The US 500 stock market index reached a new historical maximum amid strong demand for risky assets boosted by positive macroeconomic data, as well as by the fact of trade negotiations between USA and China, after which both parties confirmed their readiness to fulfill their commitments under the first phase of the trade agreement.
Japanese stock market crashed on Friday amid news that Prime Minister Shinzo Abe resigned. The news caused Nikkei to tumble and Yyen to strengthen due to: 1) political uncertainty; 2) a change in leadership can lead to a change in the economic course, which is called “Abenomics” and is based on large-scale monetary and fiscal stimulus.
Fed Chairman Jerome Powell announced at a symposium in Jackson Hole a change in the Fed’s approach to inflation targeting. Now the regulator will control the “average inflation rate” at 2%. This means that the Fed will not tighten monetary policy if the inflation rate exceeds 2% and will keep the interest rate in the range of 0-0.25% for a long period, which will put downward pressure on the dollar.
Hurricane Laura caused less damage than expected. The oil production infrastructure was practically not affected, so oil erased its gains.
The gold price rose after Jerome Powell’s announcement of a change in the Fed’s approach to inflation targeting. The potential rise in the rate of inflation boosted demand for gold, which is a defensive asset.
Main events of the current week
- On Tuesday, manufacturing PMI’s of China, Germany, the UK, and the United States will be published, as well as data on German unemployment change and consumer price index in the Eurozone. The Reserve Bank of Australia will hold a monetary policy meeting. It is expected that the regulator will not make changes in monetary policy and will leave the interest rate at 0.25%.
- On Wednesday, data on Australian GDP, ADP employment, and crude oil inventories will be presented.
- On Thursday, data on UK and US services PMI and jobless claims will be presented. Governor of the Bank of England Andrew Bailey will speak.
- On Friday, data on the retail sales in Australia, UK construction PMI, US nonfarm payrolls and unemployment rate, employment change, and PMI in Canada will be released.
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