The FOMC minutes released late in yesterdays US trading day, sent a wave of despair through markets, which continued through Asian and European trading. US markets opened weaker and then staged a recovery, despite some poor headline jobs numbers. Weekly Jobless Claims rose to over 1 Million, higher than expected, but markets rallied as ‘continuing claims’ fell by 636,000. The Fed’s commentary warned of the impact of the pandemic, which could ‘weigh heavily’ on the economic recovery and this was a wake up call to equities. Equities have been reaching historically record highs, so this was a reality check, but not for long? The US Dollar renaissance was short-lived, with the EUR bouncing to 1.1850, while the GBP spiked to 1.3200.
The warnings signals from the US, combined with the growing threats to the existing supply chain and more particularly China. Tensions continue to grow between the US and China. President Trump is intent on using China and their responsibility for the pandemic, as an issue in the upcoming Presidential election. This will adversely effect the Chinese and their suppliers. The AUD traded below 0.7200, while the NZD may test 0.6500 on the downside. The lock-down and the threats to the supply chain have caught these trade exposed countries in a pincer movement.
The twin threats remain and look set to continue to dominate markets.