Market Commentary - October 06, 2020
Following President Trumps discharge from Walter Reed hospital after being treated since Friday, Wall Street and European indices reacted positively, ending their sessions near intra-day highs. Investors are hoping Trumps personal experience with the virus will increase the odds in pushing a fiscal deal sooner. Current negotiations have seen piecemeal concessions between both congressional parties, with Democrats now seeking a $2.2tn package whilst Republicans have upped their offer to $1.6tn.
U.S. energy, health and tech firms were the biggest gainers for the day. Likewise, Europe’s oil majors surged on the back of crude prices elevating 6%, settling above $39. A worker’s strike in Norway saw 6 offshore oil and gas fields cease operation cutting off global production by 330,000 bpd. Capacity is expected to decrease further as more workers join the strike.
Figure 1 (Source: Refinitiv): USDCNH Daily Chart : China's yuan nears a 2 year high as the nation recovery outpaces other developed economies.
With U.S. stimulus hopes on the rise, demand for the greenback is tapering off as investor appetite for riskier bets increase alongside the Federal Reserve’s aggressive easing. The U.S. dollar resumed losing ground, after a brief respite on Friday. Whilst the dollar gained 2% in September, YTD, the currency is still down just over 3%.
Asia is off to mute start, as China continues to celebrate Golden Week. With the spread of COVID-19 largely contained, China’s economy has enjoyed a boost in tourism as 425 million people travelled domestically since the holiday week began. Recent OECD forecast see’s China’s GDP growing 1.8% in 2020. As a result, demand for the yuan remains strong. Since June, USDCNH has steadily depreciated against the yuan by 5.7%, nearing 2-year lows.
Headliner to Review
- US Institute for Supply Management's (ISM) Services PMI rose to 57.8, compared with the previous figure 56.9. The economic activity in the US' service sector continued to expand at a strong pace in September.
- Seemingly the eurozone economy has stalled in September. The chances of a renewed downturn in the coming quarter have risen. Spain has been hit hard as rising coronavirus cases, leading disruptions to daily life. The recovery in Eurozone will depend on if new waves of virus infections can be controlled.
- Eurozone PMI composite finalized at 50.4 while Eurozone PMI Services was finalized at 48.0 in September, up from August’s 47.6.
- Germany Final Services PMI rose from 49.1 to 50.6.
- Italy Services PMI increased from 47.1 to 48.8.
- France Final Services PMI remain unchanged at 47.5.
- UK Final Services PMI rose from 55.1 to 56.1.
- Spanish Services PMI declined to a 3-month low at 42.4, compared with the previous figure 47.7.
- The Reserve Bank of Australia (RBA) has kept the cash rate unchanged at a record low 0.25%. The decision is to give room to fiscal policy.
Headliner to Watch
- The Australia Government is set to unveil their annual budget tonight. A $315bn fiscal stimulus package is expected to assist with the prevailing lethargic economy. On top of infrastructure spending and tax cuts, the government will commit to pay 50% of wages for new apprentices and trainees for the next fiscal year.
- Of miscellaneous notes:
- Fed Chair Powell is due to speak at the National Association of Business Economics regarding the U.S. outlook.
- ECB President Lagarde will join an online CEO summit hosted by Wall Street Journal.
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Topics: Market Commentary