Daily Market Pulse

Locked Down Again


Reflecting the scale of investors’ risk aversion, the USD rose 0.53% against a basket of major currencies, ensuring its safe-haven status. Meanwhile, on Wall Street, the S&P closed down 3.43%, the biggest one-day fall in over six weeks (all eleven S&P sectors closed in negative territory) and the tech-heavy Nasdaq edged down 3.6%. Elsewhere, there are concerns about election mail being delayed in Philadelphia. On the economic data front, the weekly jobless claims report is due from the US this afternoon, set to show a further improvement, with 775,000 initial claims expected. Continuing claims are also set to show an improvement, falling to 7.7 million.


The gloomy global outlook persist as Covid-19 cases in Europe continue to rise, leading several countries of the European Union to impose new lockdowns. Germany decided to close bars and restaurants for a month and the French president announced a second lockdown. Against this dark backdrop, risk aversion increased in the exchange markets, pushing the USD higher against the EUR on Wednesday, where the EUR slid by almost 0.5%. The European stock markets also saw a selling-off movement, with the DAX30 tumbled by 4.17%, with the CAC40 and the EuroStoxx600 sliding by 3.37% and by 2.95% respectively. It was a 3rd consecutive day in the red for the European majors share markets. Today, market participants will remain intensively focused on the European Central Bank’s meeting, where the new lockdowns could change the central bank’s stance in announcing preemptive stimulus measures.


Risk-off sentiment poured cold water on the possible GBP’s upward trend after the constructive Brexit development. Similar to other common currencies, the Sterling also slid on Wednesday, closing almost 0.5% lower against the USD. On the economic data front, market participants will be focused on Nationwide housing prices and BoE consumer credit scheduled for today. The market will also remain focused on the latest Covid-19 headlines, keenly paying attention to whether other nations follow the lead of France and Germany by tightening restrictions. 


The risk-averse environment favored the safe-haven JPY, which traded 0.11% higher on Wednesday, gaining ground against the USD. All the while, the Bank of Japan (BoJ) trimmed its growth forecast for the year and said it sees a more volatile path ahead. Also, as widely expected, the BoJ kept monetary policy steady, including a -0.1% target for short-term interest rates and a pledge to guide long-term rates around 0%. On the economic data front, according to the Ministry of Economy, Trade, and Industry, retail sales tumbled by 8.7% in September, year-on-year, following a 1.7% decline in August as Covid-19 kept a lid on consumers shopping appetite, underscoring the country’s’ fragile economic recovery from this year’s plunge.


Surging Covid-19 infections kept risk sentiment at bay, while a 5.1% fall in oil prices pushed the CAD down. The Loonie fell sharply 1.02% against the greenback on Wednesday while Canada’s main stock index fell as well. As widely expected, the Bank of Canada reinforced its commitment to keeping interest rates at historical lows (0.25%) at its meeting yesterday, continuing the supportive tone of major central banks. Today, market participants will continue to watch the Covid-19 situation in Europe very closely, as well as its impact on oil prices.


The Mexican peso tumbled 1.19% against the USD on Wednesday amid persistent fears due to an increase in Covid-19 infections in several countries and the uncertainty before the presidential elections in the United States. The oil price’ slide also contributed negatively to the MXN’s performance, after crude oil (WTI) fell sharply 5.1%, retracting to US$37.34/barrel. Crude has come under renewed pressure as the Covid-19 leads to a more fragile demand outlook, as well as rising supply from Libya. Today, investors will keep a close eye on the international scene developing, as news of lockdown measures across key economies of the Eurozone raise the prospects of another economic meltdown.


Yesterday, the CNY closed down 0.35% against the greenback after China’s major state-owned banks have been swapping U.S. dollars for yuan this week. Those operations in the onshore currency swap market have caused the value of the yuan to fall in the forward market, curbing expectations for it to appreciate, and simultaneously making it more expensive for investors to borrow yuan. Later today, investors will wait for a raft of PMI indicators, which could reinforce the strength of the Chinese economic recovery, while the other major economies are again immersed in the fight against the Covid-19.


Brazilian markets fell sharply on Wednesday, as stocks closed 4.25% lower and the real slid back 0.70% toward its five-month low against the USD after France and Germany both announced new lockdown measures to contain the Covid-19, which raised the prospects of another economic meltdown. Domestically, Brazil’s central bank held its benchmark interest rate (Selic) at 2% per year. It was the second consecutive meeting in which the central bank maintained the Selic at the current level. The decision came in line with what was expected by the whole market. It is important to highlight that the central bank recognized that current inflation is well above the bank’s expectations, but that should be temporary.


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