US stocks kicked off the week on a positive note amid the FDA approval for the Pfizer and BioNTech vaccine, Comirnaty. That’s what the headlines say, but there is more than that for yesterday’s rally.
On Friday, Dallas Federal Reserve (Fed) President Robert Kaplan said that the rising Covid cases and the economic tensions that come along with it brings him to adjust his view about the idea of pulling away the Fed stimulus. He now thinks it may not be the right time. And, that’s exactly what the market was hoping to hear from a member who, so far, was backing a sooner-than-otherwise Fed tapering.
Kaplan’s dovish comments, combined with soft July PMI data boosted the Fed doves ahead of Jerome Powell’s Jackson Hole speech and sent US indices to fresh records.
I believe the cheery mood across the US equities is here to stay in the run up to the Jackson Hole meeting, as the Fed Chair Jerome Powell could only soften the hawkish tone of last week’s FOMC minutes. The rising Covid cases and the soft data can only keep the Fed alert and reluctant to act prematurely. And that’s all the market wants to hear.
In the FX, the softening Fed expectations weigh on the US dollar.
The GBPUSD rebounded on Monday and the FTSE gained on the back of cheaper British pound and jump in oil and commodity prices. The combination of soft pound and firmer oil should help keeping the FTSE 100 above the 7100p mark, but the 7200p will be a bigger challenge as enthusiasm in Brent crude should remain short-lived, and the gains capped approaching the $70 pb mark, as the global reflation trade is being questioned with the rising Covid cases, hinting that oil companies could again fall on the backfoot if the news don’t get better, and fast.
Interestingly, gold is making a positive attempt on the $1800 per oz. Gold’s positive correlation to equities is a sign that this is not a safe haven move, and the buy orders may not gain momentum above the $1800 mark, as equities remain more appetizing and offer much better returns in an environment of softening Fed expectations.
