Market Commentary – September 16, 2020

Kevin Jock

16th September 2020

    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.


Figure 1 (Source: Refinitiv): USDTRY – High inflation and an ever-depreciating currency fuels Turkish investor appetite away from the lira.

    In emerging markets, an ailing economy and tight government purse sprung Mexico’s central bank to action. Monetary authorities will expand quantitative easing by 50bn pesos with existing credit facilities extended till February 2021. The USDMXN responded by halting declines.

    Recent data by Turkey’s central bank revealed 4bn of capital outflows into foreign currency bonds. Local ownership amounts to at a staggering 17.1bn. As the country suffers from inflation above 11% and an ever-depreciating lira, Turkish investors sought to hedge themselves through Eurobonds.

    Elsewhere, crude oil regained ground above $38 as hurricane Sally is forecast to hit landfall Tuesday night. Flash floods and storm surges causing damage amounting to $3bn is expected. Given the severity and course, over 25% of offshore oil production has been shut, with workers pulled from rigs.

Headliner to Review

  • Despite Brexit talks and COVID cases persisting, confidence is growing in the EU with yesterday’s ZEW economic sentiment surpassing expectations of 63.0 to 73.9. A silver lining is seen via the EU’s 750bn recovery fund on top each individual member state implementing their own relief measures. Germany for instance, has extended their furlough program by another 10bn euros.
  • UK Claimant Count Changed rose by 73.7k in August, which is much better than the expectation of 99.5k. Unemployment Rate increased slightly to 4.1% in July vs the previous 3.9%. The Average Earnings Index 3m/y in July was at -1% vs previous 1.2%. The data show that the UK labour market is in a holding pattern. This situation may remain unchanged while the coronavirus pandemic is still a concern.

Headliner to Watch

  • All eyes on FOMC during U.S. session with some analyst expecting an in the scope of bond purchases to longer term maturity. Economist have been deeply divided over America’s future with 2020 GDP contracting anywhere between 4.2% to 10%. Year-end unemployment expectations fared no better ranging from 7% to 14%.
  • Alongside FOMC, the Bank of Japan is expected to announce no changed to monetary policy. As the nation celebrates a new prime minister, the central bank will await, if any, fiscal policy changes Yoshihide Suga will implement once he is in power.
  • Following the global trend, New Zealand will officially enter recession as they record two consecutive quarters of negative GDP. Market consensus sees the economy contracting a historic -12.5% given the nation took one of the strictest lockdown measures since COVID-19 hit. Nonetheless the nation was rewarded with one the lowest infection cases among developed counterparties. The economy is expected to recovery next quarter as measures lax and businesses resume operation.
  • Aussie unemployment is expected to spike up with 40,000 losing their jobs and the jobless rate higher at 7.7%. Businesses have begun making piecemeal redundancies as the governments job seeker program is set to expire this month. The job seeker supported employers by paying a portion of their employees wages.


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Antony Tan
Ben Li
Kevin Jock