Stocks in UK and Europe are off a little this morning as markets wait for the speech later today from Fed Chairman, Jerome Powell. Investors are hoping for detail on a new inflation strategy from the central bank.
- Fed Chairman Powell is likely to set a new course on inflation and reinforce its commitment to full employment in virtual remarks to the Jackson Hole annual economic symposium on Thursday morning. The Federal Reserve, which has pegged 2% as a healthy level for inflation, is now expected to aim to achieve that level as an average over a longer-term by allowing subsequent periods of moderately higher inflation. On this new monetary policy framework, the Fed is likely to keep short-term interest rates near zero for five years or possibly more. The Federal Reserve has left the target range for its federal funds rate unchanged at 0-0.25% on July 29th, 2020 but opened the door for further monetary easing to support the world’s largest economy through the pandemic.
- New orders for US manufactured durable goods rose by 11.2% in July 2020, recovering further from sharp falls seen in March and April during the lockdown and easily beating market expectations of 4.3%. Demand for transport equipment jumped 35.6% (vs 19.7% in June), due to increases in orders for motor vehicles and parts (21.9% vs 85.6%) and defense aircraft and parts (77.1% vs -29.2%). Orders were also higher for electrical equipment, appliances, and components (4.1% vs 2.0%), computers and electronic products (2.2% vs -0.1%), machinery (2.0% vs 3.7%), fabricated metal products (2.0% vs 5.7%), and primary metals (0.2% vs 4.4%). Meanwhile, orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, increased 1.9% in July, compared to 4.3% in June.
- US crude oil stocks fell by 4.689 million barrels in the week ended August 21st, 2020, the fifth consecutive period of decrease and compared to market expectations of a 3.694 million drop, according to the EIA Petroleum Status Report. Meantime, gasoline inventories were down by 4.584 million barrels, while markets had forecast a smaller 1.533 million decline.
- Mortgage applications in the United States slipped by 6.5% in the week ended August 21st, the most since the week ended June 19th and following a 3.3% drop in the previous week, data from the Mortgage Bankers Association showed. Applications to refinance a home loan fell 10.2% while homebuyer mortgage applications increased 0.4%. The average fixed 30-year mortgage rate edged down 2 bps to 3.11%.
- On Wednesday: European stocks closed higher as investors picked up stocks amid optimism about progress in U.S.-China trade talks and on data showing a notable increase in U.S. durable goods orders in in the month of July. Investors also reacted positively to Germany’s coalition parties’ decision to extend economic measures at a cost of up to 10 billion euros, including prolonging a short-time work program for an extra year to cushion the effects of coronavirus crisis. US stocks moved significantly higher, with the Nasdaq and the S&P 500 reaching new record closing highs. The strength on Wall Street partly reflected optimism about the outlook for the economy after a report from the Commerce Department showed durable goods orders spiked by much more than expected in the month of July. Asian stocks ended flat to slightly lower as investors looked ahead to Federal Reserve Chair Jerome Powell’s speech on Thursday at the annual Jackson Hole symposium for clues on the U.S. central bank’s view on inflation and monetary policy.
Disclaimer: ‘Where the business has expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice. The information contained within this communication is believed to be reliable but Realm Investment Management Limited does not warrant its completeness or accuracy. This communication is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell investments.’