Market Commentary - October 19, 2020
Global indices and futures edged higher following Asia’s open despite risk-off sentiment on Wall Street from previous weeks end. The last two hours of Friday’s session saw Wall Street erase intraday gains ending down for the day. Investors seemingly unwilling to hold onto weekend exposure in the face of U.S. stimulus risk. On Saturday, House Speaker Pelosi set a deadline dictating certain levels of progress must be met by Tuesday for a stimulus deal to be signed before November elections. Pelosi and Treasury Secretary Mnuchin agreed to speak again on Monday.
Across the Atlantic, European indices continue to track the developments of COVID’s resurgence across the continent. Economic recovery efforts have been curbed as government re-implement stricter piecemeal lockdown measures. Nonetheless, a little reprieve for Europe’s markets with drug maker Pfizer announcing a potential coronavirus vaccine, ready by years end. The DAX, FRANC and STOXX responded via modest gains in positive territory between 1 – 1.2% respectively.
No-deal Brexit headlines continue to plague U.K with P.M. Boris Johnson informing businesses to prepare for a non-agreement. FTSE though eked out 0.7% gripping onto hopes that negotiations will persist in the following week despite political rhetoric between Brussels and Britain. Sign’s that the conservative party was willing to water down Johnson’s ‘walk-away’ demands further buoyed U.K markets.
Figure 1 (Source: IS Prime): NZDUSD Daily Chart : Sound pandemic countermeasures and economic recovery policy sees strong demand for the Kiwi dollar.
Despite headlines, fatigue is setting in, in the greenback as volatility dropped on Friday against G7 currencies. Efforts by the PBOC to stifle the yuan’s advance has seemingly failed with the currency almost regaining all ground lost from the initial surprise intervention. Gold fell $10, whilst Crude oil remained unchanged at around the $40 mark.
Jacinda Arden scored a landslide re-election win over her COVID response combined with a string of positive macroeconomic announcements has left the Kiwi dollar strong between the 0.65 – 0.68 range. The New Zealand economy is picking up steam, with inflation expected to increase from 1.5% to 1.7% and GDP to rebound 53.6% over the next four years.
A quiet week ahead for central bank meetings. Turkish authorities will meet on Thursday, but no change is expected with repo rates currently at 10.25%.
On the coronavirus front, 39.9M infected thus far and 1.11M resulted in deaths. The week begins with Germany, U.K, France, Italy, Spain, and Netherlands implementing new measures to combat daily record-breaking infection rates. In turn, the risk of Europe sliding towards a double-dip recession is increasing.Headliner to Review
- Core Retail Sales m/m increased from 0.5% to 1.5% and Retail Sales m/m increased from 0.6% to 1.9%. The stronger than expected retail sales growth was due to a significant increase in sales by motor vehicles and parts dealers, which jumped by 3.6 percent in September.
- Prelim UoM Consumer Sentiment increased from 80.4 to 81.2, which was better than the forecast of 80.2. This is the highest level since March when coronavirus pandemic hit the US. However, the index remains well below levels at around 100 at the start of the year.
- China’s economy has accelerated its recovery from the coronavirus epidemic. The National Bureau of Statistics announced today that China’s third-quarter GDP grew by 4.9% year-on-year, but it was much worse than the market expectations 5.5%. The National Bureau of Statistics expected the economic growth rate in the first three quarters has turned from negative to positive. The relationship between supply and demand has gradually improved.
Headliner to Watch
- RBA set to release monetary policy meeting minutes on Tuesday. The central bank has already signaled to markets to prepare for a reduction in cash rates in November to further support Australia’s ailing economy.
- BOC will release their business outlook survey Monday with analyst hoping the survey of about 100 business reveal the Canadian economy regaining recovery momentum.
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Topics: Market Commentary