Key Points From This Week
Metals Hit Fresh Highs
Gold prices broke out to fresh all-time highs this week as the US Dollar continues to sell off and broader risk factors develop. The sell-off in the US Dollar continued despite better data this week with the ISM manufacturing and non-manufacturing readings both beating expectations. However, while US rate expectations and the inflation outlook remain so subdued, gold prices look likely to continue to find support. Fears of a second wave of the virus have also helped keep safe haven demand focused on gold with an increasing number of countries having to redeploy local lockdown measures as a means of battling the virus.
Central Banks Seen on Hold
The RBA and BOE both held monetary policy levels unchanged this week. Despite both countries battling fresh outbreaks of the virus, leading to the use of local lockdown measures, the respective central banks delivered similar messages broadly summarising that the downturn had not been as bad as expected though there is a great deal of uncertainty in the outlook and further easing will be used as necessary.
EIA Reports Further Inventories Decline
Oil markets received more bullish impetus this week with the EIA reporting another large inventories decline of over 7 million barrels. This comes on the back of a 10 million+ barrel decline last week. Together, the recent string of declines is helping bolster the view that US oil demand is starting to pickup again. However, with OPEC beginning to ease out of production restrictions this month, the upside impact has been diluted.
Key Events Next Week
RBNZ August Meeting
The RBNZ meeting next week should likely be a muted event. Given the success New Zealand has had in combating the virus and the recent positive surprise in unemployment data (back to 4%), the RBNZ is not expected to adjust rates. However, in line with what we have heard from other central banks, the bank will likely reassure markets that it stands ready to act further if necessary.
UK Q2 GDP is due next week and the market is gearing itself for a negative reading, confirming a technical recession in the UK. Following the -2% reading in Q1, the downturn over Q2 is likely to be far worse though GBP might derive some support if the decline is not as bad as projected.
US CPI & Retail Sales
Key US data sets will also be closely watched next week for a further glimpse into the health of the US economy as the recovery continues. Retails sales have been improving firmly recently while inflation remains weak. If Inflation is seen moving lower over last month this is likely to limit any bounce in response to a positive retail sales number.
Keep An Eye On
Second Wave Headlines
As more and more countries report an uptick in infections, the risk of further lockdowns and travel restrictions is growing. For now, most countries are using local lockdowns. While this reduces the economic damage incurred, if these local lockdowns start to build in size, the drag on economies will be just as damaging and risk assets will likely weaken.
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