Market Commentary - October 08, 2020
The whipsaw continues with Wall Street reversing Tuesday’s losses closing at intra-day highs. House Speaker Pelosi indulged Republicans in negotiating an airline bail out, whilst Trump performed a piecemeal back flip signalling his willingness to sign a stand alone $1,200 stimulus check for the American people.
Despite Brexit negotiations breaking down again, the FTSE rose 0.93%, following U.S. optimism. Two aspects of the deal remain an obstacle. Restrictions on state subsidies and fishing rights for European countries in British waters. While Boris Johnson strung along threats to walk, E.U. officials have stated they will not be pressured into making concessions. Elsewhere, mixed results from European indices with Dax up 1.4%, STOXX edging ever slightly higher and France unchanged.
Figure 1 (Source: Refinitiv): USDTRY Daily Chart : Year to date, investor holding onto Turkish Lira would have lost 32.3% in value against the U.S. dollar
Mood in Hong Kong markets has been weighed down heavily as the Trump administration explores way to sanction Ant Group’s digital payment platform on the premise of national security. The group had intended to IPO this year valuing the company between $200bn – $300bn on the Hong Kong and Shanghai stock exchange. Australia rallied on Asia’s open, benefiting from overnight U.S. news, whilst BOJ Kuroda boosted the Nikkei to 6-month highs as he reassured investors Japan’s economy “continue improving further…as the impact of the coronavirus subsides globally”.
Improving overnight U.S. sentiment and the Federal Reserve hinting at further easing in its September minute saw outflow in greenback across the board. China’s yuan remain strong with investors demand continuing snapping up Chinese high yielding debt. Bucking the trend, the Turkish Lira has weakened to record highs. Mounting geo-political risk on top of a worryingly unstable financial system saw USDTRY appreciate 1.1% yesterday. Defying U.S. complaints and risking sanctions, Turkey had purchased missile systems from Russia to boosting military power against Armenia and Azerbaijan.
Headliner to Review
- The FOMC meeting minutes released yesterday reinforced existing conceptions that the central bank will keep interest rate near zero until inflation meets conditions under the new guidance framework. Further, officials stated the current dovish sentiment is not an unconditional commitment to low rates regardless of economic conditions. Nonetheless, analyst expect rates to remain zero till the end of 2023
- The resurgence in COVID-19 cases in Europe could delay the eurozone’s economic recovery. Yesterday ECB president Christine Lagarde said “Instead of that V shape that we all long for and hope for, we fear that it might have that second arm of the V a little bit more shaky,” Lagarde said the ECB was ready to “use all the tools that will produce the most effective, efficient, and proportionate outcome” It may lead to key interest rate lower than its current -0.5% level.
Headliner to Watch
- This weeks U.S. unemployment claims expected to see a slight improvement from 837K to 820K. With stimulus talks on-going, recovery in labour markets will remain slow, especially as the pandemic persist.
- The Reserve Bank of Australia will release their Financial Stability Review tomorrow detailing their assessment of Australia’s financial systems and potential risk to their stability.
- Of miscellaneous notes :
- BOE Gov Bailey due to speak in an online panel at the Single Resolution Boards.
- BOC Gov Macklem will deliver opening remarks online for the Global Risk Institute.
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Topics: Market Commentary