Macro Roundup (Aug 28)

SHANGHAI, Aug 28 (SMM) — This is a roundup of global macroeconomic news last night and what is expected today.

The Federal Reserve announced a major policy shift Thursday, saying that it is willing to allow inflation to run hotter than normal in order to support the labor market and broader economy.

In a move that Chairman Jerome Powell called a “robust updating” of Fed policy, the central bank formally agreed to a policy of “average inflation targeting.” That means it will allow inflation to run “moderately” above the Fed’s 2% goal “for some time” following periods when it has run below that objective.

The Fed also adjusted its view of full employment to allow gains in the labor market to run more broadly. That indicated that the central bank will be less inclined to raise interest rates when the unemployment rate falls, as long as inflation does not creep up as well.

President Donald Trump is slated to formally accept his party’s nomination in a live speech on the fourth and final night of the Republican National Convention.

More than 5.8 million Covid-19 cases and at least 180,000 deaths have been reported in the US, according to Johns Hopkins University. The devastating toll of the pandemic, and the Trump administration’s response to it, formed a central component of the Democrats’ convention last week, when Joe Biden officially accepted the Democratic nomination. The coronavirus crisis has played a comparatively small role in the GOP’s convention.

The US dollar gained on Thursday in choppy trading after Federal Reserve Chairman Jerome Powell said, as widely expected, that the US central bank would roll out an aggressive new strategy to lift US employment and inflation.

Data on Thursday showed that the number of Americans filing new claims for unemployment benefits hovered around 1 million last week, suggesting the labor market recovery was stalling as the COVID-19 pandemic drags on and financial aid from the government dries up.

US pending home sales rose in July by more than forecast to the highest level since 2005, signaling the housing market’s sharp recovery will continue with borrowing costs to stay low for the foreseeable future.

The National Association of Realtors’ index of contract signings to purchase previously owned homes increased 5.9% from the prior month after a 15.8% jump in June, according to data released Thursday. Compared with a year ago, pending sales were up 15.4% on an unadjusted basis.

On Wall Street, the S&P 500 reached a new all-time high for a fifth day in a row on Thursday, and briefly topped 3,500 for the first time ever. The Dow gained 160 points for its fifth positive day in six. The Nasdaq underperformed with a 0.3% loss, led by declines in Apple and Amazon.

Gold slumped over 2% in volatile trading on Thursday as the US dollar and Treasury yields rose after Federal Reserve Chair Jerome Powell shifted the central bank’s inflation target in a widely expected move.

Spot gold fell 1.5% to $1,925.19 per ounce. Prices had risen as much as 1.1% during Powell’s speech.

On the LME, nonferrous metals rose for the most part on Thursday. Copper added 0.35%, aluminuim advanced 0.11%, zinc rose 0.97%, lead inched up 0.1% and tin increased 1.2%, while nickel underperformed with a 0.46% loss.

The SHFE complex closed mixed in overnight trading. Copper strengthened 0.49%, zinc added 0.63% and tin edged 0.53% higher, while aluminium fell 0.34%, lead slipped 0.76% and nickel shed 0.44%.

Oil prices fell on Thursday as a massive hurricane in the Gulf of Mexico made landfall in the heart of the US oil industry, forcing oil rigs and refineries to shut down.

Investors will monitor fresh economic data on Friday, including consumer spending, personal consumption expenditures as well as consumer sentiment.