Market Commentary - September 22, 2020
Broad-based benchmarks dragged down globally by banking following a report released by Buzzfeed alleging rampant money laundering practices between 1999 and 2017. Suspected amount of activity equated to $2tn. Declines on Wall Street were further exacerbated over deteriorating prospects that a secondary stimulus bill will fail to reach an agreement by September’s end as the U.S. Senate remains in stalemate over the size of the relief package. European indices fell their most in 2 months over renewed piecemeal restriction measures in the U.K, Demark, Greece and Spain. Sparking fear that it may lead to a second nationwide lockdown. Travel and leisure shares felt the brunt of concerns. Despite a cascade of negative news, Australia and Hong Kong gapped higher on Asia’s open with Japan edging down.
Figure 1 (Source: IS Prime): SPT.CO.US Intraday - As supply shocks fade and a resurgence in COVID-19 impedes demand, crude oil prices tumbled as much as $2
Global nervousness in the market, saw a flight to safety as the greenback gained against its peers. The U.S. dollar index hit a 5-week high. A slew of Fed speakers including Jerome Powell on Monday further encouraged dollar demand with their reluctance to disclose any further details regarding how the Fed will achieve an average 2% inflation. The Mexican peso and Canadian loonie fell 1% and 0.8% respectively alongside crude oils 3.2% tumble as the resurgence of COVID-19 threatens an already fragile economic recovery. Attention on lower inflation expectations saw gold break down 1.9%, out of its recent consolidation. However, attempts to breach the 1,900-level failed. Likewise, the HKMA sold another 2.1bn HKD in defending the 7.75 band.
Headliner to Review
- Speaking online for the Community Reinvestment Act, Chair Jerome Powell from the Federal Reserve said, “We remain committed to using our tools to do what we can, for as long as it takes, to ensure that the recovery will be as strong as possible, and to limit lasting damage to the economy,”
- Europe’s economic recovery is uncertain and uneven due to the uncertainty of the coronavirus pandemic. European Central Bank president Christine Lagarde said, "The uncertainty of the current environment requires a very careful assessment of the incoming information, including developments in the exchange rate," They are paying close attention to strengthening of the euro.
- The Reserve Bank of Australia (RBA) had lowered interest rates to a record low 0.25% in an in mid-March to support the economy from coronavirus crisis. Deputy Governor Guy Debelle from Australia’s central bank said, “Given the outlook for inflation and employment is not consistent with the Bank’s objectives over the period ahead, the Board continues to assess other policy options,” The RBA may consider different monetary policy options such as negative rates and currency market intervention to meet its employment goals and inflation.
Headliner to Watch
- The UN General Assembly debate set to begin on Tuesday. Tensions expected to flare between China and the World. Especially as President Trump cast doubts over the Oracle’s TikTok takeover. China further inflamed East Asia politics by sending 40 warplanes across the Taiwan Strait median line that separates mainland the self-governing island.
- BOE Gov. Andrew Bailey will speak virtually at the British Chambers of Commerce. Many expect further forward guidance as to how the BOE will implement negative policy rates and ramifications.
- Fed Jerome Powell set to field questions from member of the House Financial Services Committee. The chairmen is expected to be pressed on questions in relation to the initial $2tn economic relief packages delivered by the Trump Administration in March 2020 where the pandemic began.
- RBNZ expected to leave policy rates unchanged at 0.25%. New Zealand is expected to open up their economy soon after successfully suppressing daily inflection rates to single digits.
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Topics: Market Commentary