Market Commentary - September 17, 2020

Posted by Kevin Jock on Sep 17, 2020 6:53:28 AM

    Wallstreet reacted poorly to Federal Reserve Jerome Powell’s FOMC remarks as broad-based benchmarks retreated. Despite signalling rates will be left near zero through till 2023 ensuring 2% inflation over time will be achieved, the Fed fell short on implementing additional easing, targeting long-dated bonds. European indices ended the session mixed. Disappointing U.S. investor sentiment flowed into Europe however was offset by a continuing strong retail sector quarterly result. Indices and futures fell on Asia open as time allowed markets to sufficiently digest the implication of Powell’s press conference. Thus far, Australia has slid 1.1% while Hong Kong fell 1.6%, and Japan edged 0.8% lower.


Crude Oil

Figure 1 (Source: IS Prime): SPT.US.CO 15 min chart - Supply shocks resulting from consecutive hurricanes saw crude oil prices gain.

    Likewise, the greenback is posting heavy gains during Asia session as G7 currencies tumble even amid better than expected macroeconomic data out of Australia and New Zealand in the morning. Gold continues to consolidate between 1,900 and 2,000. While a combination of a surprise inventory deficit and Hurricane Sally see’s crude oil prices rebound almost $3 in two consecutive days. As Sally hit, much of the U.S. Gulf Coast has been inundated with flooding with over 25% of offshore production facilities shut. OPEC members plus Russia will meet virtually on Thursday to review exiting oil policies. Despite the recent slide in oil, consensus sees OPEC reluctant to curb supply. Rather countries like UAE of whom have produce well above quotas are expected to compensate via production cuts.


Headliner to Review

  • The Federal Reserve committed to do more to help the US economic recovery from the coronavirus crisis, keeping the Federal Funds Rate nearly zero. Under the new policy framework Powell has stated, it’ll put the Fed in a very strong position to ensure rates will stay low until America's labor market has recovered "consistent with the Committee's assessments of maximum employment" and that the inflation rate has averaged 2% over time. One nagging disappoint was the reluctance by the Fed to increase bond purchases of long-dated maturities.
  • Retail sales figures in the US were well below expectations. Core Retail Sales m/m dropped from 1.3% to 0.7% while Retail Sales m/m dropped from 0.9% to 0.6%. While four months of positive retail sales growth is encouraging, the pace of growth has showed signs of slowly, reminiscent of recent data illustrating a lethargic economic recovery.
  • US Crude oil inventories surprisingly decreased by 4.4M barrels when a surplus of 2.1M was expected. As opposed to demand, supply shocks with Hurricane Laura and Sally making U.S. landfall just weeks apart has affected oil logistics.
  • GDP in New Zealand fell a seasonally adjusted -12.2% in the second quarter. The data was expected as the worst of COVID disruption hit. Nonetheless, economist expect the nation to bounce back 3rd quarter considering how well New Zealanders had adhered to quarantine and contained much of COVID-19.
  • Unemployment figures out of Australia beat expectations as analyst saw joblessness increase by 40K, rather 111K Aussies was employed. Over 2/3 of employment was resulting from part-time. Such figures provide confidence in the government as the job-seeker stimulus package is set to expire this month. The unemployment declined from 7.5% to 6.8%

Headliner to Watch

  • Amid signs of a fading economic recovery and rising Brexit tensions, the BOE is expected to leave rates and bond purchase programs unchanged. Despite services like bars and shops re-opening, employment still slid 100K for July. And inflation remains weak, below the 2% target. Consensus still sees the BOE expanding quantitative easing by 50bn by years end.
  • U.S. initial jobless claims is expected to decline from 884K to 825K. Recovery in the labour market continues to taper large due to COVID-19 but also congresses reluctance in negotiating an additional fiscal stimulus package.

 

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Authors:
Antony Tan
Ben Li
Kevin Jock

Topics: Market Commentary

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