Archives of “August 2020” month

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Trade the strong against the weak

  
Analysis, Forex
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NZD

One of the key trading maxims in the FX world is pairing strength against weakness.If you need a refresher on that concept please do check that out here. So, yesterday we had the RBNZ rate meeting which has given us a weak NZD bias. Going into the event a client was asking me what I was going to do before the RBNZ rate meeting. The answer was simple, wait. Waiting to for the central bank to show its hand. The RBNZ has now done that and that is what gives us a bearish bias.

Reasons for the RBNZ’s weakness

The RBNZ has launched a set of bearish policies extending its asset purchases programme and showing openness to negative interest rates. They increased their quantitative easing (LSAP) programme to $100bn and extended its length from 12 to 22 months. Furthermore, the RBNZ expressed a preference for a lower or negative OCR and a ‘Funding for Lending Programme’, while leaving all options on the table.

So, we now have a short to medium term NZD bearish bias, look to pair it with currencies as they show strength. Yesterday’s strong AUD employment data make AUDNZD longs appealing on pull backs.

NZD

Nikkei 225 closes higher by 1.78% at 23,249.61

  
Analysis, Global Indices

Asian equities mostly better on the day

Nikkei 13-08

This follows the more positive mood from Wall Street overnight, as the market keeps calmer for the most part to start the new day as well. The Hang Seng is down a little by 0.1% but the Shanghai Composite is up by 0.3% currently.

Elsewhere, US futures are down ~0.1% but keeping closer to flat levels for the most part – giving little hints of a risk tilt to kick start the session.
In the currencies space, the dollar is keeping weaker across the board with EUR/USD rising to to 1.1825 – back above both key hourly moving averages. Meanwhile, AUD/USD is also holding above both its key hourly moving averages at 0.7170 but off earlier highs.

German Ifo institute says companies expect business situation to return to normal in 11 months

  
Analysis, Economy

Ifo remarks based on their latest survey of businesses in the month of July

Germany
The survey shows that German firms are expecting business to return to normal in an average of 11 months with services sector companies expecting things to normalise in 11.7 months while manufacturing sector firms expect it in 10.1 months.
If ‘normal’ means a return to pre-virus conditions, I reckon that may be a little too optimistic for the time being. Just be mindful that considering the current virus situation, global travel will at least be dead until 1H 2021 at the very least.
That in turn will feed to lower demand conditions – especially for the services sector – and as more businesses are impacted, it will also lead to sluggish labour market conditions i.e. weaker consumer purchasing power and eventually hurt other sectors as well.

India reports record daily new coronavirus cases of 66,999 in latest update today

  
  Analysis
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That brings the total confirmed cases in the country to nearly 2.4 million

India is among the countries that have been hit the hardest by the pandemic as the struggle to balance between the health crisis and the economic fallout is particularly stark.

As for the health crisis, the bright side is that over 1.6 million of those infected has recovered from the disease. However, the spread is still outpacing the number of recoveries:
India
At the start of July, India reported ~220,000 active cases in the country. That figure is now ~643,000. The only positive – if you really want to look at it that way – is that the mortality sits at just ~1.9%. That is better than the ~3.2% seen in Brazil and the US.
In the bigger picture, as long as the health crisis worsens in India, it will have an impact on the global economic situation in general. Before the pandemic, there have been talks that India’s share of global growth might rival that of US, China in the next decade.
They were already among the top five – some would argue top three – contributors of global growth over the past few years, so any major setback to India will also be a setback for the global economy in that sense.

UK press (Times) report: US sends stealth bombers to counter Chinese threat

  
Analysis, Politics
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UK newspaper The Times with the info on US military assets deployed

  • Three American B-2 stealth bombers have arrived in the Indian Ocean island of Diego Garcia on the eve of Chinese live-firing naval exercises north of Taiwan.
  • It is the first time the nuclear-capable strategic bombers have been sent to the remote island since 2016, in an indication of the growing concern about China’s intentions towards Taiwan.
  • The bombers flew across the Pacific from Whiteman air force base in Missouri to land at Diego Garcia, part of the British Indian Ocean Territory. With their advanced stealth technology, the B-2s can penetrate enemy territory without alerting air-defence radars.
Link is here, Times (may be gated)
Seems rather a long way away:
UK newspaper The Times with the info on US military assets deployed
Taiwan escalation would be likely risk negative. This seems a bit of a small step. Let’s hope it goes no further (probably a forlorn hope).

Here’s what it’ll take for gold (and silver) to climb to new highs ($2100, $30)

  
  Analysis
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  • Real rates are now rising along with nominal yields due to stimulus optimism and risk appetite, with the USD also off its lows. 
  • Given that the US economy will continue to positively respond to an additional trillion dollars worth of fiscal stimulus and continued Fed measures, it is quite likely that rates and the dollar may see some better days into 2020. 
  • This, along with profit-taking by the very active retail investors and COMEX margin increases should see gold consolidate lower.
  • Before … new highs ($2,100+, $30+), there will need to be confirmation that the Fed will indeed suppress yields, consider average inflation targeting and there are signs that inflation may move higher
  • At the same time, markets will want to see if monetization of debt is in the cards, before talk of these levels becoming sustained is credible. 
  • TD securities projects an average gold price of $2,100/oz in Q4-2021 and $30/oz silver price during the same period

S&P closes just below all time high closing level.

  
Analysis, US Market
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Nasdaq rises 2.13% on the day

The major indices are all closing higher led by the Nasdaq index.
  • The Dow and S&P are up 9 of the last 10 days
  • The Nasdaq broke the 3 day losing streak.
  • The S&P rose to above the all time highest close at 3386.15 intraday,  but has closed just below that level.
  • The Dow is 2% from recouping all the 2020 losses.
The final numbers are showing:
  • The S&P index closed at 3380.35, that is up 46.66 points or 1.4%. The high reached 3387.89. The low reached 3355. 46.
  • The Nasdaq index closed up 229.41 or 2.13% at 11012.22. The high reached 11036.71. The low reached 10877.16
  • The Dow closed  up 289.93 points or 1.05% at 27976.84. The high reached  28043.89. The low extended to 27843.32.
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