Today's Economic Outlook

Market Overview

China and Russia fight for influence and power over Africa against the U.S., with all three promising to offer economic assistance. They come into the country with promises of aid, all to stick to the resources that Africa has to offer. 

Last week, the U.S. managed to seal two deals from Tanzania and Ghana. What is its significance? We start with Tanzania. 

Tanzania is home to the nation’s largest port–it is Africa’s fourth largest port on the Indian-ocean side. How did they manage to secure the deal? They offered to extend a railway line through Tanzania, paying $250 million. 

But for what reason do they spend so much money on this? First, it will help the American trade through the Lobito Corridor in Lobito, a port city on the other side of Angola. The U.S. is also developing a port here. They are creating a rail corridor that begins there. Although it passes through four nations: Angola, The Democratic Republic of Congo, Zambia, and Tanzania. What will cutting through the entire continent result in? A direct connection between the Atlantic and Indian Ocean. 

It will also connect ports with mines from the DRC and Zambia. If you try to look at everything, they will have access to the continent’s resources and minerals. They will have the capacity to take this for themselves, which explains the $250 million investment, which will look like a sprinkle of salt to the entire dish they are preparing. 

But this is merely the first reason. The second is the fight for influence in Africa. Here, the U.S. is directly competing with China which already has a strong presence in the region. They have multiple mines in Zambia and are also investing in railway stations and renovations. The U.S. is attempting to catch up to China on this board, and with this latest move and deal–they are hoping to one-up Beijing. 

Will China let this slide? Certainly, it does not seem to want to back down. For the past couple of years, China has been consistent with their giving of loans to Africa, surpassing $10 billion each year. But those loans dried up–it was on the decline since 2016. However, recently a new study showed that China has committed $4.61 billion to Africa in 2023–showing a rise in China’s lending for the first time in seven years. 

The U.S. certainly knows that China will not be backing away from this. What was their solution? They double down on their deal and extend their presence into Ghana. 

A press release from the U.S. State Department announces a landmark commercial agreement with Ghana for a small nuclear reactor project. 

Ghana has been looking to build a nuclear reactor for a while now and it had 5 bidders to weigh against: China, France, South Korea, Russia, and the U.S.

This is a big win for the U.S. since it has been losing in the Nuclear race in Africa, especially against Russia–and some countries. 

At one point, Moscow seemed unbeatable in Africa for the Nuclear race, but now the U.S. has pulled an upset. But will they take this sitting down? With Beijing handing out more loans to Africa, we do not know for certain what move Russia will take, but it may be similar. 

With everything happening, one thing is obvious. The scramble for Africa is on. The fight for influence is underway. But is it simply for resources? I think not. It will also be a strategic location for the U.S. to regain their efforts in keeping the World Trade’s flow in order. 

If the Houthis continue to pester the cargo ships passing through the Red Sea, then the U.S. will have to look for an alternative route. But with this development, it will not need to go through the Cape of Good Hope–but cut through Africa toward the Indian Ocean. This may prove a more cost-effective way to deliver and receive–lowering costs, tensions, and worries about inflation. 

What's more, this will push up the African economy–they will be the center of trade between Asia and the West. No longer will the Red Sea be the only cost-effective way to reach Asia. 

What does this mean? If Russia and China want to lower the Western influence over other countries, they will have to do everything in their power to stop the U.S. from gaining more influence than they already have. 

MARKET ANALYSIS

GOLD - GOLD has consolidated and remains trading above its previous highest point, supported by 2487.026. With that in mind, we continue to see the possibility of an extended bullish trend in GOLD. However, we may see further selling in the market as prospects of a positive economic outlook for the U.S. remain as we approach the rate cuts. We continue to keep our systems in check to allow for high-probability entry setups.

SILVER - SILVER has progressed well with its recent downturn, showing a price drop. Given the recent developments and the positivity surrounding the new trade deal in Africa, the outlook for SILVER may remain bearish, pushing prices down. However, we should note the possibility that this outlook could change if the situation in the Middle East escalates.

Thus, we continue to look into the technical aspects as a viable source of trading bias—currently favoring the sellers’ market as prices show an SHS formation on a key structure. However, it is important to note that while the structures may seem clear, this is based on the 1H chart, meaning the trend may only last as long as a 1H chart allows and may not follow through on the higher timeframe market.

DXY - The dollar has rebounded, possibly finding its bottom near a key structure at 100.443. The failure to reach this structure is evidence of the lack of momentum to push prices lower. However, we continue to weigh what will happen with the rate cuts. We can also see investors doing the same, as prices have stagnated since the start of Monday trading.

Some data is coming this week to help us navigate expectations, mainly the U.S. payrolls data due on Friday after Fed Chair Jerome Powell last month endorsed an imminent start to interest rate cuts in response to concerns over the labor market.

Before that, job openings data on Wednesday, along with the jobless claims report on Thursday, will be in the spotlight.

Markets are pricing in a 69% chance of a 25 basis points (bps) cut when the Fed meets Sept. 17-18, with a 31% probability of a 50 bps cut, according to the CME FedWatch tool.

This week’s overload of labor data will be crucial in determining whether a 25 or 50 bps cut occurs in September, said Charu Chanana, head of currency strategy at Saxo.

"If the data remains robust, a 25 bps cut is more likely. However, weak non-farm payrolls, particularly if they fall below 130k with another jump in the unemployment rate, could push the rates market closer to pricing a 50 bps cut."

Economists surveyed by Reuters expect the addition of 165,000 U.S. jobs in August, up from an increase of 114,000 in the previous month.

GBPUSD - The Pound shares the same sentiment, with prices on standby, waiting for further data to move the market. We anticipate further weakness in the U.S. dollar but see evidence of possible strengthening—similar to the behavior shown by the Kiwi—after cutting rates due to heightened market expectations of a better economy in the coming days. This will remain true if the cut boosts business activity and manages yields and inflation expectations.

AUDUSD - The Aussie dollar remains steady, with not much action. It has been swinging steadily between two price levels, 0.67985 and 0.67531. We watch and wait for the development of this market. However, currently, prices show the possibility of a completed SHS formation.

NZDUSD - Current prices show a stagnant Kiwi as it moves more aggressively toward the U.S. dollar recovery—showing a weakening in the currency versus the Pound and the Euro. With that said, we continue to wait for what will happen next after data releases. Prices are currently between major structures at 0.62898 and 0.62086.

EURUSD - The Euro is currently gaining against the strengthening dollar but has held prices with little development from Monday trading—all in anticipation of upcoming data releases this week. We wait for further price action before making any calls.

USDJPY - The Yen has lost significantly against the dollar, showcasing its weakness. However, a sudden candle showing slight movement into the Asian range extended a single candle down. Despite this, overall trading shows prices returning to trading above 146.512. We continue to read the bottom found on Aug 26 as the lowest point until the final quarter of this year.

USDCHF - The Franc has lost ground over the past couple of days, showing no signs of recovery yet. There is a significant possibility of it regaining strength to push prices lower, but in the near term, we could see prices possibly pushing up to 0.85541. We wait to see how this market will develop.

USDCAD - The Loonie is still trading near 1.34803, with chances of trading under this structure or returning to 1.35762. We wait to see how this consolidated price run will develop as we approach data releases for both the U.S. dollar and the CAD.