News & Analysis

Week Ahead: Reasons for Being Cautious

September 28, 2020

By Deepta Bolaky
 @DeeptaGOMarkets

Amid the current prevailing uncertainties, global risk appetite will likely remain fragile as investors have more reasons to stay cautious:

  • The resurgence of the coronavirus outbreak 
  • Volatility in the stock market
  • A tech rout 
  • Limitations of the central banks
  • Geopolitics tensions
  • US Election – First Presidential Debate

Equity Markets

Global equities might be poised for the first month of losses since the freefall in March triggered by the pandemic. The stock market went under heavy selling pressure throughout most of last week as a risk-off environment prevails.

September – Typical Bad Month for Stocks

On average, the month of September has been the worst month for the stock market. After an impressive rally in the last few months, investors kicked off the month with a rout in the technology sector and have struggled to find optimistic reasons to push global equities higher. 

The stock market went on a wild ride with major swings between gains and losses. Major US equity indices have retreated by more than 1.5% on four occasions since the end of August:

Presidential Debate

The most-waited political event of the year is fast approaching. In modern times, history has shown that an incumbent President has a clear advantage and usually wins re-election. The last president to lose re-election was George W Bush which was mostly due to an economic recession. COVID-19 has changed the odds and investors will be closely monitoring the Presidential debates. 

In a pandemic-induced environment, markets are in a need of more fiscal support from the government. The Fed Chair Jerome Powell has also repeatedly emphasised on the importance of fiscal stimulus to support the economy.

Amid a stimulus gridlock, the presidential debates have the potential to bring more volatility to the markets. 

Nonfarm Payrolls

Heading into the election year, the US President was confident that its hard stance on China and a thriving US economy with a historically strong labour market and greater economic security will be the focal points of his election campaign. However, the US economy contracted due to the various forms of lockdown amid the pandemic. 

The employment data scheduled to be released this week will be of utmost importance ahead of the US election as the recovery in the labour market is still quite soft.

Europe Second Wave

The Continent grapples with a resurgence of coronavirus cases heading into winter. Certain European countries and the UK imposes new restrictions to contain the virus. Investors will likely monitor the growing number of cases across Europe with particular attention on France and the UK. 

Key Economic Data to Watch

In the FX space, the US dollar made a solid comeback amid a broad-based risk-off sentiment, rising number of coronavirus cases in Europe and UK and a rout in the technology sector. The US dollar regains its safe-haven status and appreciated against all the G10 currencies last week.

The Steady Dollar

As a risk aversion environment continues to prevail, we expect the US dollar to remain steady and solid against its counterparts. As Europe grappled with a second wave of an outbreak which is giving rise to further lockdown restrictions, the shared currency will likely remain under pressure. Similarly, the Pound will stay underpinned by the virus fears and Brexit woes. 

On the economic front, aside from the NFP data, attention will be on consumer confidence, business climate and Retail Sales figures to gauge consumer spending and patterns. 

Commodities

Oil

After a tough start due to a stronger US dollar and mixed weekly oil reports, crude oil prices recovered some ground towards the end of last week. With the uncertainty on the demand outlook, traders will likely rely on crude oil inventory reports for fresh trading impetus.

Gold

Since August, the XAUUSD pair has been trading within a range as investors digested some positive vaccine updates, improving economic data and easing lockdown restrictions. With a stronger US dollar and a lack of fiscal stimulus in the US, the XAUUSD pair is struggling to firm to the upside despite the geopolitical and economic uncertainties. The XAUUSD pair plummeted below the key psychological level of $1,900 last week. 

Even though gold may be poised for further downside dragged by the strengthening dollar, the precious metal remains at elevated levels.

Traders are to keep monitoring geopolitical headlines, central banks decisions, inflation levels, and leading economic data for fresh trading impetus.

Key Events Ahead

Monday

  • Total Filled Jobs (New Zealand)
  • Leading Economic Index (Japan)

Tuesday

  • Tokyo CPI and Consumer Price Index (Japan)
  • Consumer Confidence and Business Climate (Eurozone)
  • Harmonized Index of Consumer Prices (Germany)
  • S&P 500/Case Shiller Home Price Indices, Fed’s Williams speech and Consumer Confidence (US)

Wednesday

  • Building Permits (New Zealand)
  • Retail Trade, Industrial Production and Large Retailers Sales (Japan)
  • Presidential Debate (US)
  • Non-Manufacturing PMI, NBS Manufacturing PMI and Caixin Manufacturing PMI (China)
  • Building Permits (Australia)
  • Gross Domestic Product and BoE’s Haldane Speech (UK)
  • Retail Sales, Unemployment Rate and Change (Germany)
  • KOF Leading Indicator and ZEW Survey Expectations (Switzerland)
  • Consumer Price Index (Eurozone)
  • ADP Employment Change, Core PCE, GDP, Chicago Purchasing Managers Index and Pending Home Sales (US)
  • Gross Domestic Product (Canada)
  • SNB Quarterly Bulletin (Switzerland)

Thursday

  • AiG Performance of Mfg Index and Commonwealth Bank Manufacturing PMI (Australia)
  • Tankan Large Manufacturing Outlook, Index and All Industry Capex (Japan)
  • Consumer Price Index and Real Retail Sales (Switzerland)
  • Markit Manufacturing PMI (Germany)
  • Markit Manufacturing PMI (UK)
  • Unemployment Rate (Eurozone)
  • Core PCE, Personal Income & Spending, Jobless Claims, Markit Manufacturing PMI, ISM Manufacturing Employment Index, Manufacturing, Prices Paid and New Orders Index and Fed’s Williams Speech (US)

Friday

  • ANZ – Roy Morgan Consumer Confidence (New Zealand)
  • Jobs/Applicants and Unemployment Rate (Japan)
  • Retail Sales (Australia)
  • Nonfarm Payrolls, Average Hourly Earnings, Labor Force Participation Rate, Underemployment Rate, Unemployment Rate, Michigan Consumer Sentiment Index, and Factory Orders (US)

By Deepta Bolaky
 @DeeptaGOMarkets

Tuesday, 29 September 2020 
Indicative Index Dividends
Dividends are in Points
ASX200 WS30 US500 US2000 NDX100 CAC40 STOXX50
0.306 0 0.418 0.48 0.631 0 0
ESP35 ITA40 FTSE100 DAX30 HK50 JP225 INDIA50
0 0 0 0 5.749 144.154 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.

Next:
Previous:

Let's Get Started with GO Open a Live Account Try a Free Demo