Market Commentary - October 14, 2020
Following four consecutive days of advance, Wall Street retreated on Tuesday as U.S. stimulus negotiations stalling grabbed headlines. House Speaker Pelosi rejected a piecemeal $500bn proposal brought forth by Senate Majority Leader Mitch McConnell, far smaller than the $2.2tn passed by the House. In a rare glimpse in agreement, Trump defied Republican narrative tweeting “STIMULUS! Go big or go home!!!”.
Global mood was further dampened after Johnson & Johnson paused COVID-19 vaccine trials citing unexplained illness in participants. Likewise, Eli Lilly & Co halted their trials citing safety concerns just weeks after AstraZeneca suspended their late-stage trials. Given the plethora of negative news European indices snapped a 3-day winning streak as investors recalibrated expectations of when a cure will eventuate while the continent braces for a resurgence in cases. Banking slid over rising odds the ECB will implement more stimulus to combat COVID’s resurgence.
Asia opened mixed with Japan recovering from overnight wounds whilst Hong Kong slips lower following China’s President Xi Jinping’s nation-wide address, celebrating the 40th anniversary of the Shenzhen Special Economic Zone establishment. Australia rallied on the back of Aussie household sentiment index surging 11.9% in October despite continuing dire circumstances in Victoria.
Figure 1 (Source: Refinitiv): USDTHB Daily Chart : Thai baht remains in consolidation against the greenback as offsetting factors remain in play.
The American greenback held onto gains with risk-off sentiment rising amid uncertainty over stimulus and vaccines. Declines on the pound was further exacerbated by a looming no-deal Brexit. Neither P.M. Boris Johnson nor Brussel looks to concede ground on subsidies or fishing rights. In the east, Hong Kong’s central bank sold an additional $10.9bn HKD to stifle the local currency’s advance. Demand for HKD has been high as we edge closer towards Ant Group’s $35bn IPO in Hong Kong and Shanghai. Despite quarterly GDP shrunking 7%, the Monetary Authority of Singapore will keep policy unchanged whilst the government recently ramped up economic relief via a $100bn SGD package support businesses and workers.
Elsewhere oil rallied back above the $40 level.Headliner to Review
- Consumer Price Index (CPI) and Core CPI in the US dropped from 0.4% to 0.2% but they are still positive. Consumer prices in the United States rose for the fourth consecutive month in September, but inflation is slowing due to the economic impact caused by the new coronavirus epidemic. Overcapacity appeared during the slow recovery in the recession.
- Bank of England (BoE) Governor Andrew Bailey said they are not yet to decide to use negative interest rates. He said, "QE will remain part of our toolkit for time to come."
- The Claimant Count in UK dropped from 39,500 to 28,100, which was much lower than the estimate of 78,800. However, the unemployment rose from 4.1% to 4.5%. This was the highest level since May 2017. Average Earnings Index rose from -1.0% to 0, after three-month declines. With the new wave of COVID19 in the UK, investors remain nervous.
Headliner to Watch
- Following deflationary CPI data, the U.S. is expected to see PPI data sliding also from 0.3% to 0.2%
- Unemployment in Australia set to flip into negative territory with 38K losing jobs in September and the unemployment rate increasing from 6.8% to 7%
- Chinese CPI continues to moderate, expected to decline from 2.4% to 1.9% whilst PPI remains in negative territory at -1.9%
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Topics: Market Commentary