Market Update

The week started on a hopeful note, but unfortunately, optimism gave way to caution as the days passed. As reflected in the accompanying table, most major equity markets ended the week in decline.
The turning point occurred during the Fed's monetary policy meeting minutes on Wednesday (August 19, 2020). While the overall tone was dovish, indicating the likelihood of continued accommodative US monetary policy, there was a conspicuous absence of immediacy concerning further stimulus. We believe such stimulus is crucial given the fragile state of the US employment market.
This fragility was underscored on Thursday (August 20, 2020) when US initial jobless claims rose back above 1 million. While bad news could theoretically lead to more government and central bank support, this data failed to break the political deadlock in Washington. Republicans and Democrats remained at an impasse, impacting American workers and the US economy.
However, this doesn't signal a faltering US economic recovery. Today (August 21, 2020), PMI and home sales data came in much stronger than expected. Existing home sales surged by nearly 25% on an annualized basis to 5.86 million (the highest rate since December 2006). Manufacturing PMI rose to 53.6 from 50.9, and services PMI climbed to 54.8 from 50.0. With the line at 50 separating expansion from contraction, these figures not only indicate the US economy is moving positively but also strengthening in its recovery.
The UK witnessed a similar trend. Despite today's impressive PMI and retail sales data, which revealed a swift return of consumers to high street shops, pubs, and restaurants upon reopening, the focus shifted to comments by Michel Barnier, the EU's chief negotiator. He remarked that a Brexit deal "seems unlikely" before the transition period ends on December 31, 2020.
Looking ahead, this week's economic calendar is relatively quiet. Of notable interest will be the weekly US jobless claims data on Thursday (August 27, 2020). Additionally, there's other significant US data, including the Chicago Fed National Activity Index, University of Michigan consumer sentiment index, new and pending home sales, durable goods orders, and PCE. In Japan, there will be CPI inflation data, and in the UK, the Nationwide Building Society house price index will be released. Stay tuned for further updates in our upcoming commentary.