Keep an Eye on US Yields

Should it break to higher levels, USD may have a retracement and precious metals may test the resolve of the bulls.

Seems almost scripted with Asia taking stocks higher, Europe and early New York trying to sell them down, but the recovery is strong and steady. Another day, another new high in the Nasdaq. Every dip seems to be an opportunity, and it is.

Keep an eye on US yields. Should it break to higher levels, USD may have a retracement and precious metals may test the resolve of the bulls. For now, stick to the plan that’s been working.

TRADING PLAN

Gold & Silver — Consolidation continues. Trades soft, but patience is required.
AUD -

AUD/USD — Range remains 0.7090-.7100 to 0.7250–60. Approaching the top end of range. Reduction is prudent.

AUD/NZD — 1.0950 is a good level to add to longs, near term support is at 1.0880–90. Look to reduce some on approach of 1.1040–50

3. EUR/JPY — Range likely to remain as 124.40–50 to 126.40–50 for now. Now trading to the higher end of the range. Reducing some to buy any possible dips is prudent.

Key risk remains higher US yields leading to a stronger USD. Yields did creep higher, but did not affect the FX positions but did weigh on the metals. Remain vigilant.

WHAT HAPPENED YESTERDAY

Market Movements as of New York Close 25 Aug 2020

The U.S. Conference Board’s Consumer Confidence Index declined to 84.8 in August (consensus 93.0) from a downwardly revised 91.7 (from 92.6) in July. The August reading was the lowest reading for the index since May 2014.
Dollar dipped on Tuesday as investors waited on comments from Powell on Thursday about the Fed’s policy framework review. The major focus for the Dollar this week will be whether the Fed’s Powell signals that the U.S. central bank will shift its inflation target to an average.
Shares of mega-cap companies like Amazon (AMZN 3346.49, +39.03, +1.2%), Facebook (FB 280.82, +9.43, +3.5%), and Alphabet (GOOG 1608.22, +20.02, +1.3%), which have performed well throughout the pandemic, posted strong gains after a slow start. Apple (AAPL 499.30, -4.13, -0.8%) was a notable exception.
In key stock news, Salesforce (CRM 216.05, +7.59, +3.6%), Amgen (AMGN 248.22, +12.65, +5.4%), and Honeywell (HON 164.53, +5.16, +3.2%) will replace Exxon Mobil (XOM 40.89, -1.33, -3.2%), Pfizer (PFE 38.41, -0.43, -1.1%), and Raytheon Technologies (RTX 60.95, -0.93, -1.5%) in the Dow 30 average prior to the open on Aug. 31. The new entrants into the Dow saw nice gains, while those leaving declined noticeably. Note, the change was enacted to account for Apple’s 4:1 stock split, as its lower price would reduce the price-weighted Dow’s exposure to the technology sector.

HEADLINES:

WISCONSIN CITY CENTRE BURNS AMID PROTESTS OVER POLICE SHOOTING OF BLACK MAN

Arsonists set buildings ablaze and torched much of the Black business district in Kenosha, Wisconsin, during a second night of unrest sparked by the wounding of a Black man shot in the back by police as his three young sons looked on.

Smoke billowed over central Kenosha after police in riot gear clashed with protesters as they defied a dusk-to-dawn curfew on Monday night and Tuesday morning, near where police gunned down Jacob Blake on Sunday.

Blake, 29, remained in intensive care following surgery and would require more operations, civil rights attorney Ben Crump, who represents the Blake family, told ABC News on Tuesday. Blake’s father told the Chicago Sun-Times his son was paralyzed from the waist down.

Blake, who had been attempting to break up a fight between two women, was struck by four of the seven shots, all fired by one officer, in front of his sons aged 3, 5 and 8, Crump said.

Thematic Context: “Didn’t they learn from George Floyd’s incident? It is brazen for police to be so casual with the use of excessive force given the state of affairs in U.S. society and politics. This may evolve into another widespread protest and is a massive tailwind for an already politically and emotionally charged U.S. election.” — 25th Aug 2020

TWO EUROPEAN PATIENT RE-INFECTED WITH CORONAVIRUS

The cases, in Belgium and the Netherlands, follow a report this week by researchers in Hong Kong about a man there who had been re-infected with a different strain of the virus four and a half months after being declared recovered — the first such re-infection to be documented.

That has fuelled fears about the effectiveness of potential vaccines against the virus, which has killed hundreds of thousands of people, though experts say there would need to be many more cases of re-infection for these to be justified.

Dr David Strain, a clinical senior lecturer at the University of Exeter and chair of the British Medical Association’s medical academic staff committee, said the cases were worrying for several reasons.

“The first is that it suggests that previous infection is not protective,” he said. “The second is that it raises the possibility that vaccinations may not provide the hope that we have been waiting for.”

ITALY SAYS CHINA A KEY STRATEGIC PARTNER, DESPITE U.S. CONCERNS

Italy and China need to forge closer ties, Italian Foreign Minister Luigi Di Maio said on Tuesday, potentially putting Rome at odds with Washington, which has raised alarm over Beijing’s economic ambitions.

Italy became the first major Western economy to join China’s international infrastructure project, the Belt and Road Initiative, when it signed a raft of accords in 2019. However, the move has yielded little for Italy so far.

“It was a very fruitful meeting,” Di Maio said, adding that he had discussed with Chinese Foreign Minister Wang Yi how to “relaunch (our) strategic partnership from the economic and industrial view point”.

Italy has not joined the United States in imposing restrictions on Huawei and Di Maio made no reference to the company in his remarks. In an apparent reference to tensions with Washington, Wang said China did not want to see a Cold War.

Thematic Context: “As the old adage goes, “the enemy of my enemy is my friend”, in an increasingly polarized world caught in a Thucydides trap (US vs China) which could possibly split the world monetary order into two hegemonic zones,

Pro-china aligning with One Belt One Road initiative (commodities priced in RMB) and
Pro-U.S. aligning with Blue Dot Programme (commodities priced in USD).” — 14th July 2020

“U.S. and Western Europe’s (Germany and France) relationship has been precarious since Trump took office, two of the main factors that caused fissures were the Nordstream Pipeline (preventing cheap gas supply to Europe from Russia), Huawei Issues (threatening Europe for buying cheap but quality 5G components due to espionage and security issues).

One of the key pieces of information to note is that a portion of the troops are specifically being sent to Poland, as U.S.-Western Europe relations are crumbling, as Poland seems to be the backdoor base for U.S. involvement in the continent. To quote a snippet from the New York Times in 2019: “The intensity of the U.S.-Polish bilateral relationship cannot be underestimated.”

We believe that Poland will stand to benefit from U.S. investments in the coming years, and the Polish Zloty will be an interesting development to watch when EM currencies come back in vogue.

The U.S-Poland alliance is solidifying and we foresee it to be the new “power relationship” for American diplomacy in Europe and the Baltics. Watchout for more U.S. FDI into Poland and for greenshoots in the once dormant Polish economy.“ — 10th Aug 2020

DAY AHEAD

Australian Q2 DATA TO Shed Light On Virus Slump

Australia has yet to publish its second quarter GDP reading (due in a week’s time) and capital expenditure will hit the markets tomorrow. The data are almost certainly expected to underscore predictions that the Australian economy entered its first recession in nearly three decades in the first half of 2020. But that may not be enough to deter the AUD from scaling fresh heights as markets remain firmly in risk-on mode.