The global pandemic made a new milestone for financial markets and stocks on Wall Street fell hard on Wednesday. Soaring coronavirus cases across the world coming at a time when markets are already concerned for the US presidential elections less than a week away has sent investors to the side-lines. Wall Street's fear gauge VIX spiked to its highest level since June 15th and the Dow Jones closed at the lowest levels not seen since late July. Washington's failure to reach a deal on new fiscal stimulus before the November 3rd election has contributed to driving all three stock indexes to close almost 3% lower. Commodities, Brent crude oil futures fell 5.1% to $39.10, copper fell 0.8%, iron ore rose 0.8% to $116.60, and gold fell 1.5%.
AUD/USD: 0.7038 – 0.7155
EUR/USD: 1.1718 – 1.1785
GBP/USD: 1.2918 – 1.3068
USD/JPY: 104.12 – 104.45
USD/CAD: 1.3181 – 1.3335
NZD/USD: 0.6630 – 0.6720
AUD/JPY: 73.36 – 74.57
AUD/NZD: 1.0605 – 1.0658 (four-month low)
Market anticipates that the ECB to be in wait-and-see-mode at its meeting tonight, although President Lagarde will acknowledge increasingly pessimistic economic outlook. December will provide a better vantage point for deciding on any additional stimulus given the availability of new forecasts and more clarity on the degree of fiscal support. We expect the ECB to announce a prolongation of the APP in Dec before it expires, with the aim of keeping the facility’s monthly purchases constant at €34bn/month.
Looking forward in the run-up to the US elections, the market will remain focused on Phase-4 stimulus negotiations and the rate of the spread of COVID. According to the latest Reuters poll of 14 economists, the Reserve Bank of Australia (RBA) is likely to expand government bond purchases by about AUD100 billion (USD71.29 billion) when it meets at its monetary policy meeting next Tuesday.
AUD has retreated from yesterday’s 0.7155 highs as investors de-risk with virus infections continuing to rise in parts of the US and Europe and as hopes of US stimulus measures deteriorate ahead of next week’s US election. Look for further resting demand closer to the 0.7000/20 area which represents the recent lows from late September. Offers ahead of 0.7100 now.
Event Risk Data Today
Australia: The Q3 import price index is expected to print at -2.0% as the AUD rebounds, offsetting higher fuel prices (prior: -1.9%).
NZ: ANZ business confidence will be finalised for October, the flash result earlier showing a rebound almost to pre-Covid levels.
Euro Area: The deterioration in Europe’s growth prospects associated with the ‘second wave’ of infections now being seen will start to impact the EC survey of economic confidence in Oct (prior: 91.1, market f/c: 89.6). The ECB’s policy meeting is also expected to highlight these intensifying risks.
US: GDP is expected to bounce back strongly in Q3 following a historic 31.4% decline in Q2. Household demand is expected to lead the recovery, with the market seeing a 28% and 32% annualised rebound respectively. Initial jobless claims high level signal labour market churn and uncertainty, but pending home sales continue to show strength, having reached a record high as a result of low mortgage rates and households’ increasing desire for the best home possible (prior: 8.8%).