Market Commentary - September 11, 2020
Price action for the on-going week sees global indices choppy following previous week’s tech-rout, where broad-based benchmarks declined as much as 10%. Evident as Nasdaq saw average daily trading ranges of 4%, though week to date the benchmark has only declined 2.9% and down 1.7% yesterday. S&P500 and Dow also retreated 1.5% and 1.4% respectively. European shares fell on the back of rising tensions between Brussels and U.K as well as ECB’s unchanged policy announcement. For the lack of data ahead, Asia is off to a quiet start, though Nikkei rallied 0.8% on open as Chief Cabinet Secretary Yoshihide Suga outdistances other PM candidates with polls showing he is widely expected to win the title in the ruling LDP leadership election. Suga intends to continue implementing Abenomics, of which entails aggressive monetary and fiscal reform to boost inflation.
The American greenback regained lost ground while EURUSD initially spiked 70 pips over a less dovish tone from the ECB’s monetary policy statement. Only to be stifled by ECB Presidents Christine Lagarde’s Euro dollar remark’s that the central bank is carefully evaluating implications of a strong Euro. Especially as Europe’s economic recovery loses steam. Across the English Channel, P.M. Boris Johnson stoked further tensions as the U.K. government broke international law by overriding Northern Irelands Brexit protocol. The protocol would have allowed goods to travel freely between Northern Ireland (Non-EU) and Republic of Ireland (EU) without custom checks. Amid rising political risk, the pound sank over 200 pips by the end of session. A no-deal Brexit would leave trade between continents in absolute chaos.
Figure 1 (Source: Refinitiv): GBPUSD - Pound plunges throughout the week as Brexit tensions between U.K. and Brussels rise.
Oil prices resumed declines as U.S. inventories unexpected built into a surplus by 2M. Petrol consumption recovered from May to July, peaking in August at 7.8M barrels at day. However persistent struggles to contain COVID-19 and reducing purchases from China, the worlds largest importer as well as production increases from OPEC, will likely see inventories remain near surplus for on-coming months.
Elsewhere, a $300bn stimulus bill proposed by U.S. republicans failed to gain traction in the Senate. Of the 100-member chamber only 52 voted in favour of passing the bill, failing to reach the required 60 vote threshold.
Headliner to Review
- European Central Bank (ECB) left the monetary policy unchanged as expected with no guidance on additional quantitative easing. Main refinancing rate remain unchanged at 0% whilst deposit rate at -0.5%. The ECB reiterated that the key interest rates will remain at the present or lower levels. ECB continues to purchase a total of $1.35 trillion under pandemic emergency purchase programme.
- The US Unemployment Claims were unchanged at a seasonally adjusted 884k. The claims dropped from about 1 million in the previous week since March. The jobless claims looked to improve considerably but this was due to a technical change in the seasonal adjustments from the Labour Department where previous weeks’ claims were not revised to reflect the new counting method.
- US producer prices increased slightly more than expected in August. The producer price index for final demand rose 0.3% in August and PPI core increased 0.4%.
Headliner to Watch
- U.S. CPI data due later in the day is expected to ease from 0.6% to 0.3%. Analyst expect a slowdown in economic activity despite a depreciating greenback, a recovering labour market and oil prices in the 40’s (in August). If market consensus comes to fruition, the data would make the Federal Reserve’s new inflation guidance framework null. A shift in policy to tolerate higher inflation becomes ineffective, especially if there’s no inflationary pressure to begin with.
- British GDP is expected to moderate down, declining from 8.7% to 6.6% after months of above norm growth.
- Euro finance ministers and group president will meet today to discuss financial frameworks within the zone in relation to COVID-19 and the economy. On a high level, members are expected to make steps towards a complete European Union banking union to free-up capital for ill-affected nations.
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Topics: Market Commentary