Last week, cross asset performances had indicated a return to risk-on mood despite the political gridlock on the passage of the second US fiscal stimulus package due to conflicting “agreed amount”; the current White House proposal stands at US$1.8 trillion less than the US$2.2 trillion put forward by the Democrats controlled House.

To add salt to the uncertainties surrounding the negotiation process, US President Trump had made a dramatic U-turn on last Friday that indicated his preference for a bigger stimulus that what the Democrats had offered.

Overall, US stock market had rallied and ended the week with its biggest weekly gain in three months. The S&P 500 and Nasdaq 100 added +3.8% and +4.2% for the week respectively. Interestingly, the US domestically oriented benchmark Russell 2000 outperformed with a weekly gain of +6.4%.Hence, the narrative that is backing such a risk-on move is the expectation of a “blue wave” by the Democrats to win control of the White House and Congress where optimism of the second stimulus package that benefits more towards smaller businesses will be passed swiftly after 3rd November.

The US dollar had also weakened in general against the major currencies; the US Dollar Index declined by -0.4% for the week and broken below a key medium-term support at 93.50 in line with its safe haven status being in lesser demand due to the current buoyant mood seen in global stock markets.

In addition, the Gold futures (COMEX) had gained by +0.7% for the week and broken above the 1929 key medium-term resistance due to its direct correlation with US stock markets via the liquidity factor.

Over the weekend, China’s central bank (PBOC) had removed the 20% restriction that financial intuitions needed to set aside as risk reserves for yuan forward contracts transactions, a move that came after the USD/CNH (offshore yuan) plummeted to a 17-month low of 6.6787. This policy change makes it less costly to short the yuan which implies that officials may be getting “uncomfortable” on the current yuan strength against the US dollar. In today’s Asian session, the USD/CNH (offshore yuan) had jumped by close to 580 pips to print a current intraday high of 6.7404 at this time of the writing.

Despite the current bout of yuan’s weakness, risk-on mood still prevails in today’s Asian session with positive movement seen in Hong Kong’s Hang Seng Index +1.5%(24470), China’s CSI 300 +2.1%(4778) and Singapore’s Straits Times Index +0.4%(2543). In addition, US stock indices futures are almost unchanged with S&P 500 +0.05% and Nasdaq 100 +0.3%.

Chart of the day – USD/CNH medium-term downtrend intact for now with key resistance at 6.82/85

Source: CMC Markets


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