The U.S. Dollar remains the strongest currency over the week, followed by Yen, as people are avoiding risk. European stocks cautiously inch higher. Sterling rebounds slightly, with some support the new jobs support scheme.
The U.S. Dollar Index, that measures the strength of the U.S. dollar against a broad basket of currencies, rebounded from a low of 91.75 to 94.50. The rebound happened since the Federal Reserve keep the interest rates at the bottom until the end of 2023. The uptrend of US dollar has put significant pressure on commodities like gold and silver. Metals has suffered a significant decline from the recent highs.
Recent rising COVID-19 cases and threats of lockdown in Europe, along with US general election on November will be the main concern in the market. Right now, the unclear direction over coronavirus policy and lack of new fiscal stimulus plan are causing a new level of uncertainty in the market. Concerns and anxiety have been rising about the second lockdown in the world especially in Europe, contributing more anxiety of renewed restrictions in the US.
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.
A lack of optimistic news ended Fridays’ session risk-off as global indices continued to slip. Investors remained watchful over the weekend amid a persistent virus pandemic, rising geo-political spats between China versus the world and U.S. election risk as rhetoric between both parties intensify. Asia’s off to a mute start with Japan on holiday, embracing Respect for the Aged Day.
Mixed results left the U.S. dollar index relatively unchanged against G10 currencies. Yuan retreated as China kept the lending steady for 5 straight months. Hong Kong Monetary Authorities sold another 3.31bn HKD in defending the lower 7.75 band. Elsewhere, the consolidation in gold continues to tighten whilst Bitcoin settles above the 10,000 level.
Recovery in crude oil prices was halted on Friday as news of inventory gluts and lackluster global demand grabbed headlines. China, the second largest oil import is expected to cut imports by 10% for the coming month. While recent data out of U.S. sees fuel consumption down 13% year on year. News of Libyan oil fields restarting production further added to the headwinds.
Bad news is good is news as Wallstreet recovered ground from a mid-session drop despite less than ideal jobless claims and housing data. Slump in banking weighed down European benchmarks. Record low near zero interest rates and continuing quantitative easing have squeezed traditional banking margins. The gradual acceptance of alternative online banks offering digital wallets have also chipped away at market share. For the lack of data ahead, Asia is off to a mute start as investors digest the weeks monetary policy decisions and await further clarity from government contemplating additional fiscal stimulus.
Yesterday’s session ended with the greenback losing all gains from Wednesday. For the past 2 months, the U.S. dollar index has consolidated between the 92’s and 93’s since the initial stimulus measures began expiring in August. Reluctance by the Federal Reserve to expand bond-purchases beyond short-dated securities is further fueling lackluster volatility. Upon the horizon however, aid negotiations are back on the table as President Trump diverged from Republican views signalling his willingness to sign a $1.5tn stimulus to plan. House Democrats have urged Speaker Pelosi to bring up a new relief bill to the floor for a vote. Swing district members have pressed for a $2.2tn deal whilst hard liners want a vote on a $3.4tn deal instead.
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.
Asia’s off to a quiet start as indices await the Federal Reserve’s economic projections and policy statement scheduled today. Wallstreet found support posting 2 days of consecutive gains anticipating a more flexible dovish tone given Chairman Powell’s greater tolerance to above norm inflation. An unexpected jump in ZEW economic sentiment coinciding with quarterly profit beating forecast in fashion retailers saw European indices boosted higher. Luxury good stocks like LVMH, Kering and Hermes also gained on the back of China’s first positive retail sales figure since January.
Apart from the yen, other G7 currencies eased off against the greenback ahead of tonight’s Fed meeting. As Yoshihide Suga cements his position as Japan’s new prime minister, repatriation in the yen is steadily growing with USDJPY at 105.44 by yesterday’s session end. Though Suga has reiterated in continuing his predecessors “Abenomics”, many doubt whether additional easing can be pursued considering the BOJ is already overextended. Debt to GDP is also one of the highest among developed countries, a concern for Suga given his first point of order is ponder whether an extension of fiscal aid is warranted.
Wallstreet bounced on the back of mega multi-billion-dollar deals from Softbank’s sale of chip designer Arm to Nvidia for $40bn, to Oracle outbidding Microsoft for social media platform TikTok. Both Nvidia and Oracle gapped above 5% on open, with the former ending the session up 5.82%. Likewise, the latter held onto most gains, up 4.32%. Europe ended the session relatively unchanged as gains in tech and travel offset losses from energy. Despite optimistic retail sales and production data out of China this morning, Asia is off to a mute start. Nikkei unchanged on news of Yoshihide Suga’s landslide victory in becoming Japan’s next prime minister with his win already priced in.
Backlash against Boris Johnson’s proposed internal market bill by high-profile ex-prime ministers halted the pounds freefall. Voicing in opposition, Tony Blair, Gordan Brown, John Major and Theresa May as they see Johnson’s unilateral amendment risking the country’s standing and reputation. The bill is currently making its way through parliament whereby later in the week Commons will vote. Elsewhere, the Hong Kong Monetary Authority sold 388m HKD as USDHKD attempted to breach the lower end of the 7.75 – 7.85 band during the U.S. session. Despite geopolitical rising geo-political tensions, China’s yuan has confidently settle’s above a 16-month high. Among developed nations, China is expected to be the only one to post positive economic growth at years end. Release of today’s positive leading economic indicators further propelled the yuan’s rise intra-day.
Broad-based benchmarks off to an optimistic start to the week, as Wall Street and Asia – Pacific lost ground for two consecutive weeks. Europe and U.K. fared better, ending last week’s sessions higher despite escalating Brexit tensions between Brussels and Britain. Global indices and futures rallied on Asia open with Nasdaq recovering 1.3% and Australia reaching as high as 1.2%. Nikkei climbed 0.8% as Softbank sells chip designer Arm to Nvidia for $40bn while Yoshihide Suga is poised to win leadership elections today for the ruling Liberal Democratic Party. Consequently, making Suga the next Prime Minister of Japan. Though analyst only see Suga winning 37% of regional party votes, he is expected to obtain 70% of party lawmaker votes, making the overall vote tally over 60%. Thus far, Japanese markets have been receptive of Suga’s appointments especially as he pledges to continue “Abenomics” of his predecessor.
Better than expected but nonetheless disinflationary data saw the U.S. dollar lose ground against majors and gold on Friday. Recent U.S macroeconomic data leaves the precious metal in a conundrum. Previous expectations illustrated price growth as rising amid monumental money supply and a deluge of fiscal stimulus. As such, gold broke historic highs reaching beyond $2,000 as investors looked towards safety against the inevitable inflation. Geo-political tensions between China and U.S. further fueled the rise. However, despite an ever-improving U.S labor market, CPI data has been lackluster. Of interest since late August gold remains in a tight slumber as it awaits further economic clarity.