Market Commentary - October 27, 2020
With U.S. elections a week away, risk-off sentiment amid fruitless stimulus negotiations and a persistent resurgence in COVID-19 across major financial hubs saw global benchmarks tumble at the start of the week. Prospects for a coronavirus relief bill before election day fell to near zero as House Speaker Pelosi and Treasury Secretary Mnuchin failed to reconcile differences, with the senate floor scheduled for a break starting Tuesday.
Following Wall Street’s disappointing performance overnight, Asia opened with Australia and Hong Kong sinking 1% and 1.1% respectively. Japan somewhat recovered from the initial 0.7% loss on the back of Canon’s forecast beating earnings report. Germany’s blue-chip index DAX led Europe’s declines with a 3.7% plunge dragged down by SAP SE’s pessimistic outlook. The stock slumped 22% as they abandoned their profitable forward guidance attributing from the current pandemic. Meanwhile, STOXX declined 3% amid stricter restrictions in Italy and Spain further dimming hope for a Eurozone economic recovery as business activity is forced to a standstill.
Figure 1 (Source: IS Prime): USDMXN Daily Chart : Improving macroeconomic statistics see continuing demand for Mexico's peso.
Amid rising global uncertainty, investors sought protection within the American greenback as the dollar index edged higher. China’s yuan lost ground depreciating 0.54% with geopolitical tensions flaring after the U.S. state department signed approval for a $2.4bn anti-ship missile arsenal to Taiwan. Turkey’s lira continues to deteriorate as USDTRY gains 1.67% and settles above the 8.0000 level. Reluctance from Turkey’s monetary authorities in increasing weekly repo rates last week saw the central bank lose credibility in reigning in on inflation. Mexico’s peso is just a hair line away from making a 7-month high. Demand for the Latam FX remain high with recent leading indicators such as retail sales rising four consecutive months allude to a strengthening economic recovery.
Elsewhere crude oil fell another dollar two day’s in a row. Libya reopening oil facilities continue to undermine production cut efforts by other OPEC states. Members are set to meet in November, with the agenda to delay pumping an expected additional 2 million bps in hopes to buoy oil markets. Demand recovery is also in doubt with the world struggling to contain a rise in infections.
Headliner to Review
- U.S. new home sales rose from 994K to 959K, which was rose than the forecast of 1025K. Housing across the nation remains resilient as households take advantage of record low rates with expectations the Fed will keep to the floor till 2023.
Headliner to Watch
- U.S. set to release monthly core durable and durable goods orders tomorrow with figures expected to remain positive at 0.3% and 0.5% respectively.
- U.S. consumer expected to remain strong despite the nation experiencing their third wave of coronavirus infections. Consensus see’s the index rise from 101.8 to 102.1.
- Australia’s CPI to snap disinflationary pressure as analyst expect a rise from -1.9% and 1.5% QoQ. Q3 saw the resumption in business activity across Australia following Q2 nationwide lockdowns.
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Topics: Market Commentary