Daily Market Pulse

Jackson Hole Symposium this week


The USD begins the week slightly under pressure as the markets prepare for the Jackson Hole Symposium that will take place on Thursday and Friday. Fed Chairman Jerome Powell will speak on Friday and his comments will be closely watched after the FOMC minutes released last week showed that the committee was less inclined to use new measures, such as yield curve control. DOW Futures are higher this morning as the market tries to capitalize on last week’s record-setting numbers. The futures are indicating an opening of around 200 points higher later this morning. While the S&P and NASDAQ have shown gains this year, the DOW is still about 55 below the record high reached in February right as the pandemic began to affect the economy. On Sunday, the Food and Drug Administration issued an “emergency use authorization” of convalescent plasma for hospitalized Covid-19 patients, a treatment that uses blood plasma donated by people who’ve recovered from the virus. At a news conference on Sunday, the President stated that the plasma treatment cuts the mortality rate by 35%. With no major economic data releases due on Monday, US Treasury yields moved lower as the Financial Times reported that the administration is considering fast-tracking an experimental virus vaccine ahead of the election in November. The 10-year note was trading at 0.6282% while the 30-year bond was lower at 1.3300%. With the market focusing this week on Jackson Hole and speculation running rampant, as to what will be said, expect the USD and the stock markets to trade back and forth early in the week, without any real direction.


EUR/USD is trading higher this morning, looking to regain some momentum lost towards the end of last week. At the moment, the single currency is attempting to break through resistance levels near the 200-day moving average. The currency pair has accelerated its move in the last hour as RSI has jumped to the 68-level, just below an overbought 70. The move higher this morning may be due to some short-covering as coronavirus concerns are pressuring the EUR. The increase in European coronavirus cases is accelerating, with worrying uptrends in all countries. Spain is the epicenter, but the recent leap in French cases is also grabbing the headlines. Traders await the Jackson Hole meeting and the direction of the Fed. If the US central bank remains cautious about further moves, the safe-haven USD would have room to rise, putting pressure on the EUR. Failure to break through resistance levels during the North American trading day could see the EUR move lower.


GBP/USD is also trading higher this morning, reaching new highs. The 100 and 200-day moving averages have converged and the pound is attempting to break through that resistance area. After trading lower during most of the overnight session, this move seems to be more of a short-covering move than a "buy currency” move. After trading in the high 30’s most of the overnight session, the RSI has jumped to 57. The British government is struggling to control COVID-19 – and how to reopen schools. Confidence in the government's policies is dropping, lowering the chances that Brits follow the rules. Another problem for the UK is Brexit as another round of talks has ended without progress. The mutual announcements pushed sterling down on Friday and continue weighing on it. The transition period expires at year-end and talks could come down to the wire. Overall, it seems the pound has failed to benefit from the USD weakness.


USD/JPY is trading toward the lower end of its overnight range as moving averages converge. Failure to take out last week’s highs keeps the downward bias intact. One item that could affect the JPY is the health of Prime Minister Shinzo Abe. According to Nippon TV which has cited multiple government sources, the prime minister is now being reported to be getting treatment for chronic illness, not a check-up. This has affected the Nikkei, which had been moving higher. The Japanese media have shown concern about Abe's health this month, including detailed reports on Abe's walking speed. Abe is the country's longest-serving prime minister. He was set to surpass a half-century-old record set by his great-uncle Eisaku Sato for the longest consecutive tenure as prime minister on Monday. This is an ongoing story and will be watched going forward. Speculation about Abe’s health started earlier this month, with some Cabinet members expressing concerns of his exhaustion on fighting the coronavirus pandemic. If the prime minister couldn’t continue his job due to a health issue, Deputy Prime Minister Taro Aso would take over temporarily. All are awaiting the ruling LDP to elect a new leader.


