Market Commentary - October 29, 2020
COVID-19 fall out fuels global risk-off sentiment as demand shifts toward safe-haven assets. Wednesday saw French President Macron announce new national lockdowns set to come into force on Friday and estimated to last a month. New measures dictate citizens are only allowed outside to seek essential goods, medical help and work. Schools will also remain open. Meanwhile, German Chancellor Merkel imposed a piecemeal approach to shut bars, restaurant and theatres for November. Likewise, schools stay open and shops too but with restrictions. Across Europe, Spain, Italy, Greece and Portugal reported record daily cases of infections with an increasingly bleak outlook a continent-wide lockdown is approaching.
Economic implications reverberated throughout global markets. The S&P and Nasdaq fell 2.8% and 3.4% respectively whilst the Dow made a 4-month low. U.S. energy stocks were among those hardest hit as they tracked the 4.2% decline in crude oil settling at $39.12. Prospects of demand recovery has stalled, further reinforced by yesterday surprise inventory surplus of 4.3M compared to an expected 1.5M.
Figure 1 (Source: IS Prime): STOXX daily chart : Covid woes sees STOXX falling off a cliff reminiscent of February's price action.
European exchanges embraced a sea of red with price action falling off a cliff. STOXX led declines tumbling 3.7%, followed closely by CAC down 3.6%, then DAX (-3.5%) and Spain (-2.7%). The FTSE did not escape the carnage, lower by 2.6% as Downing Street contemplates imposing lockdowns measures of their own.
Popularity in the greenback held firm as the dollar index rose 0.6%. The Aussie in focus, down 85 pips, its highest single day volatility for October. Turkey braces for higher inflation expectations with the USDTRY up 790 pips and momentarily breaching 8.3000, a historic high. The Japanese yen held firm following the BOJ monetary policy statement. Elsewhere, Gold fell below $1,900 on deflationary prospects.
Headliner to Review
- Bank of Canada (BOC) kept the key interest rate on hold at 0.25% as it is expected that Canada’s economy will not be able to cover the losses from COVID-19 until 2022. The road to full recovery is still dependent on the coronavirus pandemic.
- In line with expectations, the Bank of Japan (BOJ) kept monetary policy steady with short-term rates at -0.1% as it cuts GDP and CPI forecast for 2020. Nevertheless, recent upbeat export figures see’s the central authorities guiding long-term rates to 0% expecting a 2021 recovery.
Headliner to Watch
- China’s communist party is expected to unveil their economic plans which steer the nation towards growth for the next 15 years amid ever increasing animosity from other developed countries. The details stretching to the year 2035 seeks to build a moderately prosperous society, sweeping away outdated industries like coal and steel, whilst embracing technological innovation.
- The American economy is expected to make a historic rebound in Q3 with GDP flipping from -31.4% to 32%. Despite on-going coronavirus threats, reluctance to re-impose lockdown measures and ensured economically the nation continues to steam ahead. Likewise, unemployment claims figures will see a slight improvement from 787K to 773K
- Though no changes expected from the ECB today, many anticipate the central bank will hint fresh stimulus plans for December in efforts to buoy the European economies.
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Topics: Market Commentary