Market Commentary – October 20, 2020

Kevin Jock

20th October 2020

    Wall Street falters as stimulus deadline looms Tuesday with indices ending the past 5 sessions lower. Despite House Speaker Pelosi remaining optimistic that legislation could be devised in the final hours of the strait. Thus far, neither congressional parties have budged on their $1.8tn (Republican) and $2.2tn (Democrat) proposals. Regardless, Senate majority leader McConnell will put forth a $500bn piecemeal deal to the floor for vote on Wednesday.

    Worldwide COVID-19 cases officially passing 40M on Monday weighs on European markets. Broad-based benchmarks fell yesterday, with the STOXX leading the charge lower by 1.56%. Italian cases hit a daily record, with the government responding via implementing evening 9PM curfews. Likewise, Spain recorded their 1 millionth case as the nation reignites lockdown procedures. Pessimism across the channel outweighed signs of progress on a Brexit trade deal. Members of the House of Lords had signalled their willingness to remove Boris Johnson’s controversial clause in relation to Ireland. Nevertheless, the FTSE was down 0.8% by sessions end.


Figure 1 (Source: IS Prime): Crude Oil Daily Chart : COVID’s resurgence in Europe and Libyan production threatens crude prices despite effort from remaining OPEC members curbing production.

    A lack of data see’s Australia, Hong Kong and Japan remained relatively unchanged in Asia’s open. The U.S. dollar ended Monday’s session with mixed results across the board. For the past 3 weeks, the dollar index ranged between 0.93 – 0.94 as investors remain calm ahead of Thursday nights presidential debate and latter, November elections. The effects China’s surprise intervention has been completely negated the USDCNH hits 6.67833. After the PBOC measures, the currency had rose from 6.68847 to 6.7452 in the following days. Elsewhere, the HMKA continues to sell another $5.95bn HKD as demand for currency remains strong ahead of Ant Group’s IPO.

    Crude prices edged lower yesterday to $40.67 with the prospect of staying above the $40 level decreasing. On top of COVID’s resurgence in Europe stifling global demand recovery, Libya’s continues to defy their OPEC quotas after reopening the Sharara oilfields on Oct 11th. Currently the oilfield produces 150,000 bpd with the capacity to ramping up to 300,000 bpd.

Headliner to Review

  • From the Reserve Bank of Australia (RBA) meeting minutes, RBA considered that fiscal and monetary support would be required for some time given the outlook for the high unemployment rate. It is possible to reduce the targets for the cash rate and the 3-year yield towards zero, without going negative. It is also possible to buy government bonds further along the yield curve.
  • The BOC business outlook survey finds firms remain wary of either hiring or expanding as nearly half rely on federal wage subsidies to avoid laying off workers. In turn wage growth remains below historic averages with some firms reporting a freeze.

Headliner to Watch

  • Housing data out of the U.S. expected to remain strong as the market recovers with household taking advantage of historic low rates. Building permits to increase from 1.48M to 1.52M, likewise housing starts from 1.42M to 1.45M.

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Antony Tan
Ben Li
Kevin Jock