Market Commentary – October 05, 2020

Kevin Jock

5th October 2020

    Global indices initially declined sharply after news broke on Friday revealed U.S. President Donald Trump had tested positive for COVID-19. Alongside the risk-off sentiment, investors subsequently piled into gold and the Japanese yen. Nonetheless by the end of the U.S. session, much of the shock was reversed as further details released by the administration suggest Trump only has a mild case.

    Despite confusion over the weekends, from contradictory accounts of the president’s prognosis to the severity of drugs administered, futures and indices were off to a solid start in Asia session today. Australia rallied as much as 1% on open, with Hong Kong and Japan gapping up. Futures on Wall Street benchmarks pointed higher, set for gains when the underlying opens.

    Since Asia’s open, the greenback lost ground against most G7 currencies. Likewise, the yen has retreated all risk-off gains from Friday. Crude continues to drift lower, touching $36.51 as demand outlook remains vulnerable. In the face of inventory deficits, resurging COVID cases hampering global demand, especially in Europe, persistently grab headlines.

Trump News

Figure 1 (Source: Refinitiv): S&P500 Mini Futures Daily Chart : As news broke of Trump contracting coronavirus, the S&P500 mini futures fell 1.8%, only to reverse all losses by Friday’s end.

    For the week ahead, Brexit negotiations remain in a stale mate. Chancellor Merkel will meet with EU chief negotiator Barnier to set out potential concessions. The chancellor has voiced optimism a deal can still be struck by years end. Likewise, little sign a breakthrough on a U.S. relief package would be imminent. On Tuesday, the RBA is broadly expected to leave policy rates unchanged whilst on Wednesday, the Federal Reserve will release September meeting minutes. On the same day as the RBA’s announcement, the Australia government will announce its annual budget, widely expect to address new stimulus measures.

    On the coronavirus front, a second wave of cases in France has Paris placed on high alert. Closures in bars and restaurants with stricter social distancing measures expected to be implemented today. In the east, Beijing is expanding its experimental vaccine administration program. Success would result in China’s dominance over global supplies.


Headliner to Review

  • Average Hourly Earnings m/m in the US dropped from 0.3% to 0.1%, which is worse than the expected 0.5%.
  • The US consumer sentiment index was upwardly revised to 80.4 in September from the preliminary reading of 78.9. It is expected to be upwardly revised to 78.9.
  • The unemployment rate in the US has dropped from the record high of 14.7% during the worst stages of the coronavirus pandemic to 7.9% in September. It dropped to 7.9% in Sep from 8.4% in the previous month, compared with the expectation 8.2%.
  • From Non-Farm Employment Change, US created 661,000 jobs in September, versus 1.489 million jobs created last month. It is much worse than the expectation 900,000. The gain in hiring was the smallest since the economy reopened and pointed to deceleration in the recovery.
  • NAB Business Confidence improved to -4, compared with the previous figure -8. Retail currently sees the best conditions as government support it.
  • Spanish Unemployment changed from +29.8k to -26.3k, which is much better than the expected 59.5k.

Headliner to Watch

  • The RBA is expected to leave the cash rate unchanged at 25 basis points, with analyst still pricing in the chance of monetary expansion in November as the Australian economy is still stricken by COVID’s impact.
  • The Australian government set to release the nations annual budget on Tuesday. A huge 7.5bn infrastructure program is expected, intended to boost GDP. Tax cuts expected for people earning more than 90K a year and tax concessions for small businesses with annual turnover between $10mn – $50mn
  • U.S. non-manufacturing PMI expected to edge lower from 56.9 to 56.3 but will in expansionary phase.

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Antony Tan
Ben Li
Kevin Jock