October 8, 2020

Markets Calm on Light News Day; AUD/USD Downtrend Tests Parity

As expected, price volatility calmed overnight and ranges in equity and currency markets have tightened relative to what was seen in recent weeks. Currencies are mostly unchanged from yesterday while stock markets saw a slow drift lower. Some of this activity could be explained by the fact that Federal Reserve comments (from New York President Dudley) were supportive of the Euro and made the suggestion that we will not see any of the member countries abandon the currency.

Headlines, though, were mostly inconsequential but there was the Senate confidence vote in Italy, which passed, and showed the government’s approval of the new Prime Minister (Mario Monti). Another vote is scheduled for the lower house (the Chamber of Deputies) but most analysts expect this vote to pass as well. There are still internal disagreements that are being voiced but these mostly relate to taxes on the wealthy so at the moment it appears Italy has a cohesive majority body in the leadership role.

In the US, macro data came in strongly, as housing starts and jobless claims managed to beat market expectations. Other market chatter centered on an interview from Bank of England member Weale who showed support for renewed injections of quantitative easing, in the form of Gilt purchases through 2012 if we continue to see weakness in the economic data. The GBP met some selling overnight as Weale’s comments also suggested that the UK economy might have already entered into recessionary territory.

We did have some UK macro releases, which helped stall some of the pressure on the GBP, as October Retail Sales showed improvements at 0.6% for the monthly figures and 0.9% for the yearly data. The upside impact of the data was limited, however, because of the volatile nature of the report and the fact that we could be seeing some unnatural distortions as consumers make more purchases in anticipation of the Christmas holiday season.

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