The last few sessions have seen an increasing tide of risk negative influences hitting on market sentiment.
Concerns over economies reopening and the potential for second wave infection rates increasing are a factor. However, markets are also having to price for a re-emergence of trade risk, as the US and China both seem to be positioning themselves for less cordial relations. The latest comes as China is preparing measures to protect itself from litigation from the US over prospective COVID-19 damages.
Jerome Powell cut a very cautious tone yesterday over the outlook for the US economy. Fed speakers have spent the week briefing against the prospect of negative interest rates and chair Powell stuck to this line. He did though also suggest the need for further fiscal support in the months ahead. This all added up to risk negative impact on markets but also dollar supportive. Treasury yields have fallen (the US curve also bull flattening) whilst equities are under growing pressure. It is interesting to see gold has edged higher from its $1700 consolidation area, whilst safe haven major forex is performing well (USD and especially JPY).
Wall Street closed a second session decisively lower with the S&P 500 -1.7% at 2820 and technical top patterns are now threatening. US futures are further lower today with the E-mini S&Ps -0.4%. This is impacting across global markets, with Asian indices lower (Nikkei -1.7% and Shanghai Composite -0.8%). European markets are also under pressure with FTSE futures -1.1% and DAX futures -1.2%.
In forex, there is a continuation of yesterday’s risk negative and USD positive theme. JPY is the main outperformer, whilst GBP continues to be the main underperformer.
In commodities, the safe haven bias is helping gold perform well (despite the dollar strength) and hold support today, whilst silver is less of a positive outlook. Oil continues its recent consolidation.
It is quite light on the economic calendar today. The only significant data of note will be the US weekly jobless claims at 1330BST which is expected to continue to reduce, but still at an enormous 2.500m claims (last week 3.169m claims).
There will also be a two central bank governors speaking today. The Bank of England’s Andrew Bailey is speaking at 1130BST, whilst the Bank of Canada’s Stephen Poloz is speaking at 1530BST. For the FOMC, there is also Neel Kashkari (dove) speaking at 1600BST.