it might target 0.8938. Resistance might be found at 0.9157.
USD/JPY – yesterday’s candle has the potential to be a bullish reversal, and a rally might encounter resistance at 107.15, the 100 day moving average. If it turns lower again, it might target 104.18.