Market Commentary – September 18, 2020

Kevin Jock

18th September 2020

    Bad news is good is news as Wallstreet recovered ground from a mid-session drop despite less than ideal jobless claims and housing data. Slump in banking weighed down European benchmarks. Record low near zero interest rates and continuing quantitative easing have squeezed traditional banking margins. The gradual acceptance of alternative online banks offering digital wallets have also chipped away at market share. For the lack of data ahead, Asia is off to a mute start as investors digest the weeks monetary policy decisions and await further clarity from government contemplating additional fiscal stimulus.

    Yesterday’s session ended with the greenback losing all gains from Wednesday. For the past 2 months, the U.S. dollar index has consolidated between the 92’s and 93’s since the initial stimulus measures began expiring in August. Reluctance by the Federal Reserve to expand bond-purchases beyond short-dated securities is further fueling lackluster volatility. Upon the horizon however, aid negotiations are back on the table as President Trump diverged from Republican views signalling his willingness to sign a $1.5tn stimulus to plan. House Democrats have urged Speaker Pelosi to bring up a new relief bill to the floor for a vote. Swing district members have pressed for a $2.2tn deal whilst hard liners want a vote on a $3.4tn deal instead.

USD Dollar Index

Figure 1 (Source: Refinitiv): U.S. Dollar Index Daily – Lack of monetary and fiscal narrative leaves the U.S in range for the past 2 months

    Oil post 3 days of consecutive gains amid OPEC + Russia’s virtual meeting on Thursday. Saudi Arabia’s Price Abdulaziz voiced frustration over nations not complying with promised supply curbs. Stating “using tactics to over produce and hide non-compliance…achieve nothing and bring harm to our reputation and credibility”. Thus far, the biggest offender has been United Arab Emirates, over-producing by hundreds of thousands per month of which the UAE disputes.

    Elsewhere, bitcoin settles above 10,000 whilst gold remains in tight range between 1,900 and 1,975. Hong Kong monetary authorities sold another 1.86bn HKD to defend the 7.75 level. The BOJ noted they’ll take a longer term view under the new P.M Suga.

Headliner to Review

  • The Bank of England yesterday decided to keep the interest rates unchanged at 0.1% and maintained its current level of asset purchases. The Bank of England was considering negative rates as the UK economy faces challenges on rising COVID-19 cases, higher unemployment and possibly Brexit shock.
  • U.S. unemployment claims disappoint with last weeks revealed at 860K compared to the market consensus of 825K but still lower than previous week’s 893K. The figures show a modest downside in claims, which had a peak of 6.9 million in March due to shutdown of coronavirus pandemic.
  • ADP Non-Farm Employment Change in Canada dropped from -523,000 in July to -205,400 in August. The number was -1,764,600 in June and -2,951,400 in May. It is still a negative figure but at a decreasing rate.

Headliner to Watch

  • K retail sales continue to moderate as September’s data is expected decline from 3.6% to 0.8%. Likewise, Canadian retail sales set to decline from 15.7% to 0.5%. Thus far, the initial spurt in above norm consumer expenditure has largely been resultant from pent-up demand due to lockdown. Global sale figures are expected to normalize across the board back to long-term norms.
  • American consumer confidence expected to edge to 75, but is still below pre-pandemic levels of 95. Effects of COVID-19 continue to remain in the rear view as cases total 6.7M with 197K deaths.

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Antony Tan
Ben Li
Kevin Jock