Overview

U.S. indices continued their advance, although the lack of progress in U.S. stimulus talks could potentially derail the momentum. Gold prices fell sharply, closing the week below $2,000/oz, as a sudden rise in bond yields likely led to a bout of profit-taking.

Key Takeaways

  • Fortnite's creator sued Apple and Google for being monopolies.
  • A sharp rise in bond yields sent gold prices lower.
  • The Canadian dollar was last week's best performing major, while the New Zealand dollar was the worst.

Key Economic Events (last week)

  • (Australia) NAB Business Confidence – Business confidence for the month of July fell sharply to post a reading of -14, and last month's figure was revised lower from 1 to 0. This was prior to the imposition of restrictions in the southern state of Victoria due to COVID-19 concerns.
  • (U.K.) Claimant Count Change – The number of people claiming unemployment benefits in July rose by 94,400, much higher than market expectations of 9,700. This was offset partially by a revision to the prior month's reading, which was changed from -28,100 to -68,500. The net result is that 2.7 million people are still claiming unemployment benefits.
  • (New Zealand) RBNZ Monetary Policy – Markets were expecting a dovish response from the Reserve Bank of New Zealand (RBNZ), and the committee did not disappoint. The accompanying statement highlighted that the “committee agreed to expand the Large-Scale Asset Purchase (LSAP) program up to $100 billion so as to further lower retail interest rates in order to achieve its remit." Furthermore, although the Official Cash Rate (OCR) remained at 0.25%, the possibility of a negative OCR had been given serious consideration by the committee. RBNZ went on to cite that the "severe global economic disruption caused by the pandemic is persisting" and that "any significant change in the global and domestic economic outlook remains dependent on the containment of the virus, which is highly uncertain as evidenced today by the return to social restrictions in New Zealand." This is cause for concern for the rest of the world, as New Zealand was being lauded for having implemented the type of policy initiatives that had effectively contained the spread of COVID-19.
  • (U.K.) Preliminary GDP (quarterly) – Second quarter gross domestic product (GDP) shrank by 20.4%, which was slightly better than the -20.5% consensus. However, first quarter's figure was revised lower to -2.2% from the -2.0% print. Aside from being the worst reading since 1955, it marked the second consecutive quarterly decline, which means that the U.K. is officially in a recession.
  • (U.S.) CPI – July's Consumer Price Index (CPI) and core-CPI, which excludes volatile items, both rose by 0.6%, exceeding forecasts of 0.3% and 0.2%, respectively. The core-CPI reading was the largest rise since January 1991.
  • (Australia) Employment – Australia's economy added 114,700 jobs in July, surpassing forecasts for a rise of 30,000, and the unemployment rate dipped to 7.5%, also bettering expectations of 7.8%. To put this in context, the pandemic-induced lockdown led to job losses of 822,000 in April and May. The rebound in June and now July has recouped 343,100 of those losses, or about 42%. This constitutes another employment report that shows the pace of job recovery slowing.
  • (U.S.) Unemployment Claims (weekly) – Americans filing for unemployment benefits rose by 963,000. This beat forecasts of 1.1 million and was the first reading under 1 million after 20 straight weeks above 1 million.
  • (U.S.) Retail Sales – U.S. retail sales rose by 1.2%, which was lower than market expectations of 2% and much lower than last month's upwardly revised figure of 8.4%. The core component, however, rose by 1.9%, beating forecasts of 1.3%.
  • (U.S.) Preliminary UM Consumer Sentiment – University of Michigan (UM) consumer sentiment survey for August came in at 72.8, slightly better than the forecast level of 72. The main takeaway is that consumers are anticipating economic anxieties for an extended period of time.

Global Markets Performance

Graph showing global markets performance
Global markets performance.
FX & Index Performance
Market Best             Worst
FX CAD EUR CHF GBP AUD USD JPY NZD
Index Nikkei 225 DOW 30 China A50 DAX 30 S&P 500 Russell 2000 Nasdaq 100 Nifty 50

Commentary

Forex

Best Performer Worst Performer
CADJPY NZDCAD

The Canadian dollar (CAD) was the best performing major last week, buoyed by rising oil prices, while the New Zealand dollar (NZD) was the worst performer for the third consecutive week on the heels of a dovish RBNZ. The euro (EUR), Swiss franc (CHF), British pound (GBP), and Australian dollar (AUD) all ended the week on a net positive note. The Japanese yen (JPY) and U.S. dollar (USD) were net negative for the week.

