August 25, 2021/cmc connect
By Lukman Otunuga, Senior Research Analyst at FXTM
Confidence over the health of the largest economy in Africa will be influenced by the pending second-quarter GDP report for 2021.
Markets expecting Nigeria’s economy to expand anywhere from 1% to 3%, representing a significant recovery from the first quarter where growth expanded 0.5%. The country’s growth outlook will remain influenced by developments revolving around Covid-19 and vaccination rates. Other factors that are seen influencing the growth outlook revolve around, oil prices and the overall health of the global economy. According to the latest results of a Bloomberg News survey, Nigeria is forecast to expand 2.5% in 2021 with interest rates left unchanged at 11.50% for the remainder of Q3.
Jackson Hole Symposium looms
Has the market mood shifted too far? Last week, we were all fearful over the beginning of the end of emergency stimulus measures even though the world was having to contend with the increasing spread of the Delta variant. A Chinese regulatory crackdown also hit a variety of stock market sectors in the name of greater “social cohesion” in favour of corporate profits. This spooked Asian markets with the Hang Seng index moving into bear market territory, with “peak growth” lingering in the shadows.
This week, although the latter has been evident again in more disappointing economic data, markets are now hopeful that Chair Powell will deliver dovish comments in the vein of other FOMC officials like Kaplan’s more cautious approach to policy outlook due to the Delta variant. But China has apparently recorded zero cases of coronavirus for the first time in several months while the third busiest port in the world in China has just reopened. We are now getting to the stage when Chair Powell only has to be a bit more hawkish sounding than most expect in order to see some volatility.
FX markets quiet
That said, implied volatility measures of FX moves over the Jackson Hole meeting are not elevated. This points to very few hints being given about the policy outlook. Or at least not a great deal of new colour on the Fed’s gradual move towards tapering. The dollar is currently trading just above 93 on the DXY with EUR/USD trading below 1.1750.
Disappointing German business survey data released earlier today actually had the opposite effect on the single currency than what would normally be seen. EUR/USD moved higher from an intraday low with markets perhaps positioning for a worse print. The world’s most traded pair is still stuck in a down trend with trendline resistance from the June highs capping any upside. Last week’s new long-term low at 1.1663 is key.
Oil claws back losses
Today, Brent crude is building on its biggest two-day gain since November. Prices are now back to testing the 50% midpoint of the July move lower. Increased demand in India and Mexico’s oil platform fire are offsetting Delta worries on the fundamental side. Near-term support sits at $67.46 with bulls aiming to push black gold above $73 initially.
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