Markets opened the week with little economic data releases to drive market direction, so attention turned to the macro issues, of trade and the return of the virus. Chinese cases spiked up and fears over a second wave swept Asian markets, which flowed through to European markets. Losses in equities reflected the fears of a ‘second wave’ in Europe and the US, which suffered spikes in certain US States. Early losses on US bourses were arrested by the Federal Reserve, which announced they would extend the ‘QE Infinity’ to purchases of individual corporate bonds! This is a major step away from the Fed’s previous role and now, could be seen as interference in markets by ‘picking individual winners and losers’?
The reversal in US equities, triggered a major reversal in currencies, as the US Dollar turned sharply lower. The EUR jumped to 1.1320, while the GBP looked to regain 1.2600, as fears were allayed. Trade with China remains a distinct issue, as the aggressive political actions, may be met with sanctions. The trade exposed commodity currencies were able to benefit the flagging reserve, with the AUD rising above 0.6900, while the NZD pushed back to 0.6470.
NZ and Australia have achieved ‘control and containment’ of the virus, but they remain vulnerable to fears over a ‘second wave’, while exposed to China trade repercussions.