Market watch - 24th September 2020
Fed Vice Chair Clarida said that the Fed would not even think about raising interest rates until actual inflation is at 2%. The dollar is well supported at the moment and has broken resistance levels on the dollar index. It is all down to the Presidential election, which is now 40 days away.
Yesterday, after Fed Chair Powell testified again and many Fed speakers reiterated calls for another stimulus package White House adviser Kudlow said another huge stimulus package was not needed, rather specific and targeted measures. The US equity markets fell around 3% on this combination of news. The dollar has continued to strengthen in European trading.
Prime Minister Trudeau said that the government would support people and businesses through this crisis for ‘as long as it lasts, whatever it takes. He announced plans to create 1 million jobs to bring employment back to pre-pandemic levels and will make ‘significant, long term sustained investment to create a Canada wide early learning and childcare system.’ As well as introducing support for the hardest hit industries. Aims for this parliament include addressing tax avoidance by digital giants and investment in infrastructure, including clean energy and affordable housing. Trudeau also said that they will legislate for zero emissions by 2050 and to enable this will make zero emissions vehicles more affordable as well as investing in Canadian charging stations. The positive sentiment was balanced by comments that the second wave of covid 19 was underway and that the fall could be much worse than what was experienced in the spring. USDCAD continued to push higher on this news as it gained 0.5% yesterday.
EUR/USD has been consistently under pressure this week as the dollar has gained. Some market participants were hoping for positive news that the ECB would be able to extend its emergency powers to support the eurozone over the medium to long-term. However, ECB Board member, Mersch, publicly suggested that there were too many hurdles to surmount and so this would not be the case. We had the SNB interest rate decision earlier today as interest rates were kept at a negative 0.75%. In addition to this SNB Chairman Jordan said that the SNB’s intervention had had an impact against the upward pressure on the Swiss franc. The German IFO institute reading was pretty much as expected as they said that German industry was continuing to recover, with export expectations improving significantly.
The event risk surrounding the US presidential elections is driving investors to the dollar. The options market has seen the market start to buy dollar calls, as the view grows that the end of 2021 could be volatile. In regards to GBP/USD, there was more negative news as JPMorgan announced that it would move USD 230 billion from London to Frankfurt because of concerns over passporting rules between the UK and EU after December 31st.
The Chancellor has cancelled the budget and will instead today announce a multi billion pound package of support for the economy, with the aim of attempting to avoid mass redundancies this winter. There were 6,000 new cases of Covid in the UK yesterday.
The AUD fell 1.5% yesterday on US dollar safe haven buying. Overnight, Morgan Stanley suggested that iron ore prices would continue to fall and this again weighed on the AUD.