Daily Market Commentary 24th September 2020

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The recent rebound in US equity markets turned sour, in the US overnight. European and Asian equity markets had previously booked gains, despite the release of weak economic data numbers. The EU flash PMI data showed weaker than expected gains, dragged lower by the services sector, which has continued to struggle amidst spikes in virus infections. Europe and the UK are suffering a surge in infection rates, which has lead to various re-impositions of restrictions, although mortality rates remain low. The EUR fell below 1.1700, while the GBP slipped to 1.2745, as reversal of restrictions, are being partially reversed.

US markets turned negative, lead lower by tech shares, which resulted in further gains in the safe-haven US Dollar. Federal Reserve Chair Powell appeared in front of the House Finance Committee and prescribed that further fiscal stimulus was necessary. US flash PMI was much better than the European releases, as they continue to re-open, supported by the Trump administration. Australian flash PMI was also positive, as the country struggles to overcome the second wave of the spread of the virus. The RBNZ left rates unchanged and QE in place, as expected. The rising reserve pushed these commodity currencies lower. The AUD dropped below 0.7100, while the NZD crashed to 0.6560, despite little action following the Central Banks decision.

Equity markets look to be headed to a technical correction, although the longer term trend, remains upward. Tech shares have been the major beneficiaries of the lock-downs and are now the target of a re-balance. Commodity currencies remain extremely vulnerable to US/China trade relations.

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