Against a backdrop of a worldwide pandemic & riots, the US tech. index has breached 10,000 for the first time.
Aside from the NASDAQ, equities were quite weak, with European equities closing lower and SP500 looking to do the same.
It was an odd up and down day, with oil moving from over 2% down to closing at the highs, around 2% up.
Gold was up more due to heavy USD weakness than anything else. Yields had a bad day and that supported Yen & Swissy strength. Commodity currencies were weak, though well off the lows now.
The market is signaling caution, though this could just be due to apprehension over the FOMC meeting tomorrow.
EVERYTHING LINING UP
We can add EURUSD to the list of currencies in key areas as we head into FOMC, with the highs today getting within 100 pips of the 2019 open - which has also been a key historic area of liquidity.
FOMC
Like so many other currencies v's USD, it is extended on its run & even if this is a major breakdown for USD, a big spike tomorrow could set up a fade that would work even if only to re-test the 1.13 area. With the market freezing up slightly today and everything in such important areas, tomorrow may be a pivotal moment for the coming months.
NFP estimates were miles off the mark on Friday. The old cognitive bias is kicking in strong for economists in this turbulent time and I doubt it is the last major deviation we will see in the coming months - though this was certainly a large one.
The initial reaction was a further jump in equity prices & general risk on mood, however it was noticeable how little AUD participated, grinding slightly higher whereas oil was up over 5% & various indices up 2% or more.
Riots continued in the US over the weekend, though were less violent than many perhaps expected, with Trump ordering the National Guard to leave D.C. & New York ending its curfew.
OPEC+ agreed to a month-long extension, with promises that the lack of compliance from some members would be made up. WTI has now made over a 200% rally off the lows & with the extension largely expected and priced in, it may come off in the week ahead.
Weakness In Gold
Gold had a poor week, with its lowest weekly close since March. This was also during days when USD was falling away which should support Gold.
Longer term, Gold is likely to move higher but for now we have everyone piling in to the trade, possibility of better news ahead meaning less monetary stimulus & if it does all fall apart, we know that Gold will be liquidated in a major sell-off. Make or break time this week & we are leaning towards a breakdown.
While the market was waiting for the ECB to be out of the way, the real news continues to be Germany's willingness to keep the purse strings open, with Merkel getting further stimulus approved yesterday & furthermore, hopes of closer fiscal union between the whole of the EU still alive. The UK was one of the main forces standing in the way of closer fiscal union; just perhaps, the UK leaving strengthened rather than weakened the Euro, at least for the next few years.
In saying that, this initial move has been significant and has potential for a heavy pullback, particularly if the US gets its act together. However, just while Europe is completing its re-opening, with reports from Scandinavia that life is 'back to normal,' areas of the US are seeing jumps in COVID cases again. While COVID numbers haven't been the thing to watch for a while, US numbers need to be kept an eye on over the next few weeks.
Following the European Central Bank's (ECB) decision to expand its Pandemic Emergency Purchase Programme (PEPP) by €600 billion to €1,350 billion, Christine Lagarde, President of the ECB, is delivering her remarks on the monetary policy outlook in a press conference.
Todays ECB bullet points:
• ECB still faces risks of fragmentation.
• ECB capital key is benchmark for purchase programs.
• PEPP operations will continue to operate flexibly.
COPPER: POP OR DROP?
Similar to other instruments, Copper has almost retraced its full March drop. Today was weak & failed to make a new high at the key 2.5 area.
With weekend risk ahead, there are a few signs that a retracement in risk is on the cards in to FOMC next week. If Copper drops lower early tomorrow, long Yen starts to look more attractive.
Though markets moved higher today, it wasn't as bullish a day as earlier in the week.
Copper is currently down on the day, the Australian Dollar had an up day but around half the range of recent days & oil was choppy amongst various OPEC headlines.
European equities were again the winners, with funds finding their way there (and in to the Euro), as the riots in the US continue to hit the headlines.
This is just a knee-jerk reaction and there is danger that a mis-step from the ECB tomorrow could hurt both the equity rally & the Euro's bull run- or just push funds back to the US.
The riots seem to be quieting down and this may allow COVID headlines to creep in again. Florida cases are on the rise, 2.3% new cases compared to average of 1.4% the last few days & German new cases are ticking up again too.
EURAUD HAS DONE THE ROUND TRIP
EURAUD made a bit of a bounce today after ticking below the February blast off area. It hasn't tested in to 2019 price action at all this year. If AUD can make a final push (or ECB does a decent job of keeping the Euro suppressed), this may tick EURAUD under the 1.6 area to take out some stops & would set up a decent long to play a bounce in time for a potential risk off move in to the weekend.
There's a market cliche that when there's blood on the streets, it's time to buy - and there is rarely blood on the streets in the US. As such, the market dutifully rallied, albeit to less of an extent in the US, with money flowing into European & Asian equities - perhaps, for once, seen as the less risky option.
US Equities Rallied
Though there were some early wobbles, AUD led the way with Copper, both having strong days and pointing the way for the wider market. Yen continued its weakness of the last few months.
Reports that the US government were looking to push through further stimulus helped push US equities up in the afternoon.
Governments are the largest customers for the companies in their economies; they are brandishing the largest credit cards that have ever existed & are not afraid to use them. One day, this will all come back to haunt them (and us)- but that could be some time away.
Groundhog Brexit
0530 : AUD RBA Rate Decision
Surprisingly, not any other major data due, however the Brexit negotiations resume & after GBP's run today, there could be a swift turnaround if headlines are negative.
