Crippling Economy and Turtle Recovery

Friday’s sharp corrective pullback in Gold (XAU/USD) was mainly driven by the broad-based US dollar rebound, as the US-China tech war escalation and US fiscal wrangling reinforced the haven demand for the greenback. Better US payrolls report, further, aided the dollar recovery from two-year lows. The bright metal dropped nearly 1.50% and settled at $2035 on Friday.

Heading into a fresh week, gold remains on the defensive amid a broadly subdued US dollar. The haven demand for the US currency could resurface, as uncertainty over the US fiscal aid looms even after President Donald Trump signed coronavirus relief orders on Saturday. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin said they were open to restarting COVID-19 aid talks. Further, the escalation in the US-China tensions following the ban on the Chinese tech-titans could likely bode well for the US dollar and cap the upside attempts in gold. Also, investors remain wary ahead of the US CPI release and August 15 trade talks between the world’s two biggest economies.

Below are thumbnail sketches of the events and data that shape the macro picture.

Country

US-CHINA TENSION GROWING, PUSHING HAVEN-LINKED USD HIGHER

• The US Dollar may recover from its aggressive selling streak if geopolitical risks surrounding US-China tensions catalyze a so-called “dash for cash”. Contrary to the popular narrative suggesting the conflict has “resurfaced”, a source of friction has – at least in the past two years – has been steadily present.
• Therefore, it is less a “resurfacing” and more so an irritation that threatens to turn market sentiment septic and further compromise the health of the global economy. On Friday, US President Donald Trump signed several executive orders targeting Chinese technology companies. The documents prohibited transactions between US-based citizens and Tencent subsidiary WeChat and ByteDance’s infamous social-media spawn TikTok.

BRITAIN’S ECONOMY FALL

• Britain’s economy will be officially declared in recession this week for the first time since the 2008 financial crisis, as the coronavirus outbreak plunges the country into the deepest slump on record.
• Figures from the Office for National Statistics on Wednesday are expected to show that gross domestic product (GDP), the broadest measure of economic prosperity, fell in the three months to June by 21%.
• After a decline of 2.2% in the first quarter, the latest snapshot will confirm the UK economy’s descent into recession after the outbreak spread in March and the government imposed a nationwide lockdown to contain it. Economists consider two consecutive quarters of shrinking GDP as the technical definition of a recession.

EUROZONE

• The Italian government on Friday (7 August) approved a new stimulus package worth €25 billion, setting aside roughly half of that sum to support employment.
• Italy extended temporary layoff schemes for up to 18 weeks, setting conditions and requiring firms not to cut jobs to qualify for state aid.
• German companies expect public life to be restricted for a further 8.5 months due to coronavirus, a survey by the Ifo economic institute showed on Monday, as Europe’s largest economy battles to recover from a pandemic-induced downturn.
• Leisure firms, hit hard by the coronavirus crisis, are particularly pessimistic, expecting restrictions to last another 13 months while the beverage sector is more optimistic, foreseeing an end to restrictions in 6.4 months
• Economy Minister Roberto Gualtieri and Labour Minister Nunzia Catalfo said in a joint statement on Saturday they had written to the EU Commission asking to tap the SURE scheme.

CHINA TO PROMOTE NTERNALIZATION OF THE YUAN

• In an interview with the People’s Daily published on Monday, People’s Bank of China (PBOC) Governor Yi Gang said that China is committed to promote the Yuan internalization and deepen the opening up of the financial sector, per MNI.
• “China plans to open up, with measures such as lifting foreign share ownership limits in areas such as securities as it pushes for international cooperation amid the pandemic
• “Institutions such as American Express, MasterCard and Fitch Group had been allowed into the Chinese market.”

AUSTRALIA’S SECOND MOST POPULOUS STATE RECORDS NEW CASES

• Australia’s second-most populous state has recorded 322 new coronavirus cases in the last 24 hours, the state’s health department said on Monday as Reuters reports. Victoria state said there were 19 fatalities from the virus in the last day.
• Meanwhile, the Australian currency has simply shrugged off the deterioration in Australia’s prospects, the sliding greenback and ongoing strength in commodity prices proving to be more consequential.

