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AFEX Market Watch - 26th November 2020

What Happened Yesterday

 AUDUSD traded at a two month high in the morning, fell away during the European session, before retracing its gains to close at the day’s high. Although stock markets and commodity prices eased off, energy continued to surge. Oil tacked on 2% to close at a further eight month high. The market volatility index, VIX, recorded its lowest close since February 21st, the day Italy became the first country outside of China to lockdown towns.

 New applications for unemployment benefits in America rose to 778,000 last week. It was the second weekly increase in a row—a sign that the American economy is stalling as a third surge of covid-19 infections sweeps across the country. Claims are far below the peaks reached in April, but also well above pre-pandemic levels.

 Other American data were more upbeat. October capital goods orders were better than expected. The second reading for GDP growth rate in Q3 was unchanged, at 7.4% after the economy shrank by 9% in Q2. Consumer-spending growth in October also beat forecasts slightly. However, personal incomes in America also fell by 0.7% month-on-month, reversing a 0.7% gain in September.

Major Risk Event

America is in the third wave of the Covid epidemic. Hospitals are overflowing, schools children are being sent home and lockdowns are being considered. Nonetheless 50m people will travel for the Thanksgiving holiday with 3m already having flown home. This flies against the Centre for Disease Control and Prevention (CDCP) advice. We should expect to see a further surge in virus cases in the USA within the next week.

Today’s Agenda

 US markets will be closed for the Thanksgiving holidays today and USD payments will settle tomorrow. Their exchanges will close three hours early tomorrow too, with many traders taking extended leave. Banks facilitate the majority of foreign exchange volume. When they are closed the market is less liquid and speculators become a more dominant market influence. This can lead to both abnormally low and abnormally high volatility.

 Australian capital expenditure likely fell once again. The data is released at 11:30am and will reflect the continued risk aversion by Australian businesses to expand and invest in such an uncertain environment. It is a small data docket today with nothing coming from the US for the rest of the week. The most notable overseas release will be the accounts of the most recent European Central Bank meeting.

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