This week started as we had grown accustomed, with US stocks soaring led by the heavyweights again, as the S&P and in particular the Nasdaq continued to burst into fresh highs. The Nasdaq touched a high of 12,466 which was a staggering 87% up from the lows seen in the pandemic fueled crash seen earlier this year. Whilst it could be argued the trajectory of the move was orderly and steady, the concern of correction was moving from the back of our mind to the front.
Therefore, whilst the move we saw on Thursday was of course a surprise, with the Nasdaq falling in the region of 5% on the day. The surprise was more around the driving factor for such a move. With little in the way of economic, political or trade related reasoning the markets seemed to freefall as short-term traders and algorithms kicked in and brought stocks down sharply. The big question will be around how do we react from here, recently we have certainly seen that any fall is immediately seen as a potential opportunity for fresh buyers to enter the market seeking value, and whilst a 5% daily fall in the Nasdaq is unquestionably a lot, in the scheme of an 87% move up it’s barely a blot on the landscape. Nevertheless, a strong close to the week and open next week will be required to regain the short-term confidence and the Non-farm payrolls data and Unemployment numbers could well support or derail this.
The other significant shift evident in the markets this week came in the ECB’s stance on the value of the Euro, with the single currency buoyed by the perceived strong aid package put in place by the Central Bank and a weaker US dollar the Euro was pushing the 1.2000 area against the dollar. With the actions of two ECB members speaking out in 2 days sighting concerns over the strong currency hampering Europe’s exports, they seemed to be in affect drawing a line in the sand verbally on the currencies strength, bringing EUR/USD back towards the bottom of the recent range, with strong technical support in the 1.1700-50 area. The fall in the currency did however breathe life back into the lagging European stock markets midweek, before they were dragged lower under the weight of global stocks.
In the UK the Pound fell from 2.5 cents against the US dollar as the EU’s Barnier confirmed they are not even close to the UK in negotiations over the contentious fishing rights issue. The UK’s plans to double fishing quotas for UK ships could potentially lead to 30% of single block vessels. This stumbling block will be pivotal to overall agreement on a trade and as such continuous lack of progress on this topic will weigh on the currency.
In the US it appears Trump is getting clawing Biden’s lead back, in a pattern not dissimilar to the last election. But concerns around Russian interference in that election are still not aiding this campaign. Whilst trade negotiation tensions were abating reports in the Global Times that China may be considering a reduction of holdings of US debt by $200 billion will not help the current Presidents plight, and this situation will have to be carefully monitored.
The Week Ahead:
First up is Chinese Trade Balance data. In the European session we get German Industrial Production and Eurozone Sentix Investor Confidence. There will be no US data due to the bank holiday.
Japanese GDP comes first before Australian Business Confidence data. In the European session we get French and German Trade Balance as well as Eurozone Employment and Revised GDP.
CPI and PPI inflation data from China comes early in the session. The main event is the interest rate statement from the Bank of Canada as well as the statement from the Central Bank.
Thursday - In the European Session its French and Italian Industrial Production. We get the latest update of interest rates from the ECB at 12.45pm with the statement from Christine Lagarde at 1.30pm, with US Weekly unemployment data coming at the same time.
A raft of data from the UK starts the day, with Construction, GDP Industrial Production and Manufacturing data all being released. There will be breaking news from the Eurogroup meeting throughout the day. In the US session comes the CPI Inflation data.
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