JAPAN’S JUMP IN INESTMENT

• Despite uncertainties from COVID-19, top Japanese corporations plan to invest 15.8% more in information technology in fiscal 2020 to keep up the wave of digitization across industries.
• A total of 765 enterprises aim to spend 471.8 billion yen ($4.45 billion) on tech, shows a Nikkei survey of publicly traded companies and those with 100 million yen or more in capital. This marks a second straight year of double-digit growth.
• Manufacturers are on track to a record 20.3% jump, while nonmanufacturers plan a 13.1% increase.

Market

OIL UP OVER IRAQ PRODUCTION LOWERS

• Oil was up on Monday morning in Asia after Iraq said it would step up production cuts and U.S. President Donald Trump took executive action on economic aid for Americans hit by the COVID-19 pandemic, reigniting hopes for a recovery in fuel demand.
• WTI futures rose 1.07% to $41.66 by 10:32 PM ET (10:32 AM GMT) and Brent Oil futures also were up 0.83% to $44.78.
• Iraq, a key member of the Organization of the Petroleum Exporting Countries and its allies (OPEC+), announced on Friday that it will be stepping up production cuts to compensate for failing to comply with a deal made in April to limit oil production.
• The country will cut  production by 400,000 barrels per day in August and September. Energy ministers from Saudi Arabia and Iraq also said in a joint statement that they would work together to improve the stability of global oil markets.

GOLD CONSOLIDATION

• Gold consolidates Friday’s steep drop to $2015, as the upside attempts remain capped by the US fiscal impasse and lingering US-China tensions. The risk-averse market conditions could put a fresh bid under the US dollar, as it struggles to extend Friday’s correction.
• The yellow metal corrected sharply from the record highs of $2075 last Friday, courtesy of the upbeat US NFP figures and US-China tech war escalation.

Here’s a look at all the important market-moving factors for the week:

Week Ahead

All times listed are EDT

Monday

10:00: US – JOLTs Job Openings: expected to fall to 4.910M from 5.397M previously.

Tuesday

4:30: UK – Claimant Count Change: seen to surge to 250.0K from -28.1K.

5:00: Germany – ZEW Economic Sentiment: expected to edge down to 58.0 from 59.3.

8:00: US – EIA Short-Term Energy Outlook: offers a near-term perspective on energy markets.

8:30: US – PPI: probably jumped to 0.3% from -0.2%.

22:00: New Zealand – RBNZ Interest Rate Decision: the central bank is anticipated to hold rates steady at 0.25%.

Wednesday

2:00: UK – GDP: forecast to have plunged to -20.9% from -2.2% QoQ and dived to -22.5% from -1.7% YoY.

8:30: US – Core CPI: seen to remain flat at 0.2%.

10:30: US – Crude Oil Inventories: last week’s reading showed a drawdown of-7.373M.

20:30: Australia – Employment Change: predicted to drop to 40.0K from 210.8K.

Thursday

8:30: US – Initial Jobless Claims: came in last week at 1,186K.

22:00: China – Industrial Production: expected to edge lower to 4.7% from 4.8%.

Friday

8:30: US – Core Retail Sales: anticipated to plunge to 1.6% from 7.3%.

8:30: US – Retail Sales: the headline number looks to have fallen to 1.8% from 7.5%.

Based on the above factors and the events lined up for the week, the analyst at RvR Ventures suggests you to Trade responsibly; invest only as much as you can lose. All the profits and losses due to the above data are your own personal responsibility. Kindly practice money management & risk mitigation while trading.

Chat with us to know more: wa.me/971581958582
Register to open your account: http://bit.ly/OpenFxAccount
Join Our Telegram Channel: https://t.me/ForexFundManagers
Subscribe to Our YouTube Channel: https://youtu.be/AnTlQd-FQxc