Market Commentary - September 10, 2020

Posted by Kevin Jock on Sep 10, 2020 3:54:43 AM

    Wall Street leading benchmarks snapped their losing streak as investors took advantage of tech darlings deemed heavily discounted from recent highs. Tesla rebounded 10% after sliding 20% into their biggest single-day loss since inception. Pandemic-immune winners Apple, Amazon, Facebook and Google also climbed. The S&P500 rallied 1.7% with Dow trailing at 1.5%. Most European indices erased all losses seen on Tuesday as the market awaits ECB’s monetary policy decision today.

    Momentum seen in U.S. did not follow through into Asia, with Australia dropping 1.3% since open while Nikkei edged up slightly. Hong Kong fell on Yum China Holding’s IPO, of whom are operators of well-known brands like KFC, Taco Bell and Pizza Hut. Shares fell as much as 4.1% on their debut today. An utter contrast to Nongfu Spring’s bottled water IPO performance on Tuesday, whom rallied 85%.

    Improving risk sentiment saw money flows back into major G7 currencies as the dollar index retreated from a 3-week high. Bitcoin and gold saw bounce off major levels while oil earned reprieve bouncing back from low 36’s to 38 dollars. Elsewhere the central bank of Russia forecast the initial bump in recovery will slow down in coming months with deflationary risk offset by a depreciating rubble.


USDMXN-1

Figure 1 (Source: Refinitiv): USDMXN - Mexican peso rallies to 6-month on the back of the government unveiling 2021 budget.

    Of particular interest, the Mexican Peso rallied 1.9% to a 6-month high after the government unveiled the 2021 budget, stripped of infrastructure spending and limiting debt to GDP ratio to only 70%. While Finance Minster Arturo Herrera note the budget as responsible, businesses feel they’ve been left to bare the brunt of COVID-19’s economic aftermath. Given fiscal tightening, expectations of a 25 basis point cut by the Bank of Mexico has been forward to this month despite recent inflation data above the central banks 3% target.


Headliner to Review

  • As expected, the Bank of Canada left the overnight rate unchanged at 0.25% with no further guidance on additional easing. Despite inflation practically at 0, the recovery in economic activity is estimated to be faster than previously estimated. Evident in housing starts as recent numbers saw new construction activity at 262K compared to an estimated 222K. Back-logged orders and pent-up demand continue to drive manufacturing and household spending. Government aid also supported Canadian’s in need throughout the pandemic.
  • JOLTS job openings grew higher than expected at 6.62M compared to market consensus of 6.05M. Though still below pre-pandemic levels. What’s clear from recent US labour statistics, labour market recovery in America is well underway despite fresh COVID-19 cases occurring in red states.

Headliner to Watch

  • No change in guidance is expected from ECB’s decision today, despite economic recovery losing momentum and deflationary pressure. However, market expectations see the central bank will eventually increase bond purchased by 350bn by years end. The rising euro further drives a wedge into the Euro zone’s economic recovery. A concern many expect ECB President Christine Lagarde to raise, however is seemingly reluctant to as others questions whether the bank has the available tools to respond to the euro’s appreciation.
  • US unemployment claims set to improve from 881K to 838K. Yesterday’s JOLTS report saw higher labour demand as US business’s resume operations to pre-pandemic levels.
  • Crude oil inventories to remain in deficit at -3.1M though rising significantly from -9.4M. A combination of production increases from OPEC in coming months and overall lack of global demand as China pulls back will eventually lead to a supply glut.

 

Any opinions, news, research, analysis, prices, or other information contained on this website is provided as general market commentary, and does not constitute investment advice.

Authors:
Antony Tan
Ben Li
Kevin Jock

Topics: Market Commentary

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