The Final Quarter

Can ongoing record breaking rallies for the S&P 500 and NASDAQ Composite as well as near record highs for the Dow Jones and Russell 2000 continue as September begins?

Historically, since 1945, that’s the month that’s consistently been the worst period of the year for equities.

Without a doubt, it’s also the question traders are likely asking as they wonder whether the momentum that pushed stocks to their highest levels in history will be enough to offset a variety of ongoing risks including the resurgence of the Delta variant of COVID-19 as it escalates worldwide.

Here are the key market moving factors for the week:

The US

• Two other considerations may also be particularly relevant because of America’s political economy. First, there was a 30% increase in overdose deaths in the US last year to more than 92k. Three-quarters were related to opioids and primarily afflicts men. An earlier study (2018) by the Cleveland Fed found nearly half (44%) of the decline in men’s labor force participation rate may be traced to prescription opioids.
• The Fed’s Powell has explained that for inflation, there is one number, the headline PCE deflator, that best captures the inflation that the central bank wants to target.
• Second, owing to the way the US addresses childcare and the gender pay gap and traditional values, more mothers than fathers took over the childrearing duties, including education, during the work-from-home era. As a result, the women’s labor force participation rate fell from 57.4% in January 2020 to 56.2% in July. Many observers who are critical of the central banks taking into account how monetary policy impacts climate change and income disparity don’t see any problem for a central bank considering the participation rate, which also looks more a product of social conditions than monetary policy.

The UK

• For its part, the euro broke down shortly after the June 10 ECB meeting. It traded mostly between $1.21 and $1.2250 in the first half of June before falling to around $1.1850 by the end of the month. It was rangebound in July, though unable to re-establish a foothold above $1.1900. This month, the euro was sold to a new low for the year (~$1.1665 on August 20). In fact, since the ECB’s June meeting, the euro has fallen by 3% through the end of last week.
• Data from the UK last week showed that, despite all restrictions being lifted, the economy continued to face headwinds because of supply and labor shortages. There were rising COVID cases in the UK but hospitalizations and fatalities remain very low by past standards.
• This week consists of tier two and three data, notably the final manufacturing and services PMIs.

Europe

• The key issue at next month’s ECB meeting is about the pace of the asset purchases. It boosted the pace in March and reaffirmed the decision in June. Here is the rub:  the Pandemic Emergency Purchase Program as currently conceived is to end next March, which would seem to be ahead of the conclusion of the Fed’s tapering by most reckoning. However, given the emphasis the ECB recently placed on the symmetry of the inflation target, officials may seek a compromise that extends the emergency purchases may slowing them under the current envelope.
• While there is no requirement that the decision is made in September, slowing the purchases to sustain them for nine months or longer may be helpful soon rather than later. At the same time, the ECB’s chief economist Lane suggested that with the Asset Purchase Plan still in operation, its balance sheet expansion will continue. The problem is that it is not nearly as flexible as the PEPP and may quickly run into the self-imposed limits on country exposure.

AUSTRALIA & NZ

• The risk-sensitive Australian Dollar is edging higher versus the US Dollar as Monday’s Asia-Pacific session kicks off. The Greenback is unchanged against most of its peers. APAC traders may be digesting Fed Chair Jerome Powell’s comments from Friday’s Jackson Hole Economic Symposium. Mr. Powell’s message hinted that tapering QE asset purchases will likely commence this year but failed to give a clear timeline.
• September’s FOMC meeting will likely deliver that message.
• The government has imposed strict lockdowns, but COVID cases continue to surge. On Thursday, Australia reported over 1,000 new cases, the highest total since the pandemic began in 2020. There are growing concerns that the economy could fall into a recession if COVID numbers continue to rise.
• Australia’s economy showed solid expansion in the first quarter, with a gain of 1.8% (QoQ). However, there are concerns that growth may have slowed to below 1% in Q2. Australia will release GDP for Q2 on Tuesday.
• The recent outbreak of the COVID Delta variant in New Zealand has led to a lockdown of the entire country. The government has announced that the lockdown will be eased in all areas except in Auckland. ANZ Business Confidence, which came in at -3.8 in July, will be released on Monday.

