Daily Market Commentary 18th September 2020

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Central banks caused extreme volatility in equity markets overnight, while interest rates and currencies remained stable. The Federal Reserve left rates and QE unchanged, while the Bank of Japan and Bank of England followed suit. The Fed also assured markets that interest rates would remain at historical low levels, for years to come, encouraging investors. The Central Bank commentary was keenly awaited, with the Bank of Japan observing the economy ‘has started to pick up’, but remained in a ‘severe situation’. The Bank of England echoed this sentiment, warning risks and uncertainty remained high, despite stronger than expected economic news. This hit equity markets hard in Europe and early US trade but a recovery was underway.

The Dollar remains reliably in remission, with the EUR trading 1.1830, while the Yen has rallied to 104.70. The GBP remains under pressure, as trade talks with the EU appear to be failing, but the real downside remains the economy and re-opening. Central Bank monetary stimulus, through record low interest rates and ‘QE Infinity’ will continue to drive markets, until deficit and debt are once again recognised.

The Australian Employment data was stronger than expected, adding 111,000, jobs driving the headline rate down to 6.6% (from an expected 7.7%)! These bullish numbers were not reflected in the currency, with the AUD tumbling back to 0.7260, although a late recovery in US equities and sentiment returned the currency back above 0.7300 on the open. The NZD was static in the previous days trade, after GDP data contracted 12.2% for the quarter, better than expected but confirming a deep recession. The KIWI will open much stronger, as US equities staged a late recovery, from substantial early losses.

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