Broad-based risk aversion led by US-China tensions and Powell speech to keep major indices and equities under pressure.
Summary: Global equities have taken a dovish turn following Fed Chair Powell’s speech yesterday. Both Fed Chair Powell and US infectious disease expert, Dr. Anthony Fauci, displayed concerns in their speech yesterday. Powell has predicted further economic downturn with long-lasting effects and mentioned the urgent need for the US government to put forth additional support to curb damages. In contrast, Mr. Fauci has predicted new large scale outbreaks of COVID-19 in case of lockdown termination and relaxation measures going live.
This caused overall global investor sentiment to turn risk-averse, causing Asian and European markets to follow the dovish cues resulting in major indices and key equities posting severe declines. Tensions between the US and China spiked once again as President Trump signed an executive order, which kept Huawei under strict tariff sanctions through the end of next year yesterday.
Precious Metals: Both Gold and Silver are enjoying a field day as risk sentiment in the market has turned sour over cues from the USA. Fears of economic downturn with long-term effects and geo-political events which continue to exert pressure provides a great level of fundamental support to gold and silver.
Crude Oil: Crude oil price is seeing both WTI and Brent indices and futures trade with clear positive bias despite broad-based risk-averse investor tone. Declining US weekly inventory data and a moderate improvement in IEA supply-demand imbalance assessment provided great fundamental support.
DXY: The US Dollar index, which measures the strength of Greenback against six major rival currencies, has moved back above the 100 level of an increased level of risk aversion in the market. But the weak economic outlook for the USA and concerns of a further outbreak in the USA keeps causes dovish influence keeping gains in check at the moment.
On The Lookout: The market outlook has taken a total 180” flip on the latter half of the week as updates from USA and Europe hint at a prolonged recession period and the possibility of vaccine development taking until the end of next year. This caused concerns of another wave of COVID-19 pandemic to peak considerably. While US weekly jobless data readings continue to show improvement to previous readings as various states are enforcing lockdown relaxation measures, the overall count still remains at historic levels causing concerns of recession to remain high.
On the release front, the US economic calendar sees the release of import and export price indexes aside from the release of initial jobless claims. In contrast, the Canadian calendar sees the release of Manufacturing Sales and BOC Governor Poloz’s speech. On earnings calendar front, Wall Street sees the release of financial data from Applied Materials, Norton LifeLock, and Nordstrom.
Trading Perspective: US futures trading in the international market saw a decline over fears of dovish long term economic outlook and second wave of a COVID-19 outbreak once lockdown is completely relaxed. This, along with the broad-based risk-averse sentiment, suggests Wall Street is set to open lower and resume downward momentum from the previous session.
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