By Deepta Bolaky
It will be another busy week with central banks in focus. In a pandemic-induced environment, central banks and governments have absorbed all the shocks of the virus on the financial markets by injecting massive liquidity in the economy, keeping credit flowing and supporting the global economy with huge fiscal stimulus plans to manage an unparalleled health and economic crisis.
Investors will keep looking for guidance from the central banks and governments.
Global equities went on a wild ride over the last two weeks after investors got concerned by the sell-off in the technology sector. Mega-cap tech stocks have outperformed during the pandemic and its resilience have recently been challenged. Amid the volatility and uncertainty in the stock market, investors will look for reassurance from central banks.
The Federal Reserve, Bank of Japan and Bank of England will hold their policy meeting this week later this week. As widely expected, the central banks will likely remain on hold with no material changes.
The Fed will be closely monitored following its recent tweak in language regarding inflation target levels. Amid the political gridlock over the fiscal stimulus package and ahead of the US election, the Fed is unlikely going to put forward policy changes that could alter the election dynamics. Besides the labour market, the US economy is showing signs of improvement which might not warrant any action from the Fed at this stage.
The Bank of England is also facing a similar fate with Brexit sage fiercely coming back to the forefront. Even though the possibility of negative interest rates have been floating around after the BoE failed to rule it out, no changes are expected at this meeting.
Prime Minister Shinzo Abe, Japan’s longest-serving prime minister’s resignation has created a new period of political uncertainty for Japan. The Prime Minister was well-known for his Abenomics which involved a comprehensive policy package to revive the Japanese economy from two decades of deflation while still maintaining fiscal discipline.
Japan’s ruling Liberal Democratic Party (LDP) will hold a leadership vote to elect its new president on Monday. Abe’s replacement may bring volatility in the Japanese Yen and the stock market as markets will analyse the candidate in relation to its capacity in maintaining political relations with countries like the US, China, South and North Korea.
Brexit-related updates will likely continue to dominate headlines. The controversial Internal Market Bill dealing with Northern Ireland is the latest fallout between the European Union and the United Kingdom that threatens to disrupt further negotiations. GBP currency pairs will remain highly volatile to more updates which will unfold during the week.
In the FX space, the performance of the commodity-related currencies has flared better than the US dollar during the recent months. The key economic data releases to watch for commodity FX this week will be:
Tuesday: RBA Minutes and China’s Retail Sales and Industrial Production
Wednesday: Canada’s Inflation Data
Thursday: NZ GDP and Australia’s employment reports.
Retail Sales in the US and Canada will also gather attention as it is a leading indicator of consumers spending following the easing of lockdown measures.
Last week was another volatile week for Gold. After reaching fresh record highs, the precious metal plunged and slipped the most in seven years last week. Gold reclaimed the $2,000 level as risk sentiment faltered on Tuesday earlier this week but failed to hold on to gains. As of writing, the XAUUSD pair is trading around the $1,933 level.
Virus woes, US stimulus package, and geopolitical tensions are the current factors that could provide support to the haven asset.
By Deepta Bolaky
|Tuesday, 15 September 2020
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