A week in review – 08/20/21
It was a relatively bullish week for the majors in the week ending 27e August. Compared to the losses of the previous week, however, the gains were modest.
The DAX30 rose 0.28%, with the DAX30 and EuroStoxx600 ending the week up 0.84% and 0.76% respectively.
Private sector PMIs and economic data from Germany tested the support of DAX30 in particular.
While US economic data was mixed during the week, the market focused on Fed Chairman Powell’s political speech at the end of the week.
Uncertainty over Fed policy had gripped the majors during the week. Fed Chairman Powell’s speech supported riskier assets, with the DAX30 reversing losses from the start of the week.
Concerns about the continued increase in the number of cases of Delta variants around the world, however, have been negative for the majors.
The preliminary private sector PMIs for August and the German economy were the focus of attention, with statistics skewed negative.
The German manufacturing PMI fell from 65.9 to 62.7, while that of services rose from 61.8 to 61.5.
For France, the manufacturing PMI fell from 58.0 to 57.3 and the services PMI from 56.8 to 56.4.
As a result, the eurozone manufacturing PMI fell from 62.8 to 61.5. The services PMI slipped from 59.8 to 59.7.
Since Germany, the economy grew 1.6% in the 2sd quarter, beating the forecast by 1.5%. Year on year, the economy grew 9.8%. Year over year, the economy contracted 3.4% in the previous quarter.
While the GDP figures were optimistic, business and consumer sentiment disappointed.
The German IFO business climate index fell from 100.7 to 99.4, while the consumer climate indicator GfK fell from -0.40 to -1.20.
The United States
At the start of the week, private sector PMIs were in the spotlight. Weaker numbers weighed in, as the services PMI rose from 59.9 to 55.2 in August, according to preliminary figures.
On Wednesday, core durable goods rose 0.7% in July, following a 0.6% increase in June, which was positive.
2sd GDP figures for the quarter were also revised upwards on Thursday. In the 2sd quarter, the economy grew 6.6%, against an initial estimate of 6.5%.
Unemployment claims were disappointing, however, with initial jobless claims falling from 349,000 to 353,000.
At the weekend, personal spending and inflation figures delivered mixed results.
In July, the Core PCE Price Index rose 3.6% year-on-year, in line with forecasts and figures for June. On a month-to-month basis, the index rose 0.3% after rising 0.5% in June.
Personal spending disappointed, however, with an increase of just 0.3%. Spending rose 1.1% in June.
While statistics had an influence, FED President Powell’s speech on Friday was the main event of the week …
Fed Chairman Powell delivered what the markets were looking for, weighing on the dollar while supporting riskier assets. As expected, Powell spoke about tapering later in the year, but stressed that tapering didn’t mean tightening and it wouldn’t translate into a change in interest rate policy …
From DAX, it was a bullish week for the automotive sector. Volkswagen recovered 4.03% to lead the way, with Continental and Daimler ending the week up 2.05% and 2.20% respectively. Bmw saw a more modest gain of 1.58% during the week.
It was also a bullish week for the banking sector. German Bank and Commercial bank increased by 0.67% and 2.13% respectively.
From CAC, it was a bullish week for the banks. Agricultural credit and Gen Soc recovered by 3.06% and 3.61% respectively, with BNP Paribas up 2.61%.
It has been a mixed week for the French auto sector, however. Stellantis SA fell by 0.09%, while Renault achieved a gain of 0.06%.
Air France-KLM and Airbus finished the week with gains of 5.40% and 4.11% respectively.
On the VIX index
It was a comeback for the VIX in the week ending 27e August, marking a 4e weekly loss in 6 weeks.
Partially reversing a 20.13% rise from the previous week, the VIX fell 11.69% to end the week at 16.39.
3 days in the red from 5 sessions, which included a 7.60% drop on Monday and a 13.00% drop on Friday delivered the flip side. An increase of 12.21% Thursday, however, limited the decline.
Over the week, the NASDAQ rebounded 2.82%, with the Dow Jones and S & P500 ending the week up 0.96% and 1.52% respectively.
The coming week
It’s another busy week on the economic calendar.
Tuesday, French consumer spending and 2sd GDP figures for the quarter are expected along with German unemployment data.
Expect the GDP and unemployment numbers to have a bigger influence.
German retail sales and Spanish and Italian manufacturing PMIs are expected to come out on Wednesday. However, the final figures for France, Germany and the eurozone will also attract attention.
Barring sharp revisions to the preliminary figures, Italy and Eurozone PMIs and German retail sales will be key.
At the end of the week, the PMIs in the services sector will also be in the spotlight.
From the United States, there is also a lot to consider …
During the first half of the week, consumer sentiment, ADP nonfarm employment and ISM manufacturing PMI figures are the center of attention.
Expect consumer sentiment and ADP numbers to be key.
In the 2sd halfway through the week, the focus will be on jobless claims figures on Thursday.
However, the non-farm payroll for August will finish things off. Another increase in hiring could be the green light for the FED to take a step.
From China, the private sector PMIs for August will also influence… On Wednesday, the Caixin Manufacturing PMI will be the key statistic of the week.
Outside of the economic calendar, COVID-19 news updates and monetary policy discussions will also need to be watched.
This article originally appeared on FX Empire