Volatility in the markets was relatively low for most of the day yesterday.
President Trump remained in the headlines. The US leader returned to the White House on Monday, but the doctors cautioned that he is not out of the woods yet. If the medical professionals were seriously worried about his health, he wouldn’t have been released but they were always going to express some level of caution. The virus is new so there are a lot of unknowns surrounding it, and even though the US leader seems to be recovering, some dealers probably half suspect the health issue will resurface again.
It was a day of two halves for European equity markets as they were in the red in the morning as traders focused on the cautious tone from the doctors, but stocks ended the day showing modest gains. Mr Trump wanted to project a positive image, and he declared that people should not let their lives be dominated by the coronavirus. It is possible that Mr Trump didn’t want to give the impression that the illness has set him back. Traders took it as an indication that he wants the economy to be as open as possible, in the current climate.
Nancy Pelosi, of the Democrats, was again in talks with Steven Mnuchin, the Treasury Secretary. Both parties are negotiating the proposed Covid-19 stimulus package, and according to Pelosi, discussions are gig very slowly. Stocks in the US showed moderate gains for much of the session, but then President Trump announced that Republicans would no longer be negotiating the relief package until after the Presidential election in early November. The move dented sentiment and the S&P 500 finished down 1.4%
The UK Prime Minister, Boris Johnson, used his speech at the Conservative Party conference to ensure the public that his bout of Covid-19 didn’t cause him to lose his spark. The British leader mapped out new plans for wind energy projects, and he reiterated the point that his government has put in place policies to help the economy through these difficult times. Mr Johnson made it clear the government won’t be providing an extremely generous relief package forever.
Sentiment in the Far East is mixed. The Nikkei 225 is slightly in the red and even though the Hang Seng was offside, it is now showing modest gains. The markets in mainland China remain closed due to a public holiday. Stocks in Europe are expected to open a little lower.
We heard from Jerome Powell, the head of the Fed. The central banker basically said that now wasn’t the right time to alter policy. Mr Powell wants to keep the emergency tools in place until they are sure they are out of the woods. The policymaker is still seeing downward pressure on inflation on a global basis.
Sterling saw a bit of volatility yesterday on the back of a headline that stated ‘big progress’ was made with respect to UK-EU negotiations. Apparently, a lot of progress has been made in the area of social security, and both sides are ‘closer’ to reaching a deal.
Silver dropped over 1% yesterday as traders booked their profits from the two week high that was posted on Monday due to the overall risk-on mood. The sizeable fall in silver pulled gold lower too.
Oil enjoyed a big rally for the second day in a row on the back of supply concerns. Strike action by oil workers in Norway caused an 8% fall in production. A category 2 hurricane is set to hit the Gulf of Mexico on Thursday and as a result oil companies are evacuating workers. The energy market handed back some of its gains due to the news that Republican politicians ended stimulus talks.
At 8.30am (UK time) the Halifax house price index report for September is expected to show an increase 1.5%, and that would be a slight dip from the 1.6% growth registered in August.
The Energy Information Administration update is tipped to show that US oil inventories grew by 1 million barrels, while gasoline stockpiles dropped by 1.5 million barrels. The update will be published at 9.30am (UK time).
The minutes from the latest Fed meeting will be published at 7pm (UK time). The most recent comments from the US central bank suggests they are content to keep rates close to zero until 2023.
EUR/USD – has been moving lower since early September and while it holds below the 50-day moving average at 1.1802, the bearish move should continue, and it might find support at 1.1542, the 100-day moving average. If the wider bullish trend continues, it should target 1.2000.
GBP/USD – has been moving higher for over one week and if the positive move continues it should retest the 50-day moving average at 1.3036. A break below 1.2675 could put 1.2480 on the radar.
EUR/GBP – since mid-September it has been edging lower and a break below 0.9000 might put 0.8864 on the radar. A rebound might run into resistance at 0.9157.
USD/JPY – Tuesday’s candle was bullish, and if it breaks above the 50-day moving average at 105.76, it could target 106.55, the 100-day moving average. A break below 104.94, should put 104.00 on the radar.