By Deepta Bolaky
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.
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.
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.
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.
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.
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:
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.
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:
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 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.
Overall crude oil prices traded firmer to the upside this week.
As of writing, WTI Crude oil (Nymex) and Brent Crude (ICE) were trading higher around $41.00 and $43.36 respectively.
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.
By Deepta Bolaky
|Monday, 21 September 2020
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