News & Analysis

Weekly Summary: Interest Rates and Central Banks

September 18, 2020

By Deepta Bolaky
 @DeeptaGOMarkets

Investors were very much focused on central banks meetings amid the current uncertainty and caution in the markets. Given that governments and central banks have gone out of their conventional ways to support the global economy in managing an unparalleled health and economic crisis, markets need to monitor how long will those stimulus stay in place.

Stock Market – The Bold statement by the Fed

The volatility in the stock market persists as investors are booking profits but at the same time, keeping the risk sentiment afloat over vaccine updates and easing of lockdown restrictions. Aside from the pandemic, geopolitical tensions between the two most powerful countries, US and China and Brexit woes have crept back into the markets over the months.  

Investors are navigating in a challenging environment given the economic and geopolitical uncertainties.


Source: Bloomberg

The Fed was clear – more has to be done on the fiscal side. It was widely interpreted that the Fed has limited resources left to lift the economy. The new dot plot shows that Fed’s policymakers expect no change in policy this year and borrowing costs will likely remain near zero through 2023.


Source: Bloomberg

Wall Street retreated following the FOMC projections. The sell-off in US mega-cap tech stocks also underpinned the US share market. Global stocks were mixed this week following the risk-on and risk-off sentiment.


Source: Bloomberg

Forex Market

In the forex market, major currencies were mixed against the US dollar. The British Pound, the Japanese Yen and commodity-linked currencies were among the best performers.


Source: Bloomberg

The British Pound also advanced higher despite Brexit ongoing saga and the growing opposition over the controversial Internal Market Bill which is plunging Brexit in another crisis. The economic data releases provided some support:

Employment Data

  • The number of people claiming unemployment-related benefits came in at 73.7K as against 100K expected.
  • The estimated UK unemployment rate for all people was 4.1%.
  • In May to July 2020, the rate of annual pay growth stood at a negative 1.0% for total pay but a positive 0.2% for regular pay.

Inflation Data

  • The Consumer Prices Index (CPI) 12-month rate was 0.2% in August 2020, down from 1.0% in July.
  • The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month inflation rate was 0.5% in August 2020, down from 1.1% in July 2020.
  • Retail Price Index (MoM) meets forecasts (-0.3%) in August. 

However, unlike the Fed, the Bank of England’s meeting was more eventful for markets. The BoE further explores the effectiveness of negative policy rates which spurred some selling in the GBP-related currencies pairs. The GBPUSD pair pared some gains and fell to the 1.29 level. Retail Sales will likely be the next catalyst for the Sterling. 

I 

The Antipodeans currencies were lifted by buoyant Retail Sales and Industrial Production data in China. Retail Sales year-on-year change came out at 0.5% and turned positive for the first time since the virus outbreak started. Industrial Production (YoY) came better-than-expected at 5.6%.

In Australia, employment reports were upbeat providing further support to the local currency:

  • Employment increased 111,000 to 12,583,400 people. Full-time employment increased 36,200 to 8,584,500 people and part-time employment increased 74,800 to 3,998,900 people.
  • Unemployment decreased 86,500 to 921,800 people.
  • Unemployment rate decreased 0.7 pts to 6.8%.

The Japanese Yen gained strength on the announcement that Japanese Chief Cabinet Secretary Yoshihide Suga will replace Shinzo Abe as the new leader. In a pandemic-induced environment, Japan may have avoided a new period of political uncertainty for Japan as the new Prime Minister looks set to follow the steps and framework pushed by the former Prime Minister Shinzo Abe.

The Canadian dollar edged higher on the back of firmer commodity prices and better-than-expected inflation:

  • The Consumer Price Index (CPI) rose 0.1% on a year-over-year basis in August, matching the 0.1% increase in July.
  • Excluding gasoline, the CPI rose 0.6% in August, following a 0.7% increase in July.  

The shared currency looks more vulnerable compared to its peers against the renewed demand for the US dollar. In the Eurozone, Industrial Production and ZEW surveys were better-than-expected. 

The US dollar was underpinned by Retail Sales figures and the Fed comments. 

Oil Market

Overall crude oil prices traded firmer to the upside this week. 

  • API reported a draw in crude oil stock was down to -9.517M on September 11 from the previous 2.97M. 
  • EIA issued a stock change of -4.4 million barrels in the same week

As of writing, WTI Crude oil (Nymex) and Brent Crude (ICE) were trading higher around $41.00 and $43.36 respectively.

Gold

Gold price swung between gains and losses amid geopolitical tensions, the movement in the US dollar and the Fed’s comments. As of writing, the XAUUSD pair is trading in familiar levels around the $1,950 level.

Key Upcoming Events

  • Retail Sales (UK)
  • Producer Price Index (Germany)
  • Retail Sales (Canada)
  • Michigan Consumer Sentiment Index (US)

By Deepta Bolaky
 @DeeptaGOMarkets

Monday, 21 September 2020 
Indicative Index Dividends
Dividends are in Points
ASX200 WS30 US500 US2000 NDX100 CAC40 STOXX50
0.064 0 0.166 0.041 1.281 0.1 0.426
ESP35 ITA40 FTSE100 DAX30 HK50 JP225 INDIA50
0 21.284 0 0 0 0 1.322


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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