Market Outlook

Risk aversion is now the main theme in the markets. Market sentiment is bearish due to the fears of another coronavirus outbreak. Not only European countries, but also the US, may impose lockdown measures again if the daily confirmed cases further soar in the coming days. Investors once again are worried about the economic recovery. Globally speaking, restrictions means a relatively pessimistic figure of the GDP ahead. Safe-haven demand drove the dollar up sharply on Monday, reflecting “Cash is King”. Gold, usually deemed as another shelter, again did not find any support during such panic movement, with gold price dropping more than 3% to $1882 level on Monday US trading session.
Stepping to the European trading session, investors are still cautious. The dollar index dropped a bit, but overall is still steady, ranging around 93 level, implying no clear direction so far. Traders are a bit doubted about the economic recovery in the US amid mixed performance of the US figures. Last Friday, the University of Michigan Consumer Sentiment Index in September was 78.9, beat expectation of 75, while the leading index in August was up 1.2% monthly, slightly missed expectation of up 1.3%.
ZFX analyst Jacob Leung said that the dollar clearly strengthened after FOMC meeting, implying three points. First, the investment market is more concerned about Powell’s comment on the economic outlook. Second, investors may have already fully anticipated all the information from Fed, causing a “buy the rumor sell the news” effect. Third, after eliminating the potential bearish of the dollar, risk aversion dominated again. The sell-off pressure in the stock markets may once again trigger the demand of the safe-haven.
Investors are focusing on the FOMC’s meeting. Besides the update of the GDP, unemployment situation and inflation prediction, the Fed may further hint its policy stance and rate expectations. The meeting's result is scheduled as the afternoon of Wednesday in the US.
The recent Sterling has become key focus of FX market as investors are worried about no deal situation, causing pressure on the Sterling. The GBP/USD dropped to 1.28 level, setting a clear downtrend these days against the dollar. On Monday, the Asian stock markets were generally trading higher as the sentiment improved and the futures of those US indexes were doing good. Although the global pandemic is still severe, with more than 29 million confirmed cases, more than 920000 deaths, the restart of the vaccine trials by AstraZeneca and Oxford University in the UK boosts optimism.
Traders are closely watching the trend of the greenback, which can spark the volatility of global equities. A slip of the dollar is normally suggesting an improvement in risk appetite. On Wednesday, the dollar fell against all major currencies and commodities. Gold price reached a high around $1950 despite the recovery of risk appetite.
“Cash is King” once again reflected the recent strength of the dollar. Dollar index has bounced around 2% from 91.75. Investors sold riskier assets in a such bearish condition, turning back to hold dollar, driven by risk aversion demand. The fears of “hard”Brexit pushed the Sterling to 1.29 level, dropping around 200 pips against dollar on Tuesday.
The NFP showed 1.371 million jobs were added in August, slightly less than the expectations around 1.4 million. But, the unemployment rate in August unexpectedly dropped to 8.4%, far lower than expected. As there is no fundamental change in the US economy, investors believe that such tumble was just a normal correction, and the three major indexes finally rebounded after the fluctuation.
The Wall Street overnight was bullish together with the bouncing dollar. S&P 500 and Nasdaq hit record highs again, and the DOW reached 29000 level, the highest since the late February. However, stocks in Asian trading session were just mixed on Thursday as investors react differently to the latest economic data. The US stocks even closed higher after the disappointing ADP figures, showing that the private payrolls only increased by 428000 in August, far below expectation of over 900000, triggering concerns over the US labor market.
On Tuesday earlier, weak dollar was the market theme in the financial market. However, after the economic data announcement in the US session, the dollar obviously regained its loss. A better than expected ISM manufacturing figures restored the confidence over the dollar, and further improved the market sentiment. The three major Wall Street indexes rose, of which the Nasdaq jumped nearly 1.4%.