Market Commentary – October 21, 2020

Kevin Jock

21st October 2020

    Aftermarket stimulus developments saw overnight Wall Street futures rebound from Tuesday’s lows. Investors were on edge as House Democrats self-imposed deadline loomed with no progress over the horizon. Much to market’s relief, late afternoon House Speaker Pelosi signalled a potential deal before November 3rd saying “I’m optimistic because I do think we have a shared value — not many — but a shared value that finally they want to crush the virus”. Republican’s had made concessions to up their deal to 1.88tn from 1.8tn, closing in on Democrats 2.2tn goal post. Thus far, Pelosi has yet to budge.

    Following futures, Hong Kong rallied as high as 1.2% on Asia’s open over renewed stimulus hope. Likewise, Japan up 0.5% as the export-dependent nation, of which approximately 20% of total exports is reliant upon U.S. trade. Elsewhere, Australia opens relatively unchanged after the benchmark surged 6% MTD on the prospect of November rate cuts and a growth boosting government budget.


Figure 1 (Source: Refinitiv): USDCNH Daily Chart : Demand China’s yuan is at a 2 year high as momentum accelerates with China’s market offering higher yield return for capital.

    Europe continues to underperform with Brexit negotiations still in play. Coronavirus countermeasure further threaten to derail fragile recoveries in Britain, Italy and Spain. As evident in Ireland with latest curbs expected to reduce GDP by 3.5% this year.

    Ahead of Thursday’s final president debate, the U.S. dollar index softened to a monthly low as risk appetite increased for majors like EURUSD, up 51 pip from the day before and settling above the 1.1800 level. On the emerging currency front, the appreciation in China’s yuan persist reaching a 2-year high after the PBOC set the USHCNH midpoint 149 pips lower to 6.6781 from 6.6930.

    Elsewhere oil edges up above $41 despite crude inventories expected to move into surplus. Gold moves back above the 1,900 level as investors position to hedge against long-term inflation in the event stimulus is passed.

Headliner to Review

  • Housing data out of the U.S. was strong as the market recovers with household taking advantage of historic low rates. The housing has staged a solid rebound after the drop from the pandemic-related lockdown. Building permits to increase from 1.48M to 1.55M while housing starts from 1.39M to 1.42M.
  • U.K. posted better than expected CPI data with inflation rising from 0.2% to 0.5% YoY. The largest contributor in September came from recreation and culture whilst downward pressure can still be seen in household goods, food and beverages.

Headliner to Watch

  • Canadian inflation numbers continue to be distorted by COVID as the economy steers itself out of the pandemic. September numbers are expected to stay negative at -0.1%, unchanged from the month before.
  • Retail sales in Canada though, set to increase from 0.6% to 1% with the sector driving demand via deep discount.
  • Of miscellaneous news, MPC Member Ramsden expected to speak at the Society of Professional Economist Online Conference, with regard to UK monetary policy and economic outlook.

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Antony Tan
Ben Li
Kevin Jock