News & Analysis

Week Summary – September Starts with a Tech Sell-Off

September 4, 2020

By Deepta Bolaky
 @DeeptaGOMarkets

It was another volatile week with wild swings in the stock market. Investors remain focused on vaccine updates and signals from central banks and governments while monitoring the improvement in the economic data. 

Stock Market – Tech Sell-off

Global stocks have been on a staggering rally in August. The global benchmark for stocks had its best August on record. Investors digested a lot of positive and negative news that have caused swings in the stock market but overall, the momentum has been bullish.


Source: Bloomberg

The outperformance and resilience of the technology sector had also been remarkable in August. We have seen new milestone for the US mega-cap tech stocks:


Source: Bloomberg

September kicked off on a mixed note – global stocks struggled to advance firmly higher and pulled from recent highs. On Thursday, a sell-off in the tech sector triggered a bloodbath on Wall Street – major US equities indices plunged the most in almost 3 months:

  • The Dow Jones Industrial Average lost 808 points or 2.8% to 28,293. 
  • S&P 500 erased 126 points or 3.5% to 3,455. 
  • Nasdaq Composite fell by 598 points or 5% to 11,458.


 Source: Bloomberg

A correction following the speed of such a rally was bound to happen as the market was overbought. However, it may be too soon to confirm if yesterday’s sell-off is the start of something. Investors will likely keep monitoring the economic outlook. 

Forex Market

In the forex market, the US dollar regained momentum against the G10 currencies on the back of better-than-expected economic data that show some improvement in the manufacturing sector, factory orders, and labour market. 

The Aussie dollar and the Euro were among the worst-performing currencies against the greenback. The Antipodean currency bore the brunt of the biggest fall in GDP on record. The shared currency was underpinned by the ECB’s lane speech and dismal data.

Source: Bloomberg Terminal

United States: 

ISM Manufacturing PMI

  • The August PMI registered 56 percent, up 1.8 percentage points from the July reading of 54.2 percent. This figure indicates expansion in the overall economy for the fourth month in a row after a contraction in April, which ended a period of 131 consecutive months of growth. 
  • The New Orders Index registered 67.6 percent, an increase of 6.1 percentage points from the July reading of 61.5 percent. 
  • The Production Index registered 63.3 percent, up 1.2 percentage points compared to the July reading of 62.1 percent. 
  • The Employment Index registered 46.4 percent, an increase of 2.1 percentage points from the July reading of 44.3 percent. 
  • The Prices Index registered 59.5 percent, up 6.3 percentage points compared to the July reading of 53.2 percent.

Markit Services PMI

The services industry has the strongest expansion in business activity since March 2019 as output rose at the sharpest rate for nearly one and a half years. 

Factory Orders

  • New orders for manufactured goods in July, up three consecutive months, increased $27.8 billion or 6.4 percent to $466.1 billion, the U.S. Census Bureau reported today. This followed a 6.4 percent June increase. 
  • Shipments, also up three consecutive months, increased $21.3 billion or 4.6 percent to $479.5 billion. This followed a 10.0 percent June increase.

Jobless Claims

Jobless Claims report was quite encouraging. In the week ending August 29, the advance figure for seasonally adjusted initial claims was 881,000, a decrease of 130,000 from the previous week’s revised level. 

Australia:

Reserve Bank of Australia

The RBA kept the interest rate unchanged at 0.25% as widely expected. By keeping interest rates on hold, the RBA has signalled that the economic conditions have not worsened which provides some confidence. 

GDP – Australia officially in a recession

The Australian economy is officially in a recession after the ABS reported that the GDP for the June quarter fell by 7%, the biggest drop since records began in 1959. 

 

Source: Australian Bureau of Statistics

The fall in GDP was mostly caused by the contraction in household consumption due to the related COVID-19 lockdown restrictions.

 

Source: Australian Bureau of Statistics

Retail Sales

The final figure for July Retail Sales was slightly below expectations at 3.2% instead of the forecasted 3.3%.

China:

Manufacturing and Non-Manufacturing PMI

  • Non-Manufacturing PMI came above expectations at 55.2 while NBS Manufacturing came at 51 just below July 51.1. However, the data shows that the manufacturing sector remains in expansionary level after many feared that it would contract. 
  • China Caixin Manufacturing PMI came in at 53.1, above expectations (52.6) in August.
Germany & Eurozone: 

Germany’s Retail Sales

  • -0.9% on the previous month (in real terms, calendar and seasonally adjusted, provisional)
  • -0.3% on the previous month (in nominal terms, calendar and seasonally adjusted, provisional)
  • +4.2% on the same month a year earlier (in real terms, provisional)
  • +5.6% on the same month a year earlier (in nominal terms, provisional)

EZ Retail Sales

Retail Sales increased by only 0.4% in July compared to a forecasted figure of 3.5%.

Manufacturing PMI

Markit Manufacturing PMI came in at 52.2, below expectations (53) in August. 

Oil Market

Crude oil prices fell the most in over a month this week over fears on the demand outlook. Larger-than-expected draw reported by the EIA and API failed to lift crude oil prices as it coincided with the decrease in output production related to Hurricane Laura. As of writing, WTI Crude oil (Nymex) and Brent Crude (ICE) were trading lower around $40.92 and $43.62 respectively. 

Gold

The precious metal remained under selling pressure this week. The sell-off in the tech sector failed to lift the XAUUSD pair which is trading in a downtrend. As of writing, the pair was currently trading at around $1,938.

Source: Bloomberg

Key Upcoming Events

  • Retail Sales (Australia)
  • Factory Orders (Germany)
  • BoE’s Saunders Speech (UK)
  • Nonfarm Payrolls, Average Hourly Earnings, Labor Force Participation Rate and U6 Underemployment Rate and Unemployment Rate (US)
  • Unemployment, Participation Rate, Average Hourly Wages, Net Change in Employment, and Ivey Purchasing Managers Index  (Canada)

By Deepta Bolaky

 @DeeptaGOMarkets

Monday, 07 September 2020 
Indicative Index Dividends
Dividends are in Points
ASX200 WS30 US500 US2000 NDX100 CAC40 STOXX50
2.442 0 0 0 0 1.098 0
ESP35 ITA40 FTSE100 DAX30 HK50 JP225 INDIA50
0 0 0 0 22.214 0 0


Disclaimer:  The articles are from GO Markets analysts,  based on their independent analysis or personal experiences. Views or opinions or trading styles expressed are of their own;  should not be taken as either representative of or shared by GO Markets.  Advice (if any),  are of a ‘general’ nature and not based on your personal objectives, financial situation or needs.  You should therefore consider how appropriate the advice (if any) is to your objectives, financial situation and needs, before acting on the advice.  If the advice relates to acquiring a particular financial product, you should obtain and consider the Product Disclosure Statement (PDS) and Financial Services Guide (FSG) for that product before making any decisions.

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