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Will the Powell Rally Rollover into September?


31 August 2021 Written by Hussein Al Sayed  Chief Market Strategist at Exinity Group (Gulf & MENA) Hussein Sayed

Asian markets were mostly lower Tuesday morning as dismal Chinese economic data and growing concerns over surging Covid-19 cases in key regional markets sapped risk appetite. China’s factory activity expanded at a slower pace in August, raising concerns over the country’s economic growth. King dollar extended losses as US Treasury yields remained subdued while gold flirted near key resistance levels. In Europe, stocks have opened in the green as investors evaluate the latest inflation print from the continent released this morning before the September ECB meeting.

August has certainly been another positive month for global equity markets with the dovish comments from Federal Reserve Jerome Powell last Friday adding icing to the cake. Equity bulls are loving Powell’s messaging, especially after he stressed that Fed tapering and rate hikes are mutually exclusive events.  With the S&P 500 on track for its seventh straight monthly advance and hitting its 12th all-time high this month, the path of least resistance certainly points north.

As we head into the new trading month of September, the key question is how much further can stock markets rally before bears enter the scene? Risks in the form of the Delta menace, concerns around China’s slowing economic growth and regulatory crackdown among other themes could impact upside gains. In the meantime, the overall market mood remains mixed with all eyes on the US jobs report on Friday.

Dollar humbled by Powell

The dollar is struggling to nurse the wounds inflicted by Jerome Powell’s dovish speech last Friday. It has weakened against every single G10 currency this morning with the Dollar Index dipping below 92.50. Investors who were expecting the Fed Chair to make an official taper announcement or even provide fresh insight into the central bank's plan on tapering were left empty-handed. Powell offered no concrete taper signals and made it clear that the Fed was in no rush to raise interest rates, despite the recent spike in inflation. According to Powell, the “substantial further progress” test has been met for inflation while there has also been “clear progress towards maximum employment”.

Given how he highlighted how there was “much ground to cover to reach maximum employment”, this makes Friday’s jobs report all the more important.  Before this major risk event, investors will be offered appetisers in the form of the US August consumer confidence report and weekly jobless claims. 

Currency spotlight – NZDUSD

The New Zealand dollar entered Tuesday’s session with a spring in its step, appreciating against every single G10 currency. Buying sentiment towards the currency remains supported by optimism over the lockdowns successfully reducing new Covid-19 infections. This optimism seems to have overshadowed the fact the New Zealand business sentiment fell in August, even before the lockdowns were enforced across the country. Looking at the technical picture, the NZDUSD has the potential to push higher if prices can conquer the 0.7080 – 0.7110 zone, where the 100 and 200-day Simple Moving Averages reside.

Commodity spotlight – Gold

After experiencing a sharp appreciation last Friday, gold continues to hover around key resistance levels. The precious metal may remain on standby ahead of the heavily anticipated US jobs report on Friday. In the meantime, gold is likely to be influenced by the dollar, treasury yields and risk sentiment. Should bulls fail to secure a daily close above $1818, prices may drift lower back towards $1800 in the near term.

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