JAPAN

• Japan continues to struggle with an upsurge in COVID cases, and the state of emergencies will hamper economic growth. Early this week, Japan releases the unemployment rate and Industrial Production for July. Both indicators are expected to have worsened compared to June.

CHINA

• China’s PMI is an exception. Beijing does not publish a preliminary estimate. There is little doubt that the world’s second-largest economy has slowed. It was already slowing before the lastest virus-related lockdowns, port closures, and foul weather. However, it seems that policy is more important than the economy’s cyclical performance.
• While Beijing continues to press with its regulatory and social reforms, economic policymakers are eschewing large-scale fiscal or monetary initiatives. Instead, the “cross cyclical” slogan, seemingly emphasized at the recent National People’s Congress session, looks for smaller and more nuanced policy- such as the PBOC cut in reserve requirements last month and the tightening of property restrictions to stabilize prices.
• Manufacturing and Services PMIs for August will be released early this week. Manufacturing activity is expected to be stagnant, with a consensus of 50.2 for both the Manufacturing PMI and Caixin Manufacturing PMI. The Services sector is forecast to show slight expansion, with estimates of 52.0 for the Non-Manufacturing PMI and 51.3 for the Caixin Services PMI

Market Overview:

Gold

• Gold was up Monday morning in Asia, continuing to ride a rebound sparked by comments Friday by U.S. Federal Reserve Chairman Jerome Powell that put pressure on Treasury yields and the dollar.
• Gold futures were up 0.29% to $1,824 by 9:15 PM ET (1:15 AM GMT).
• Speaking at a symposium at Jackson Hole, Wyoming, on Friday, Powell did not say when the Fed would start tapering down its support for the economy and repeated a stance that a current spike in inflation is temporary.

Oil

• Oil prices pared early gains on Monday, off more than three-week highs reached earlier in the session as a powerful hurricane ploughing through the Gulf of Mexico https://www.reuters.com/world/us/gulf-coast-ports-close-loop-halts-oil-deliveries-ahead-hurricane-ida-2021-08-29 forced shutdowns and evacuations of hundreds of offshore oil platforms.
• US. gasoline prices rose more than 3% as power outages added to refinery closures on the Gulf coast.
• Brent was up 27 cents or 0.4% at $72.97 a barrel by 0337 GMT. It rose more than 11% last week in anticipation of disruptions to oil production from Ida.

Below are the major market moving events for the week:

All times are in EDT

Monday

10:00: US – Pending Home Sales: expected to rise to 0.4% from -1.9%.

21:00: China – Manufacturing PMI: seen to ease to 50.2 from 50.4.

Tuesday

3:55: Germany – Unemployment Change: forecast to jump to -34K from -91K.

5:00: Eurozone – CPI: probably rose to 2.8% from 2.2%.

8:30: Canada – GDP: predicted to jump to 0.7% from -0.3% MoM.

10:00: US – CB Consumer Confidence: anticipated to edge down to 124.0 from 129.1.

21:30: Australia – GDP: forecast to plunge to 0.5% from 1.8% QoQ.

21:45: China – Caixin Manufacturing PMI: likely to slip lower, to 50.2 from 50.3.

Wednesday

3:55: Germany – Manufacturing PMI: expected to remain flat at 57.3.

4:30: UK – Manufacturing PMI: due to remain at 60.1.

8:15: US – ADP Nonfarm Employment Change: expected to nearly double to 638K from 330K.

10:00: US – ISM Manufacturing PMI: to drop slightly to 58.5 from 59.5.

10:30: US – Crude Oil Inventories: seen to rise to -2.683M from 2.979M.

Thursday

8:30: US – Initial Jobless Claims: predicted to rise to 345K from 353K.

21:30: Australia – Retail Sales: previous reading was -2.7%.

Friday

4:30: UK – Services PMI: to remain flat at 55.5.

8:30: US – Nonfarm Payrolls: forecast to drop to 728K from 943K.

8:30: US – Unemployment Rate: anticipated to edge down to 5.2% from 5.4%.

10:00: US – ISM Non-Manufacturing PMI: forecast to decline to 61.8 from 64.1.

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: https://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