Market Commentary – November 25, 2020

Kevin Jock

25th November 2020

    Widespread risk-on sentiment as global indices continue to savour President-elect Joe Biden’s formal transition into office and the incoming business friendly administration appointees. Janet Yellen’s pick as Treasury Secretary dramatically improved global outlook as the Dow cracks 30,000 for the first time. Alongside Tesla’s debut into the S&P500, with the electric automaker soaring 6%, the broad-based benchmark also settled at historic highs. On the back of Wall Street’s buying frenzy, Nasdaq gained 1.5%.

    Though it’s not all smooth sailing ahead. Last week, departing Treasury Secretary Mnuchin retracted $429bn in emergency lending facilities from the Fed and re-directed funds towards the Cares Act. Of which requires congressional approval to access in a Republican controlled senate floor. This move drastically cuts Yellen’s war chest down to just under $80bn.

    Prospects of easing social restriction measures in France saw the STOXX and CAC cracking 9-months high again. Among European states, Frances’ virus curbs have successfully rounded the curve from daily infections of 86,000 to 9,000. President Emmanuel Macron is expected to announce relaxation of lockdown rules today. Elsewhere, Australia and Japan are both on course for the best month on record


Figure 1 (Source: IS Prime): Bitcoin Weekly : Bitcoin breaks all-time highs amid widespread risk-on exuberance.

    With post-election uncertainty in the U.S. fading and vaccine expectations at its peak, the U.S. dollar loses ground in favour of risk inclined currency alternatives. A view bolstered by Bitcoin as the cryptocurrency briefly breached all-time highs to 19,422 and institutional discussions of potentially taking the place of gold as the precious metal has suffered two consecutive days of 1.7% losses. The dollar stood at 0.7360 as strong Chinese demand for commodities lifted iron ore prices for which Australia is a large beneficiary. Frenzy risk seeking also saw crude oil prices break 10-month highs to $45.

Headliner to Review

  • CB Consumer Confidence in the US weakened sharping in October, lowering to 96.1 in October from 101.4 in September. The reading is much worse than the expectation of 97.7.
  • German Final GDP in Q3 increased from 8.2% to 8.5%, confirming move out of its 3 quarter recession.
  • Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr said: “The RBNZ is operationally ready to implement negative OCR if conditions warrant it.” If the RBNZ had not eased monetary policy further, the NZD/USD exchange rate would move higher.

Headliner to Watch

  • Q3 GDP in the U.S. expected to rebound to 33.1% following the largest economic contraction on record. Easing restrictions in the third quarter saw a resumption in business activity at the expense of feeding the virus pandemic. Recent months saw daily infection grow 4-fold, affecting labour demand as the unemployment claims is set to edge lower from 742K to 732K.
  • Focus to shift on the Fed’s meeting minutes today. With gold in freefall, investors hope insight into any  additional easing will halt the outflows. However, recent vaccine break through may see the Fed re-evaluate long-term economic outlook.

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Antony Tan
Ben Li
Kevin Jock