Key drivers for the week of August 2, 2021
TIP – This is a 1-minute brief bullet-point summary. This tool gives investors and financial professionals a quick and simple list on what to look out for, and the main talking points of the week.
- Delta supply constraints threaten to limit growth but this should only be temporary
- Central bank meetings: BoE, RBA, BoT, all seen keeping policy unchanged
- U.S. Focus on July Jobs Report, ISM Manufacturing and Services Data
- Treasury unlikely to announce cuts in coupons for August refunding
- Alibaba, Eli Lilly and Sony are among the many companies that have reported heavy earnings.
- Canada holiday Monday: Employment, building permits and Ivey PMI due
- Japan PMIs, consumer confidence, auto sales, Tokyo CPI; China PMIs,
- Eurozone manufacturing, service composite PMIs PPI, retail sales
- German manufacturing orders (PMIs), industrial production
In August, traders will be assessing the different crosscurrents. On Friday, bonds were bought as the Delta virus increased growth uncertainty which led to a decline in stocks.
The Chinese regulatory crackdown and disappointing guidance from many tech companies’ earnings announcements have also added to the worry. Slippage in China’s pmi will be seen to reflect the loss of momentum.
The Dollar is slightly weaker As global markets adopt a “glass-half-full” stance. The DXY Dollar Index dipped to an intraday high of 91.97. That’s about half the gains seen on Friday. The currency market has been trading in narrow ranges for the early part of the week.
Chinese equity markets led the rebound in Asian equity market after they hit a year-low last week. European stocks, as well as U.S. indexes futures, also saw gains. The news that U.S. president Biden’s $1 trillion plan for infrastructure will finally be moving to the Senate in this week gave sentiment an uplift.
There are still things to do investors You should be worried about: Real estate, Rent a carA market correction is long overdue.
REIT & Real Estate Risk
The House is now on vacation for the summer without extending any moratoriums. Evictions and foreclosures will resume. This could lead to a drop in some stocks and REITs over the next few weeks because occupancy rates are expected to fall. I am reviewing my real estate holdings, and will limit exposure to this sector until 2022.
Inflation risk
Ray Dalio sat with Larry Summers for an interview at the Qatar Economic Forum to discuss the state of the economy, future restructuring and inflation concerns. Summers believes that policymakers don’t do basic maths correctly. Summers said the rate at which inflation was this Summer was “close to 8 percent,” It’s not clear if the 6% is annual or 4.4%. Summers warns that an economic overheating may lead to a response in monetary policy. He warned that “anything can happen,” Nobody can predict it.
Dalio cites two reasons why he believes that we are experiencing classic monetary inflation. He said that around 10% of the GDP is in financial assets. The demand will increase significantly, which means prices are likely to rise. This is concerning because Dalio appears to be predicting a shift from financial assets towards physical assets, such as precious metals and commodities, equipment, real estate, and especially land.
Dalio said that when Chinese capital markets open, the U.S. will be forced to sell U.S. Bonds to foreign investors. “becoming more appealing.” Summers’ primary concern is inflation, not China’s threat against the US Dollar.
Jay Powell (Chairman of the Federal Reserve) stated on Wednesday that inflation might be higher than anticipated. It confirms what I had previously thought, that the Fed either misunderstands or minimizes inflation concerns to avoid a panic. No panic. Powell claimed that Powell was trying his best to calm down investors with inflationary pressures. “is something that will pass.” Powell stated that the Fed purchases of $120 billion per month were a “significant” amount. “not something we are looking at right now.” This means the Fed will continue injecting liquidity, supporting inflationary pressures, as well as inflating bubbles. I expect inflation next year to increase, though it may ease when the Fed signals a tapering.
The Fed could have misread the current situation. But the Fed might also be forced to change its policy abruptly, which could create financial instability. Mohamed El-Erian said that it would be the same as putting a brake on, by cutting quantitative ease and increasing interest rates. This could trigger another recession. Foreign and American investors may lose faith in Fed’s ability and leadership to guide the economy. The U.S. Dollar could lose its credibility if inflation increases. Loss of the U.S. dollars’ credibility “safe haven” The perception of the Chinese Yuan digital currency or crypto assets could boost their competitors and undermine its status as a world reserve.
Market Dip & Debt Ceiling
Everywhere I turn, I see signs that the markets are overbought. A correction is long overdue. It has 179 trading days that have passed since the last 5% S&P 500 drawdown (nothing). This is nothing – only the 15th longest streak in the previous century, and we did over 400 days in recent memory.
The S&P 500 continues to rocket to new levels and hasn’t touched the 200MA since last June, and we think it could correct at any moment. A government shutdown caused by the debt ceiling could be one of those triggers.
The deadline for submission of the project has passed. Treasury Secretary Janet Yellen warns of a potential default. “unthinkable.”
Right now it seems that the news and the market are ignoring debt ceiling. But I do think that the debt ceiling or a shutdown of the government could bring about a long-overdue drop in the market.
This week, there’s plenty to think about. The July jobs reports will be the highlight. Before that, today’s manufacturing ISM is expected to show a slight drop to 60.5, from 60.6. June construction spending is expected to rebound 0.4% from the unexpected -03% drop in May.
After the busy Q2 earnings season, the calendar is still very full. HSBC, Global Payments NXP Semiconductors, Ferrari, Simon Property SBA communications Pioneer Natural Resources American Water Works Williams Companies ZoomInfo Take-Two Interactive Diamondback Energy, Williams Companies and SBA communications are all on the list. The Treasury will announce its Q3 borrowing forecasts before Wednesday’s announcement of refunds.
.
