Weekly Recap: 16 – 20 August

The third week of August was highlighted by the release of the United States Federal Reserve’s July meeting minutes, which revealed that most of the FOMC members see the beginning of tapering asset purchases later this year.

With the Fed moving towards policy normalization, the U.S. Dollar (USD) managed to register gains and hit its highest level in about nine months, while U.S. Treasury long-term bond yields registered their biggest weekly decline since last month.

A recent report by the Bank of America sees the Fed beginning to reduce the $120 billion monthly massive asset purchases in November.

Cutting back the buying of bonds and mortgage-backed securities would be the first step towards raising interest rates, which would still depend on how the Fed sees the ‘substantial further progress’ towards achieving price stability.

Markets remain relatively concerned over persistent inflationary pressures lasting longer than expected, a fear seemingly shared by the Fed officials, while inflation data in the UK indicated that consumer prices in Britain increased less than expected last month, in oppose to the Eurozone inflation that exceeded the European Central Bank’s (ECB) 2% target in July, hitting 2.2%. For the broader European Union, inflation rose by 2.5%. It was also in Canada where inflation hit 3.7% last month, exceeding the expected 3.4% rate.

Another thing the Fed seems to be worried about is stablecoins. “New financial arrangements such as stablecoins appeared to have the same structural maturity and liquidity transformation vulnerabilities but with less transparency and an underdeveloped regulatory framework,” read the July meeting minutes.

However, the biggest concern remains that over the spread of the Coronavirus (COVID-19) Delta variant, which might weigh on the pace of economic recovery, despite calls for masking and vaccinations to combat the virus. This was the rationale behind Friday’s remarks by the Dallas Fed President Robert Kaplan who walked back on his previous view that the time for tapering has come, indicating that the resurgence of the pandemic could lead to prolonging support for the economy. But the Fed’s meeting minutes showed that the tight housing market might be in no need of support with mortgage-backed securities buying. Minneapolis Fed President Neel Kashkari also expressed concerns over a slowed recovery due to the Delta variant but was not as vocal about a possible effect on monetary policy.

Fed Chair Jerome Powell said on Tuesday that the coronavirus (COVID-19) pandemic is still with us and will likely continue for a while, noting that it has taught people and businesses to adapt and could result in an exceptional generation in the years to come.

Also in the U.S., the East Coast is anticipating Tropical Storm Henri, which recent media reports claimed could cost the economy a billion dollars.

In last week’s recap, we pointed to the growth in the value of merger and acquisition deals, and another large deal is on the horizon with Goldman Sachs revealing plans to buy the Netherlands-based insurance company, NN Group, in a deal valued at about EIR 1.7 billion ($1.98 billion).

Meanwhile, Moody’s expected that the global economy is likely to recover by 5.7% in 2021, after it contracted by 3.6% last year, with the expansion of vaccinations against the Coronavirus. Recovery will likely be uneven around the globe, facing uncertainty with the spread of the Delta variant.

Forex

The U.S. Dollar (USD) saw its best week in two months, rising by about 1% against major peers, with a strong performance across the board. The Dollar Index (DXY) is near its highest level in about nine months, hitting 93.73 for the first time since last November, before retreating to 93.46.

The Euro (EUR) lost 0.81% to the USD this week, with the EUR/USD pair settling at 1.1701, extending its losses since the beginning of the month to 1.42%.

The British Pound (GBP) also underperformed against the greenback with the GBP/USD pair declining by 1.72% for the week, in the biggest weekly loss since the week to June 18.

The Japanese Yen (JPY) showed a relatively stronger performance against the USD, as the USD/JPY only gained 0.16% this week, rising for the second time in three weeks, reaching 109.79 but failing to restore and maintain the 110.00 key level.

Bullion

Gold edged higher to maintain gains for the second consecutive week with modest gains, pressures by the rise of the USD.

Gold front-month futures settled at $1,781 per ounce, adding 0.33% for the week.

Silver futures reached $23.105 per ounce, closing with a weekly drop of 2.79%, or its fourth consecutive and worst weekly loss since November 2020.

Copper did not perform any better, with futures closing the week at $4.1345, down by 5.76% for the week. This marked the worst weekly performance for the red metal contracts in two months, despite surging on Friday, recovering a big chunk of its weekly losses, maintaining month-to-date losses of 7.72%.

Oil

Oil maintained a downward trend for the third week in a row, falling to its lowest in three months after seven straight sessions of losses.

Pandemic-related concerns and mixed economic data around the world are not providing the support needed for demand projections amid plans to ease output cuts by the OPEC+ alliance.

Brent futures closed at $65.18 per barrel, losing 7.7% for the week, while the West Texas Intermediate (WTI) futures for September settled at $62.32 per barrel, down 8.94% for the week.

Both futures finished at their lowest level since May 20 with their worst weekly losses since October 30, 2020.

Cryptocurrency

Despite a recent analysis projecting that Ethereum could one day become the world’s top digital currency, taking the current place of Bitcoin, Ether was probably the only negative performer on a weekly basis among the world’s biggest cryptocurrencies.

The logic behind this expectation was Ethereum clearly outperforming Bitcoin with much higher gains year to date of more than 300%.

Bitcoin was last seen above $48,880, adding roughly 3% over the past seven days.

Ethereum is down 2% but maintained its level near $3,241.

XRP is up by 13.7% at $1.24, while Dogecoin is only up by 10.6% at 0.3219.

Recent remarks by President of the Federal Reserve Bank of Minneapolis, Neel Kashkari, that cryptocurrencies are mostly used for illicit financing and fraud seem to have fallen on deaf ears. The Fed official said that he was more optimistic about crypto and Bitcoin, five or six years ago, but now sees that do not solve any problems, nor is there a legitimate need for them.

Stocks

All the main indices of the New York Stock Exchange (NYSE) rebounded on Friday but managed to only narrow their weekly losses ahead of the weekend, with the energy sector leading losses due to the drop in oil prices and falling by about 7.2% for the week, while the technology sector managed to recover most of their earlier losses.

The Dow Jones Industrial Average lost 1.1%, and S&P 500 fell by 0.6%, while the tech-savvy Nasdaq Composite Index was down for the week by 0.7%.

A recent analysis showed that this is the longest upward trend for the S&P 500 index since 2016, with the benchmark index reaching 200 sessions without a 5% drop. Based on previous cases, this is usually, but not always, followed by short-term losses before significant gains in the medium term.

In Asia, most benchmark indices showed a negative performance on Friday, with losses above 1%, extending recent losses. For the week, Japan’s Nikkei fell 3.4% in its biggest weekly loss since mid-May, as Toyota announced plans to curb global production for September by 40 percent from its previous plan.

In Europe, the STOXX Europe 600 index snapped a four-week rising streak to lose 1.5%. Germany’s DAX, France’s CAC40, and Britain’s FTSE100 were all down for the week by 1.1%, 3.91%, and 1.81%, respectively.