Week in a Glance: Powell, Abe's resignation, Hurricane Laura etc

2020년 8월 31일

The main event of the past week in terms of medium-term price dynamics in financial markets was the speech by Fed Chairman Jerome Powell at the annual symposium in Jackson Hole. Now inflation targeting in the US will be based on "average inflation". That is, now the Fed will not immediately react when inflation exceeds the 2% target, but will monitor the average inflation rate, reacting in this way much later.

Thus, Powell made it clear to the financial markets that ultra-soft monetary policy in the United States is for a long time. This is a negative signal for the dollar. As for the stock markets, this news is extremely positive for them, especially against the backdrop of a possible alternative in the form of statements on tightening monetary policy.

Which, however, does not negate the fact of a huge fundamental divergence between prices in the US stock market and the economic reality that has developed as a result of the pandemic. The revised US GDP data was released on Thursday. Although the decline rates were revised upward (up to -31.9%), the data generally confirmed the failure of the world's largest economy.
Another landmark event, at least for Japan, was the resignation of Japanese Prime Minister Shinzo Abe. The event caught the financial markets by surprise. The yen strengthened on Friday amid fears of political uncertainty in Japan.

Hurricane Laura, which caused so much noise in fact, limited itself to relatively small losses, and most importantly, the oil workers have already begun to return to work. So, oil sales this week continue to be a hot trade idea.

The main fundamental positive was the news about the negotiations between the US and China on the progress of the implementation of Phase 1 of the trade agreement between the countries. Despite all the negativity that has recently accompanied relations between the United States and China, the sides expressed satisfaction with the implementation of the agreement, which largely reassured investors.

The main event of the coming week will be the publication of statistics on the US labor market. We do not expect much positive news, because the situation with the pandemic in August in the United States, although it improved, was very difficult.