By Deepta Bolaky
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:
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.
In the FX space, the US dollar remained strong against its counterparts on the back of its haven status.
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
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.
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
Key upcoming events
|Thursday, 24 September 2020
Indicative Index Dividends
Dividends are in Points
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