Top 5 Things to Know in the Market on Friday, August 28th

By Geoffrey Smith 

Investing.com --- The dollar falls and gold rises as the world absorbs the implications of the Fed's policy shift. Shinzo Abe steps as down Prime Minister of Japan, hitting the Nikkei. U.S. stocks are set to open mixed, Europe's economic mood stutters a bit in August, and oil stays well bid as Hurricane Laura blows out. Here's what you need to know in financial markets on Friday, August 28th.

1. Dollar falls, gold rises as Powell goes easy on inflation

The dollar weakened and gold prices rose sharply as the market absorbed the implications of Federal Reserve Chairman Jerome Powell’s speech on Thursday.

Powell had said the Fed will tolerate inflation overshooting 2% for some time in order to compensate for years of sub-target inflation – raising speculation that the Fed will increase its monetary stimulus to support an economy that is making an uneven recovery from the pandemic.

The dollar index, which tracks the greenback against a basket of six developed market currencies, fell 0.7% to its lowest level in two weeks, testing a new 28-month low.  The euro rose back above $1.19 and sterling tested the $1.33 level.

Gold futures rose 1.4% to $1,960 an ounce, encouraged by the apparent vindication of the currency debasement narrative that has driven much of the recent rally.

2. Sayonara, Shinzo

Shinzo Abe, Japan’s longest ever serving Prime Minister resigned due to ill health. In eight years in office, Abe has been frustrated by a series of crises and by Japan’s internal economic problems and has failed to fulfil his promise of victory over deflation.

The Nikkei 225 index fell 1.4% to a two-week low on the news, while the yen strengthened in a reflex reaction to the political uncertainty created.

That uncertainty ought to stay within limits. Abe’s Liberal Democratic Party is likely to stay in power for the foreseeable future, and many of the mooted successors are people hand-picked by Abe over the years because of their closeness to his thinking.

3. Stocks set to open mixed, with DJIA leading again

U.S. stock markets are set to open mixed on Friday with industrials again set to outpace tech stocks in the wake of Powell’s policy shift on Thursday.

By 6:30 AM ET (1030 GMT), the Dow 30 futures contract was up 88 points or 0.3%, while the S&P 500 Futures contract was up 0.2%. The Nasdaq 100 contract, by contrast, was down 0.2%.

Stocks likely to be in focus later include Microsoft (NASDAQ:MSFT), Oracle (NYSE:ORCL) and Walmart (NYSE:WMT), all at the center of speculation that a deal for video-streaming app TikTok’s U.S. operations is imminent. Commerce Secretary Wilbur Ross said the sale was necessary not only on national security grounds, but also to increase competition in the social media space.

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4. Clouds on Europe's horizon

Europe’s economic recovery stumbled a bit in August as the coronavirus showed signs of returning, exploiting the relaxation of lockdown and social distancing measures to accommodate the summer tourism season.

German consumer confidence weakened and French consumer spending fell in month-on-month terms, although economists argued that the headline numbers were worse than the underlying trends.

Italian business and consumer confidence both rose, however – although in the case of business, the improvement was less than hoped. The flattening out of the recovery hasn’t proved a material drawback to the continent’s bond markets yet: Italy managed to sell 10-year bonds at a rate of 1.11% earlier.

5. Oil prices stay well bid as Hurricane Laura passes

Crude oil prices gave ground as Hurricane Laura moved up through the U.S. in much-diminished form, having failed to cause any kind of lasting damage to the Gulf region’s energy infrastructure, either offshore or among refineries and storage facilities.

By 6:30 AM ET, U.S. crude futures were down less than 0.1% at $43.02 a barrel, while the global benchmark Brent was also down less than 0.1% at $45.58.  

The passing of the hurricane allows the market to refocus on what has been a generally supportive set of news this week, with demand holding up well enough to take another decent bite out of U.S. stockpiles.

Baker Hughes’ weekly rig count will round the week off later.