Market Commentary - September 14, 2020
Broad-based benchmarks off to an optimistic start to the week, as Wall Street and Asia – Pacific lost ground for two consecutive weeks. Europe and U.K. fared better, ending last week’s sessions higher despite escalating Brexit tensions between Brussels and Britain. Global indices and futures rallied on Asia open with Nasdaq recovering 1.3% and Australia reaching as high as 1.2%. Nikkei climbed 0.8% as Softbank sells chip designer Arm to Nvidia for $40bn while Yoshihide Suga is poised to win leadership elections today for the ruling Liberal Democratic Party. Consequently, making Suga the next Prime Minister of Japan. Though analyst only see Suga winning 37% of regional party votes, he is expected to obtain 70% of party lawmaker votes, making the overall vote tally over 60%. Thus far, Japanese markets have been receptive of Suga’s appointments especially as he pledges to continue “Abenomics” of his predecessor.
Better than expected but nonetheless disinflationary data saw the U.S. dollar lose ground against majors and gold on Friday. Recent U.S macroeconomic data leaves the precious metal in a conundrum. Previous expectations illustrated price growth as rising amid monumental money supply and a deluge of fiscal stimulus. As such, gold broke historic highs reaching beyond $2,000 as investors looked towards safety against the inevitable inflation. Geo-political tensions between China and U.S. further fueled the rise. However, despite an ever-improving U.S labor market, CPI data has been lackluster. Of interest since late August gold remains in a tight slumber as it awaits further economic clarity.
Figure 1 (Source: Refinitiv): XAUUSD - Spot gold consolidates within a technical triangle for the past month as it awaits further economic clarity.
On the coronavirus front, 28.9M cases worldwide with 922K deaths. America inches closer to 200K deaths. U.K implements stricter social gathering rules while across the channel Austria hit cases in semblance of numbers seen in March.
For the week ahead, the world’s biggest centrals banks will deliberate on monetary policy. The Federal Reserve on Wednesday, Bank of England, and Bank of Japan on Thursday. Though no changes are expected from either, investors are keen to review the Feds statements under the new framework, outlook from the BOE amid Brexit, and guidance from the BOJ under a new P.M.
Headliner to Review
- Eurogroup president and member state finance ministers met in Brussels face-to-face on Friday for the first time since COVID to finalize residual matters surrounding the 750bn recovery plan. The major focal within discussions, is the allowance of budgetary blowouts until 2022, before Euro members would thereafter be required to reign in on finances via sensible austerity again.
- European Central Bank President Christine Lagarde said on Sunday governments in Europe must keep spending heavily to support the recovery from its historic recession. Lagarde said, “Continued expansionary fiscal policies are vital to avoid excessive job shedding and support household incomes until the economic recovery is more robust.”
- Inflation data out of the U.S. is seemingly moderating with Friday’s figures beating expectations of 0.3%, instead posting 0.4%. Nonetheless the figure is a decline from the 0.6% seen in previous months. The gains are largely seen in fuel prices, recreation, and household furnishings. Of surprise though, prices in used cars and trucks rose the most in 51 years as American’s shift from public transport to personal vehicles amid COVID.
Headliner to Watch
- Aussie consumer sentiment expected to decline as Victoria extends stage 4 lockdown rules for another 2 weeks until 28th Businesses have lashed out against the Governments decision especially considering the services and hospitality industry will be decimated. Police has also clashed with anti-lockdown protesters.
- No surprises expected out of the RBA’s monetary policy meeting minutes tomorrow. Governor Lowe has already raised expectations of further easing dependent upon economic data in the coming weeks.
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Topics: Market Commentary