BMA Market Insights: Saddle Up, It’s Going to be a Bumpy 8 Weeks


Market Snapshot

Investors returning to U.S. markets this morning after the Labor Day holiday weekend will see equity futures point to a lower open. Leading the fall is the tech-heavy Nasdaq index down -3.30% this morning. Interestingly, it was discovered last Friday that the “Nasdaq whale” is none other than Softbank who has purchased billions of dollars’ worth of U.S. equity derivatives to leverage its bet on the tech sector.  Futures on the S&P 500 are down -1.44% and the Dow is down slightly at -0.26% as of this writing. The U.S. 10-year Treasury is trading 2.5bps lower to 0.788%. WTI crude oil is -6.03% lower to $37.365 per barrel after Saudi Aramco cut prices on October crude deliveries as demand softens. Gold, viewed as a safe haven and hedge on USD inflation, is trading at $1,918 an ounce, below its August highs of over $2,000 an ounce.

August Jobs Data

Last Friday’s U.S. employment data showed the unemployment rate improved to 8.4% in August from 10.2% in July as the economy added 1.371 million jobs in August. However, the number of workers who are now permanently unemployed increased from 2.9 million in July to 3.4 million in August. 

U.S.-China Relations Deterioate

Just two weeks ago investor optimism increased after receiving positive news that trade representatives from both the U.S. and China met to discuss phase-one of the trade agreement. Investor sentiment quickly shifted yesterday after U.S. President Donald Trump raised the prospect of decoupling the U.S. economy from China during a re-election campaign speech. Trump threatened to punish any American company that creates jobs overseas by withholding federal contracts. Additionally, the U.S. may ban cotton imports from the Xinjiang region of China over its crackdown on the rights of the mostly Muslim community. Expect more anti-China rhetoric going into election day and its negative impact on global markets.

China reported overnight that exports rose +9.5% (vs +7.1% expected) for the month of August while imports fell 2.1% in the same period and posted a trade surplus of $58.93 billion for the month.

GBP and EUR in Focus

  • The British Pound weakened against the Euro and US Dollar ahead of the eighth round of Brexit negotiations that begins today.
    • While Brexit formally occurred on January 31 this year, the deadline for the transition period to negotiate trade terms is coming up on December 31, 2020.
  • Q2 GDP in the European region was revised lower to -11.8% from -12.1%. Household consumption led to the decline of -12.4%. July retail sales in Italy declined by -7.2% YoY.
  • The European Central Bank (ECB) is due to meet this Thursday.
    • Traders are expecting more of the same “dovish” tone following the Fed’s lead earlier at Jackson Hole.
  • EUR/USD is -0.33% lower to 1.18, GBP/USD is -1.76% lower to 1.305, and the EUR/GBP cross is +1.46% higher to 0.904.

Weighing heavily on the broader market are:

  • A comprehensive stimulus package in the U.S. is unlikely to be received before October, though a deal could be made in September, leaving the U.S. economy on the fringe.
    • The Senate returns to D.C. today though Democrats have not budged from their $2.2 trillion relief proposal.
  • The U.S.-China relations, as both countries fight on everything from trade to defense issues, monetary policy, and the coronavirus. 
  • Uncertainty and the prospect of a drawn-out and heavily litigated November presidential election.
  • Second Coronavirus wave.
    • To date, globally, there have been over 27.3+ million (+2.1mm week-over-week) cases and nearly 892,539 deaths (+46,539 week-over-week.)
    • While there are numerous potential COVID-19 vaccines and therapeutics currently being developed, the limited production capabilities, timing, and acceptance for people to receive the medical solutions are of concern and could be drawn out to the end of 2021.

Up ahead this week:

  • Relatively light on economic data this week. Today we have Consumer credit data.
  • Thursday we will receive additional data on Initial weekly jobless claims for the week ending September 5. We’ll also receive insight into the Producer price index and status of wholesale inventories.
  • Friday brings another round of CPI inflation data and the current status of the U.S. budget for August.