USD/CAD is lower this morning, as the currency pair is trading below the converging morning averages. The loonie has strengthened as oil prices have moved higher as storms reach the Gulf of Mexico. The USD/CAD has reached an oversold level of 22, and we could see a move higher later today as the storms move through the Gulf. At the moment, Brent crude futures are $0.08 higher at $44.33 a barrel, while U.S. West Texas Intermediate crude futures were $0.07 higher at $42.41 a barrel. The storms heading to the Gulf of Mexico have seen oil producers shut down 58% of the Gulf’s offshore oil production and 45% of the natural gas production on Sunday. The Canadian Dollar had seen some weakness late last week when Retail Sales for June increased only 23.7% missing the market expectation of 24.5%. The number was 1.3% higher than the February level as more regions in Canada had moved ahead with plans to re-open their economies. The C$ is reacting to Hurricane Marco and Tropical Storm Laura at the moment and will move as oil prices move going forward today. 


According to figures from the Mexican government, the country has close to 560,000 confirmed cases and this week surpassed 60,000 deaths. Mexico ranks third behind only the U.S. and Brazil in the total number of deaths from COVID-19. In early June, Deputy Health Minister Hugo Lopez-Gatell had said that reaching 60,000 deaths would represent a "very catastrophic scenario." At the time, the country had just over 12,500 deaths. Despite the extent of the crisis, the country has decided not to pursue mass testing. Lopez-Gatell has argued that limited testing and statistical modeling were a more effective and efficient use of resources. It's a decision that has confounded public health experts. Currently, Mexico is testing about seven people per 100,000 people in a country of approximately 129 million people, according to data compiled by Oxford University-run Our World in Data. The United States, by comparison, tests about 214 per 100,000 in a country of 330 million people, and Canada, with a population of roughly 38 million, tests about 130 per 100,000. On Friday, the World Health Organization said the scale of the pandemic in Mexico is under-represented and that the country is seeing a significantly higher impact in poorer and indigenous communities. As the virus continues to grow in Mexico, the country in August has recovered nearly 67,000 formal jobs so far from the economic hit caused by the coronavirus pandemic, President Andres Manuel Lopez Obrador said on Sunday. In an address on YouTube, Lopez Obrador said the country had created 66,734 jobs this month, as the economy gradually recovers from a slump that led to a contraction of more than 17% in the gross domestic product (GDP) during the second quarter. Mexico lost more than one million formal jobs in the period between March and July, the government said.


The latest coronavirus updates from China have been upbeat as the country terms all 16 cases reported on August 23 as imported infections. “This compared with 12 new COVID-19 cases reported a day earlier, all imported as well, and marked the eighth consecutive day of no locally transmitted cases. The total number of confirmed cases now stands at 84,967, while the death toll remains unchanged at 4,634,” according to Reuters. The review of the phase-1 trade deal between the US and China over the weekend did not take place. Afterward, President Trump revealed that he called off the meeting, raising further concerns about relations between the two countries and the outlook for the trade deal. The Chinese government was hoping that a meeting might take place soon, but with the Republican convention going on this week, that seems unlikely. Analysts are now putting a 50% risk possibility that the phase one deal may falter ahead of the US presidential elections.


German Chancellor Angela Merkel expressed significant doubts over the EU-Mercosur free trade deal on concerns over the devastating deforestation of the Amazon rainforest. The pact between the European Union and the South American free-trade bloc, comprising Brazil, Argentina, Paraguay, and Uruguay, was agreed in principle last year after two decades of negotiating. But environmental activists have slammed the deal for its lifting of trade barriers to Brazilian beef, which they argue will lead to increased deforestation. Cattle farming is responsible for 80 percent of Amazon deforestation, according to the WWF environmental group. "The chancellor´s position is that there are significant doubts as to whether the agreement can be implemented in its intended spirit, considering the current developments and the terrible loss of forests taking place there," Merkel´s spokesman Steffen Seibert said in Berlin. It marks the first time the German leader has so openly raised objections to the hard-fought deal. The pact still needs to be ratified by all 27 EU member states, but several European countries have voiced fierce resistance. France threatened last year to block ratification because of alleged inaction by Brazil to curb fires ravaging the Amazon. Footage of Amazon forest fires has again been widespread in recent weeks, with Brazil´s National Institute for Space Research (INPE) reporting 6,803 fires in the rainforest in July, up from 5,318 a year ago. Deforestation increased 30 percent since Brazil´s far-right President Jair Bolsonaro took office in early 2019, according to INPE, much of it caused by illegal fires set by loggers, developers and farmers.


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