Global Indices

Best Performer Worst Performer
Nikkei 225 Nifty 50

Aug. 13, 2020 might well go down in the annals of the gaming industry as a very historic day. On this day, Epic Games, the creator of hugely successful online video game Fortnite, decided to pick a fight with both Apple Inc. (AAPL) and Alphabet Inc.'s (GOOGL) Google when it bypassed its agreement with the iOS and Google Play application stores by allowing users to pay it directly. This was not going to sit well with the two tech giants, which generate a lot of revenue by taking a fairly sizable 30% commission for transactions through their respective stores, and they retaliated by banning Fortnite.

Tim Sweeney, the billionaire majority owner of Epic Games, was clearly ready for this, as he promptly sued Apple and Google in federal court on the grounds that these two companies operate as a monopoly. Furthermore, in a move that can only be described as "rubbing salt in the wounds," Epic released a parody of Apple's iconic "1984" advertisement – only now with Apple being "big brother." The tech titans will likely contend that they built these platforms and should be allowed to charge what they deem a fair price and that companies like Epic Games knew the terms prior to choosing to be on these platforms and have benefited tremendously from them.

Ultimately, this has the feel of a negotiation, albeit one that could prove to be very expensive for Epic Games. By leveraging the ongoing antitrust complaints in the United States and Europe against Apple and Google, Sweeney might be seeking a more beneficial deal for Epic Games products. The tech giants, on the other hand, cannot afford to be seen as capitulating to this ploy, as they would then have to offer the same deal to everyone, which would cut into their profitability. Get your popcorn ready for a spirited, drawn out fight that could reverberate across the technology sector.

The Nikkei 225 was the best performing index last week, as it rose by 3.07%, while India's Nifty 50 was the worst performer, falling by 0.36%.

Oil, Yields, and Gold

Crude oil (WTI) ended the week higher as lowering of demand forecasts by the International Energy Agency (IEA) and an increase in Organization of the Petroleum Exporting Countries (OPEC) production capacity was offset by a third consecutive weekly drop in U.S. crude inventories.

U.S. 10-year and German bund yields ended the week higher. The move in U.S. Treasury yields was noteworthy given that it started prior to the $112 billion Treasury auction of three-year, 10-year, and 30-year notes and bonds that the United States was selling to finance the increase in pandemic-related spending. Lackluster demand, especially for longer-dated maturities, caused yields to rise even further, as the 10-year yield topped 0.70% for the first time in months.

The rise in yields also had an effect on the price of gold, which plunged to a low of $1,863/oz before rebounding to end the week down 4.4% at $1,942/oz.

Key Economic Events (next week)

Date Time (EST) Event
August 17 9:30 PM (Australia) - RBA Meeting Minutes
August 19 2:00 PM (U.S.) - FOMC Meeting Minutes
August 20 8:30 AM (U.S.) - Philly Fed Manufacturing Index
  8:30 AM (U.S.) - Unemployment Claims (weekly)
August 21 3:15 AM (France) - Flash PMI
  3:30 AM (Germany) - Flash PMI
  4:30 AM (U.K.) - Flash PMI
  8:30 AM (Canada) - Retail Sales
  9:45 AM (U.S.) - Flash PMI

Chart(s) of Interest – EURNZD

Chart of EURNZD
EURNZD (weekly).

The seemingly ever-present demand for the euro coupled with RBNZ's dovish policy moves gave a bid to EUR/NZD. Last week's price action was impulsive in nature, as the pair looks set to test a key resistance level at 1.8295 (the April 2020 high). A clear break would bring 1.8555 (the August 2015 high) into play. Conversely, retracement should be contained by support levels at 1.7605 and 1.7162.

Pivot Points and Fibonacci Retracement Levels

The pivot point is calculated from the previous trading periods' price action and can be used to determine the short-term trend. If the instrument on the following period trades above the pivot point, it is thought to be exhibiting bullish sentiment, whereas trading below the pivot point is seen as bearish. The Fibonacci retracement is the potential reversal of the instrument's original move in price.

Table showing Pivot points and Fibonacci retracements
Pivot points and Fibonacci retracements.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.