Gold Hits $1300, Dow Tumbles

Daily Analysis - 21/08/2017

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Last Week


Markets began the week on an upbeat note as the probability of a war between the U.S. and North Korea receded. Equity markets climbed, volatility declined, and the safe haven rally lost momentum. However, by mid-week, the risk-off sentiment was back on track after backlash for U.S. President Donald Trump’s handling of the tragic events in Charlottesville, Virginia, and the gruesome terror strike in Barcelona. On the economic data front, the week kicked off with China reporting its July retail sales and industrial production figures.

Both industrial output and retail sales were lower than expected, reinforcing concerns about the pace of economic growth in the country during the second half of 2017. The pound fell against the U.S. dollar after U.K. consumer price inflation remained unchanged at 2.60% in July, reducing the prospect of an early interest rate hike.  Gold briefly broke above the key level of $1300 an ounce after minutes from the U.S. Federal Reserve’s July 25-26 meet showed that policymakers were increasingly wary about the recent weakness in inflation, and favoured halting the cycle of rate hikes until the consumer price trend becomes clearer.

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The Week Ahead


There is a slew of key economic data from across the globe in the upcoming week, with focus firmly fixed on the annual economic symposium at Jackson Hole, Wyoming, at which the world's two top central bankers - U.S. Fed Chair Janet Yellen and European Central Bank’s Mario Draghi – are scheduled to speak on Friday.  If either chooses to send fresh signals concerning the course of future monetary policy direction, expect financial markets to witness a short-term spike in volatility. Other potentially market-moving data points from the U.S. include August’s Markit Manufacturing Purchasing Managers’ Index (PMI) and the durable goods orders report for July.

The consensus is for a flash reading of the PMI to come in at 53.4, marginally above the July figure of 53.3. Durable goods orders are forecast to have dropped 5.50% monthly, compared to a 6.50% increase in June. Across the Atlantic, preliminary figures of the U.K.’s second quarter gross domestic product will be available on Thursday, with quarter-over-quarter growth expected to remain unchanged at 0.30%. Capping the European week will be German’s Ifo Business Climate Index, which is projected to deteriorate slightly in August. In Asia, the Japanese annual Consumer Price Index, excluding fresh foods, is likely to inch up to 0.50% in July from 0.40% in the year ago period – quite some distance away from the Bank of Japan’s 2.00% inflation target.

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