News & Analysis

Overnight on Wall Street: Wednesday 23 September 2020

September 24, 2020

By Deepta Bolaky
 @DeeptaGOMarkets

Equity Markets

Global stocks edged higher after a tough start on Monday. European stocks recovered slightly on Tuesday after falling the most in three months due to the rising number of coronavirus cases. Despite the UK announcing new lockdown measures that could last for six months, major European stocks finished in positive territory. 

Wall Street also recovered some ground on the back of tech stocks. Despite the political gridlock over fiscal stimulus and Fed Chair Jerome Powell dovish comments, major US equity indices rose higher:

  • The Dow Jones Industrial Average added 140 points or 0.5% to 27,288.
  • S&P 500 rose by 35 points or 1.1% to 3,316.
  • Nasdaq Composite ended 185 points or 1.8% higher to 10,964.


Source: Bloomberg

Amazon Inc rallied following the rating upgrade from neutral to “outperform” from Bernstein. The e-commerce company was mainly upgraded following its success and growth during the pandemic. Other major tech stocks, Microsoft, Apple, Facebook and Google also got a boost on the back of Amazon’s upgrade.

Currency Markets

In the FX space, the US dollar remained strong against its counterparts on the back of its haven status.


Source: Bloomberg

On the economic front, it was a relatively muted calendar with more central banks speeches.

Australia – Negative Interest Rates has become an Option!

The Deputy Governor, Guy Debelle’s speech on the Australian economy and Monetary policy provided further guidance on the current state of the Australian and global economies and the monetary actions the RBA has taken to support the local economy. Most importantly, Deputy Guy Debelle outlines the four possibilities for further monetary actions if the RBA decides that it is warranted.

1st Option: Buy bonds further along the curve, supplementing the three-year yield target.

2nd Option: FX Intervention

3rd Option: Lower rates in the economy a little more without going into negative territory.

4th Option: Negative rates? The empirical evidence on negative rates is mixed.

The options of the currency intervention and negative interest rates have always been the least preferred ones for the RBA.  Yesterday, we note that the RBA is now prepared to explore these options as well if warranted. The Aussie dollar has appreciated over the months because of its higher interest rate over the US dollar and stronger iron ore prices. 

Amid a stronger US dollar and RBA’s comments, the Antipodean currency was among the worst performer and was seen trading lower from 72 US cents to 71 US cents.


Source: GO MT4

Eurozone – Appreciation of the Euro

The biggest driver of the Euro has been the unprecedented stimulus package and unity of the European countries during the pandemic. While President Lagarde stated that they do not target the exchange rate, the appreciation is being monitored. ECB’S Fabio Panetta, a member of ECB’s execution board also reiterated the need to monitor the appreciation of the Euro yesterday:

“The appreciation of the euro is one factor that we need to watch closely with regard to its implications for the medium-term inflation outlook, particularly at a time when current and expected inflation rates are both very low.”

On the data front, preliminary figures show that consumer confidence increased in both the euro area(0.8pointsup) and the EU(0.6points up)compared to August. At−13.9points(euro area) and −14.9points (EU), both indicators remain well below their long-term averages of −11.1 (euro area)and −10.5(EU). 

As fears of a second outbreak mount in the European regions, the signs of divergence in the economic recovery in the eurozone area has tamed the rise in the shared currency. After a substantial rally, the EURUSD pair has been trading within a range. On Tuesday, the pair was seen trading at the lower end of the range at around 1.17. 


Source: GO MT4

Commodities

Crude oil prices failed to regain some upside momentum dragged by the fears of a second wave of an outbreak in the European regions, a stronger US dollar and a bearish API report. As per the weekly crude oil stock report from API, inventories rose from previous -9.517M to 0.691M in September 18. As of writing, WTI Crude oil (Nymex) and Brent Crude (ICE) were trading around $39.60 and $41.72 respectively. 

Given the ongoing uncertainty on the demand outlook and renewed fears about the pandemic, traders are to monitor the weekly oil reports for fresh trading impetus.

Gold

After falling by around 3% on Monday, gold stabilised near a key psychological level at $1,900 despite the improvement in risk appetite and a stronger US dollar.


Source: GO MT4

On the technical side, a bearish signal has formed on the daily chart- the gold price dropped below the 50-day moving average:

By Deepta Bolaky
 @DeeptaGOMarkets

Key upcoming events

  • Commonwealth Bank Services and Manufacturing PMI and Retail Sales (Australia)
  • RBNZ Rate Statement and Interest Rate Decision (RBNZ)
  • All Industry Activity Index (Japan)
  • Gfk Consumer Confidence Survey and Markit Services, Manufacturing and Composite PMI (Germany)
  • Markit Manufacturing Services, Manufacturing and Composite PMI (Eurozone)
  • Markit Services and Manufacturing PMI (UK)
  • Fed’s Mester speech, Housing Price Index, Markit Manufacturing, Services and Composite PMI (US)
Thursday, 24 September 2020 
Indicative Index Dividends
Dividends are in Points
ASX200 WS30 US500 US2000 NDX100 CAC40 STOXX50
0 0 0.165 0.106 0.054 0 0
ESP35 ITA40 FTSE100 DAX30 HK50 JP225 INDIA50
0 0 0.791 0 1.48 0 0


Disclaimer:  The articles are from GO Markets analysts,  based on their independent analysis or personal experiences. Views or opinions or trading styles expressed are of their own;  should not be taken as either representative of or shared by GO Markets.  Advice (if any),  are of a ‘general’ nature and not based on your personal objectives, financial situation or needs.  You should therefore consider how appropriate the advice (if any) is to your objectives, financial situation and needs, before acting on the advice.  If the advice relates to acquiring a particular financial product, you should obtain and consider the Product Disclosure Statement (PDS) and Financial Services Guide (FSG) for that product before making any decisions.

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