The US markets withdrew after an overnight testimony by Dr. Anthony Fauci during a Senate committee hearing that reopening America’s states and cities risked serious consequences if done too quickly. Dr. Fauci is quarantined even after one of his employees tested positive for COVID-19. Refreshingly, he seems much more likely to speak the mind when not sharing a podium with the U.S. president who has a predominantly opposite view.
This is the time for dr. Faucy’s comments rather than their content that created markets, however. He obviously says the obvious in no uncertain terms. However, the comments came after an extended bullfight in capitalized “risk-on” assets, where markets had unknowingly ignored similar warnings in the past two weeks. This suggests that so far, most of the global recovery of top viruses is perhaps baked into the financial markets and that we are entering a period of sideways consolidation. Investors should be wary of the daily flip-flops in global mood for the rest of the week.
An insight into the challenges that lie ahead of us can come from down-under. New Zealand is praised for its efforts to contain COVID-19, and its economy is due almost entirely to reopening in the coming days. However, this did not prevent the New Zealand Reserve Bank this morning from announcing that it has doubled the amount of monthly quantitative easing to NZD 60 billion per month. Month. In addition to leaving the interest rate unchanged at 0.25%. The global economy will remain on the central bank’s life support for quite some time to come and make no mistake.
Another reality check is New York, Atlanta and St Louis Federal Reserve’s BNP Nowcasts. Depending on which you look at, they suggest that US GDP for Q2 is on the decline to 30 to 40% annually! You have read this correctly. Admittedly, with partial reopening begun, those numbers should improve, but have a mountain to climb for the next six weeks. But if anyone needed an example of how “emerging” markets have turned into trafficking virus, the evidence is right there.
This does not mean that there are no better days in the near term for stock markets. However, the street will become much more transient in the future, leading to markets chasing their tail more.
Shares in Asia follow Wall Street lower.
By slowing upward momentum, US investors brighter for recent long positions after headlines about the risk of reopening the economy prematurely. The timing and not the content of the headlines probably had a more noticeable effect that came after a multi-week break. The S&P 500 fell 2.05%, NASDAQ fell 2.06%, and Dow Jones fell 1.73%.
Asia has duly followed Wall Street south following its own extended multi-day rally, complicated concerns over secondary coronavirus outbreaks in South Korea and China. The Nikkei 225 has fallen 0.85% with the Shanghai Composite down 0.40%, the CSI 300 by 0.20%, with Kospi flat on the day. Regularly, Hang Seng has fallen 0.15%, the Straits Times by 0.30% with Australian and New Zealand lower by 0.70%.
Overall, the reaction in Asia has been modest, suggesting that the price measure is corrective and not a wholesale change in mood. We expect trading areas to be picky for the rest of the week as investors pursue headlines in a broader consolidation phase.
Foreign exchange markets refuse to follow the noise of stocks.
The US dollar ignored the negative price action in the stock and oil markets, with the greenback continuing to ease against the major currencies. The dollar index fell 0.28% to 99.96, while the Euro was a significant winner. The foreign exchange markets have not participated in the top virus type seen elsewhere, and are therefore less likely to turn the dollar’s gentle retreat sharply.
Most attention this morning has been on the New Zealand Dollar, which has fallen sharply this morning as the Reserve Bank makes uber-dovish comments following its unchanged exchange rate decision. RBNZ doubled its quantitative easing target to NZD 60 billion a month, with officials stating that they are not looking for a v-shaped recovery and asking banks to be prepared for negative interest rates by the end of the year. The Government of New Zealand has also announced a national interest test for all foreign investment. I suspect that New Zealand is the first developed economy out of blocks on this front and governments around the world will follow in the coming months.
NZD / USD has fallen 0.90% to 0.6015 this morning just above 0.5995 support, a multiple daily low and the 50-day moving average. A break at this level opens further losses to 0.5900 with original daily resistance now remote at 0.6160.
Elsewhere in Asia, major and regional currencies are traded almost unchanged for the day.
Oil eases in Asia.
Oil also refused to buy earnings seen on U.S. stocks, with both Brent crude and WTI rising higher in the New York session, supported by additional Saudi Arabia production cuts. Subdued trade with both Brent and WTI about 1.50% higher at $ 29.90 and $ 26.00 per barrel, respectively.
Both contracts have given ground this morning as shares move lower in Asia, Brent crude oil has fallen 50 cents to $ 29.50 per share. Barrel, and WTI has dropped 30 cents to $ 25.30 a barrel. Barrel.
Like stock markets, many good news has been baked in oil prices in recent weeks. Yesterday and today, the price action has a marked consolidating look. Like stocks, the danger is that investors will get whipsawed chasing their tails on a day-to-day mood. However, if anything, with an increase in speed, oil may be more vulnerable to negative headlines now than it has been in recent weeks.
Gold remains marooned midrange.
We may need to rename the gold to the narrative at this rate as precious metals continue to trade on either side of its $ 1700.00 one-ounce middle-class level quietly. Gold rose slightly overnight to $ 1702.00 per share. Ounce and is unchanged in Asian trade today.
Gold has fallen off investors’ radars for now, though its long-term foundation points to much higher levels going forward. Gold will have to break out of its longer-term range of either $ 1650.00 or $ 1750.00 an ounce to stimulate investor interest again.