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Weekly Commentary -25 August 2021
Weekly Market Commentary
Cyclical equities and commodities struggled last week as investors price in poorer consumer confidence and rising COVID-19 cases
Equities rallied on Friday, helping contain last week’s equity selloff to less than -1% for the US index. European indices, with their economically sensitive tilt, underperformed. Commodities also fell, with copper and oil both seeing weakness after strong runs. This fall was echoed in cyclical equities impacted by concerns over the Delta variant and consumer confidence.
This week, all eyes are on the Jackson Hole symposium, during which US Federal Reserve (Fed) Chair Jerome Powell may allude to the tapering timetable
The year’s most important central bank symposium takes place this week and all eyes will be on Fed Chair Powell and his timeline to withdraw some of the pandemic monetary stimulus. It will be a big fortnight for Powell, as Biden is due to announce whether he will be recommended to the Senate as Fed Chair when his term ends in February. Treasury Secretary Janet Yellen is said to have recommended Powell continues in the role in the interests of continuity, as well as his role during the pandemic. Jackson Hole is now taking place virtually rather than face-to-face, which reflects the more difficult Delta variant backdrop in the US. In this context, the market is expecting Powell to avoid any strong suggestions that there will be a tapering announcement at the September meeting, and is more likely to keep the wording vague. Importantly, ahead of any tapering announcement, the Fed has been keen to separate a reduction in quantitative easing and any decision to raise rates, all signs that any removal of support will be very gradual.
Rising COVID-19 cases have dampened economic growth expectations globally, as Australia suggests its zero-COVID-19 strategy is unlikely to remain
Last week’s dip came amidst a gloomier outlook for consumer confidence and rising global COVID-19 cases. The US situation has been deteriorating, despite the high levels of vaccinations, as the country hit 1,000 daily deaths for the first time since March. Australia and New Zealand have seen further momentum in case growth suggesting that their zero-COVID-19 strategy will struggle to work with the more infectious Delta variant. Indeed, Australian Prime Minister Scott Morrison said that it was highly unlikely that the country could return to a zero-COVID-19 backdrop amidst a concerted push to improve vaccination rates in the country.
While equities still remain near all-time highs on an index level, the cyclical sell-off last week tells the story of dampened economic growth expectations being priced into economically sensitive sectors. With consumer data suggesting soft demand, this also pushes back against expectations of sustained inflationary pressures and by extension the need for higher interest rates.
The Week In Numbers