Introducing Primus Weekly! A brand new & fresh take on market commentaries. Every Monday, I will be covering what to look out for during the week; from market movers & events to trending topics.
The last couple of weeks have been eventful for global markets as we witnessed a sudden uptick in volatility measured by VIX index. VIX, also known as the Fear Index, started showing signs of restlessness on August 27th, right before the annual Jackson Hole conference. This spike culminated in VIX breaking through 200-day moving average resistance level on Thursday, September 3rd, when VIX increased 27%. Movements in VIX have a strong negative correlation with US stock markets, meaning that stock markets tend to tank when VIX spikes. However, given the interlinked nature of markets, such volatility events echo through the entire financial ecosystem – last week USD strengthened 1%, measured against US main trading partners, on the back of a sudden flight for safety.
Stock markets have started to gain momentum since Tuesday and are expected to hit new all-time highs soon enough. What could have caused such market event? Stock markets have been extended, measured by S&P500 and Nasdaq both hitting continuously new records. As such, a slight correction, whilst traders catch their breath, is only healthy.
European Central Bank announced on Thursday that it’s keeping Euro interest rates unchanged and that no new measures will be implemented to stimulate the economy and elevate inflation. August core inflation reading stood at -0.2%, indicating a deflationary environment that has proven to be extremely hard to reverse as consumers will choose to hoard their savings and not spend any money – just ask the Japanese! This announcement was riveting given that major central banks have engaged in currency wars with a focus to push their own currencies lower in order to boost economy through exports. A great example is the Federal Reserve Bank of the US whose Chair Jay Powell revealed a new inflation policy called Average Inflation Target during Jackson Hole conference 2 weeks ago. This policy allows inflation temporarily to overshoot the 2% level that has been in place as a target since 2012. After the announcement, USD immediately shed 1% as increased inflation generally has a bearish effect on the currency. We are yet to hear from Bank of Japan Governor, Kuroda, about their latest projections and policies. Both the Fed and BoJ are scheduled to meet and release their monetary policy statements and interest rate decisions next week.
Please find more details on the events this week below with a commentary about potential currency effects.
Have a great trading week ahead!