Daily Market Commentary Friday 11th September 2020

Equity markets headed south again overnight, raising the argument over whether we are seeing a correction, or just profit taking in overbought tech shares? Central bank monetary policy, has seen extreme liquidity flooding markets and record historically low interest rates. This has fuelled the massive ‘V-shaped’ recovery on US share markets and bubbles in the tech shares, reflected heavily in the Nasdaq and S&P. The last week has seen a sharp correction lower and this may still be just profit taking from an overbought market, or perhaps worse a technical correction.

The ECB left rates unchanged and reviewed their GDP, from a minus 8.7% contraction, to 8% for the year. They did not add any further stimulus, via monetary policy and this turned equities negative. The EUR pushed up to 1.1850, but the GBP continued to lose ground, trading 1.2815. The GBP has been hit hard by the collapse in trade talks, between the UK and EU, following UK measures to break their formal Brexit agreement.

The virus is flourishing in Europe, but improved treatments and collapsing mortality rates have allowed European economies to re-open, avoiding an extremely deep recession. Trade remains a big problem, with the UK and EU at loggerhead and the US/China relations collapsing ahead of the Presidential elections. It seems volatility will continue to impact trade exposed currencies, with the NZD falling back below 0.6650, while the AUD trades 0.7260. The virus and politics look set to drive market direction.