Market Commentary - October 12, 2020
Despite a plummeting approval rating and conflicting health status reports, President Trump reassured Wall Street on Friday by increasing his previous stimulus proposal to 1.8tn. Moving closer to Pelosi’s 2.2tn goal post. As investors grew more hopeful, U.S. indices settled at weekly highs by the close of the session. Likewise, Europe edged higher on Friday as retail firms upgraded earnings outlook defying resurging infection rates.
With U.S. observing Columbus Day and Canada celebrating Thanksgiving, Asia pointed to a mixed start. Hong Kong rallied 1.2% following the PBOC announcing a capital restriction adjustment over the weekend. Australia crept higher whilst Japan slumped as Monday data showed wholesale inflation remains negative for 7 consecutive months, heightening deflationary risk.
Figure 1 (Source: Refinitiv): XAUUSD Daily Chart : A resurgence in inflationary risk has gold settling healthily above the 1,900 psychological level again.
To restrain a freefall in USDCNH, Chinese authorities announced a surprise removal in reserve requirements when conducting FX forward trading on Saturday. Previously, financial institutions must set aside a ratio of 20% of the previous month’s settlement amount. The yuan reacted by gapping down 0.5% on open. Alongside the increasing probability a relief package will eventuate, the U.S. dollar continues to depreciate as investors sought for riskier alternatives. Gold also rallied 1.9% as a risk of inflation increased.
Crude oil resumes its declines after Hurricane Delta was downgraded to a post-tropical cyclone as it hit landfall. Producers are expected to restore facilities on Monday. Meanwhile, oil workers in Norway will return to work after a wage bargain was struck between labour union and Norwegian oil firms. The strike threatened to reduce the country’s oil and gas output by 25%.
Much to crypto enthusiast, bitcoin gapped up $300 on open as Square’s $50mn investment reinvigorated confidence. Following Jack Dorsey’s announcement, long to short ratio data from OKExchange and Binance saw a spike to 23% - 25% from single digits.
Headliner to Review
- Canadian employment change rose from 245,800 to 378,200, doubling the forecast of 150,000. Similarly, the unemployment rate dropped from 10.2% to 9.0%, exceeding expectations of 9.8%. Statistics Canada noted the labour market is recovering faster than anticipated with job gains widespread across industries.
- U.K. monthly GDP posted a disappointing 2.1% growth compared to an expected 4.6%. On top of an already fragile economic recovery the new proposed local lockdown guidelines proposed by the House of Common risks derailing future growth.
Headliner to Watch
- The annual IMF and World bank meeting kicks off Monday where central bankers, finance ministers and private sectors executives gather to discuss the global outlook amid COVID-19, steps forward to recovery and post pandemic measures.
- Tuesday will see the IMF release its World Economic Outlook. Growth projections are expected to be revised from their June report whilst the report will delve into further details the economic impact of lockdowns.
- Despite controversy over Supreme Court nominee Amy Coney Barrett, confirmation hearings are expected to go ahead on Monday. Concerns have been raised over her aptitude to hold justice whilst separating from her religious beliefs.
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Topics: Market Commentary