Welcome to our look back at the previous month and a look ahead to what we might expect to see throughout September and beyond.
The biggest geopolitical event of the month was the departure of NATO from its 20-year stay in Afghanistan but, this had absolutely no effect on the markets. (read further).
Hurricane Ida had the US Crude oil industry shutting down rigs and refineries temporarily, which bolstered the price of Crude. However, the Delta variant of COVID let us know that our return to a normal life, and certainly our return to business and holiday travel, would have to wait, thereby killing any hope of Crude demand.
The biggest geopolitical event of the month was the departure of NATO from its 20-year stay in Afghanistan but, this had absolutely no effect on the markets.
That is not to say that it won’t but we may have to wait many months before we see any reaction. The most likely event that will negatively affect the markets is any interference by China in Afghanistan that might cause another point of tension between China and the US and/or Europe. These points always have a negative effect on currencies and indices.
As we can see from our charts, price action on WTI Spot and Brent Crude Spot pretty much finished the month a few USDs lower, but with a wild ride in between.
The spot price on WTI finished the month of July at $73.86 per barrel with the corresponding Brent Crude price at $76.00. That equates to $2.14 as a spread between US Oil Cash and UK Oil Cash.
The spot price on WTI finished the month of August at $68.62 per barrel with the corresponding Brent Crude price at $72.17. That equates to $3.45 as a spread between US Oil Cash and UK Oil Cash. The larger spread can be attributed to Hurricane Ida where the states of Louisiana and Texas will be cleaning up and getting production and refining back online.
If we look at our charts, we see a steady downtrend all month until 23 August. The fall was attributed to OPEC's promise to curb production and pessimism over the Delta variant of COVID curbing demand.
However, a fall in the value of USD created demand from economies that have the ability to pay in currencies other than USD.
The last days of the month saw another blow to demand as Chinese PMI were poor and, combined with more COVID fears, pessimism surrounds the world’s second-largest economy.
We started the month with some good data on the US Non-Farm Payrolls, US Unemployment Rate, and Average Hourly Earnings. This strengthened the USD for a few weeks but the threat of the Delta COVID variant, and the extreme American views on masks and vaccines, cast a cloud of pessimism over the US economy.
As well, the US Federal Reserve had started to admit that the current spate of Inflation is not as “Transitory” as they thought. Along with this, Jerome Powell, in his closing speech made it clear the Bond Tapering will begin later this year. This normally would strengthen USD but he also made it clear that there would be no Interest Rate increase on the horizon. Therefore, we may not see a US Interest Rate Increase until 2023.
As usual, any US economic news into September will be more of a reflection on how the economy is responding to the COVID Pandemic and will drive USD against all its counterparts.
As we discussed last month, the strategy with the China A50, CSI 300 and the HK 50, is not to “Buy the Dip” but to sell into rallies.
The Chinese government is continuing to crack down on various sectors and markets and is quite clearly behaving in an anti-capitalist fashion. Combined with the repression and political unrest in Hong Kong, investors are quite nervous about any Chinese or Hong Kong equities and the charts tell the story.
August saw new highs, repeatedly, as investors still have massive confidence in the US Economy regardless of the pessimism over the COVID Delta variant.
However, fundamental analysis and earnings reports seem to have taken a back-seat to a “Buy-the-Dip” mentality. This is not necessarily a bad thing as it makes it much easier for retail traders, as we can see from this chart on the S&P 500.
So, going forward, keep an eye on the lower trend lines on any index and “Buy the Dip” when you feel confident and the technical analysis (like an oscillator) has confirmed your decision.
The price of Gold crashed on 9 August due to a number of factors:
- -USD started a bull run thereby leaving the relationship XAUUSD looking cheaper.
- -Good jobs data shows that the economy was recovering
- -The recovering economy meant that the Fed might taper bond purchasing early
- -At the time the Fed thought that Inflation was transitory and manageable
- -The rising inflation-adjusted Treasury yields had investors dumping their Gold holdings
Gold slowly regained its value over the rest of the month and is now consolidating above the psychological barrier of $1,800.
Now that the central banks are accepting the fact that this current bout of inflation may be here to stay for a while, many investors and central banks are back to purchasing physical bullion as a hedge against inflation.
That’s all for now. Make sure you subscribe to the Valutrades blogs and videos and we will see you here at the end of September.
The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice. If such information is acted upon by you then this should be solely at your discretion and Valutrades will not be held accountable in any way.