Jackson Hole effects and NFP ahead


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Economic data turn the alarm on!

By: Ahura Chalki

What we had last week in the market, clearly have to say stress and emotion, and what we going to have in the week ahead, must be Logic and economic data, which can be guessed.

In a few sentences, what FED had to say we can review are:

– After years lower than target Inflation, we can digest the above specified 2%.

– Even though FED will let the inflation to rise above target, interest rates will be close to the current zero-level for now, as long as employment and GDP back in normal condition.

– FED did not mention the unemployment target rate.

After vague words of the FED Chairman, the market participant hoping on some more specific numbers and policy from FOMC member speech, however, as to speech that till now we had from Clarida and Bostic, they did not add anything to count on, unless to repeat the same explanations, with different words, which reinforces the claim that coming FOMC meeting at 18-19 September, is what we have to wait for.

Earlier today, the RBA interest rate decision and then statement, remembered of exact same policy of FED in Australia as well. Holding the rates for a longer time, increasing supports of markets, and let the inflation go above 2-3% target if the markets need it. And now investors will be waiting for the same policy from other major banks, as well as ECB.

What means this policy in simple words?

If we want to explain it in very simple words, it means higher inflation, means weaker currency, and in that case, especially in countries that usually had lower inflation, people used to have cash investment as well, which now with higher inflation, if they want to keep the cash, they going to lose the value, and it means money most flow somewhere else, like Stock Markets, however since the Stock markets have some signs of an uncertain situation, investors will be looking for other options.

Should worry about Stock Markets and New investments?

If we look at the market, we may envy that why I did not invest a few months ago, while S&P, NASDAQ, and Dow30, all recovered amazingly after sharp declines. A deeper look at the companies, Earning reports, and Economic data, will give us a better idea.

Most rallies came because of tech-giants in the US stock markets, while small and middle-size companies’ still suffering from pandemic. If we look at jobless claims in the US unless the first week of August, again it is back above 1M request every single week, all after that and it is expecting the same for this week. Even for NFP data, despite 1.7M of last month, the market is waiting for the lower number of 1.4M for August, while if the economy was in the right wheel, it used to be the higher expectation, though many analysts even do not believe that if we can beat this lower expectation.

On the other hand, the latest data published in china and japan show better recovery, however, still Japanese expecting lower numbers for the coming months, and analysts in BBVA (MC: BBVA) expecting just a 2.2% GDP growth for China, in 2020.

End of the day, with all these uncertain situations, it was central banks stimulate packages which pushed the markets ahead and now we have to wait for a month more to see what going to happen if governments stop unemployment benefits and salaries. Already the UK and the US, informed that the plan will be end soon, while Germany decided to keep it for a longer time.

Market reactions

FX: Forex market will be suffering from this policy as we saw what happened for DXY. The ratio between the USD and other currencies will depend on market reaction to other major central banks’ decisions. In this case, the current rally of EUR, GBP, AUD, and CAD against USD, is not guaranteed.

Commodities: It depends on what commodity. If it is about Gold and silver, the uptrend is expected against most currencies, because of their weakness, as well as a cash flow to Safe-Havens, while industrial-based commodities, may suffer, if more missing data comes from Manufacturing PMI and Industrial productions, in the coming month.

Stock Markets: For now and at the short term, the rally is expected, as money flows over the market, since it is still better than keeping the cash, however, as analysts in Goldman Sachs say, it must end somewhere, so have to think twice before choosing the company to invest. Currently, tech companies already got their slice, so what market must be next? Pharmaceutical companies’ maybe?

Risk Warning: Trading-Leveraged Products such as Forex and Derivatives may not be suitable for all investors as they carry a high degree of risk to your capital. Please ensure that you fully understand the risks involved, taking into account your investment objectives and level of experience, before trading, and if necessary, seek independent advice.


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