Weekly Market Analysis — Oct 4: Between Trump’s COVID case and US’ stimulus package
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Highlights:
- Oct brought a rebalancing of portfolios; investors now in risk-taking mode
- Trump tested positive for COVID, adds pressure to US stocks
- US Investors expect resolution for new stimulus package to fuel equities
- Gold confirmed pullback after logging two negative months in a row
- DXY shows signs of exhaustion; euro ready to resume uptrend
- British pound to experience high volatility amid Brexit uncertainty
- Crypto market suffers a regulatory setback in the US
The Week Ahead:
Markets experienced a type of reckoning last week as most assets that performed relatively well in September reported losses during the week. The catalyst was the decline in the dollar as investors decided to take USD profits before the end of the month.
It was also the close of the third quarter of the month and most mutual funds decided to close the books starting on Monday, and then rebalance their portfolios after the first of October.
At the end of the period, nothing of that mattered as the news of the week was when the President of the United States tested positive for COVID-19 and was forced to be admitted to hospital with respiratory and oxygen problems, as the news reported.
Now, stocks and risky assets are watching Trump’s development and its implication for the US elections that are expected to take place in a month. On the other side, Congress is debating a new stimulus package to fight against COVID-19 economic impact. An approval would fuel stock markets and, especially, tech shares.
Forex: Dollar on the defensive, US stimulus looks to be the biggest threat
The US dollar closed last week with significant losses as investors closed positions ahead of the quarter’s end. Experts are now reconsidering the USD bullish case as Congress is expected to approve a new stimulus package. It would flood the market with new USD, making it more liquid and cheaper.
In that line, the euro looks trapped by the 1.1700–1.1770 range against the USD. With a new stimulus package, the euro’s bullish case would be favored, however, pay attention to Trump’s health and implications on elections.
On the other hand, the British pound is also riding a wild journey amid the Brexit chaos. GBP/USD would go up if there was news signaling serious EU and UK talks for a post-Brexit deal. Otherwise, expect an ongoing rollercoaster.
AUD/USD seems contained by the 50-day moving average level at 0.7200, a level that was considered as support before its break on September 21. Inflation and China data will be critical for the Aussie, especially before the Reserve Bank of Australia’s monetary policy decision this week. Plus, a weak dollar would also fuel gold up, which is also an AUD positive development.
Stocks: Markets watch Trump’s health
Investors closed the week with gains as they implemented the “buy the dip” strategy. However, Friday came with concerns amid Donald Trump’s COVID case. Investors are now rethinking strategies amid a potential deterioration in Trump’s conditions. How could it impact asset prices in the coming weeks? That’s the million-dollar question.
On the other hand, stimulus talks have fueled optimism in markets, which led them to post gains in the period. The DJIA closed 1.87 percent up on the week at 27,682.81. The S&P 500 finished with 1.52 percent in gains at 3,348.44. Finally, the Nasdaq Composite wrapped up the week at 11,075.02, which is 1.48 percent up on the period.
The new stimulus would push tech stocks such as Amazon, Nvidia, Tesla, and Apple higher, while banks down. Financial institutions would have to face lower interest rates and, therefore, lower fees.
Commodities: Uncertainty helps gold, but not too fast
Gold confirmed a bottom at 1.850 and closed positive last week, nearly to an important resistance level at 1.920. Gold investors remain bullish, but Trump’s news added much confusion in the market. We can expect risk aversion, which would help gold. Also, stimulus talks. But honestly, nobody knows what is going on right now so stay on the ball.
Phoenix Futures and Options LLC President, Kevin Grady, said that “the yellow metal should be higher” with all the money out there. “ However, “there are a lot of speculators in the gold space right now,” and “they are pushing the market lower.”
Silver recovered ground last week, but remains under pressure and linked to risk appetite. Stimulus would help it recover the 24.00 level for sure, and after that, new levels would be on target.
Cryptocurrencies: Investors concerned about the market’s stability
Crypto investors are watching recent developments in the industry with concerns as they could mean significant setbacks in the global implementation of a new digital finance. KuCoin hack and CFTC and DOJ civil actions are moving the market.
The Commodity Futures Trading Commission (CFTC) charged BitMEX exchange with unregistered operations and AML regulations.
On the other hand, reports say that Egyptians are choosing crypto assets to secure savings amid the unemployment and economic crisis in Egypt. They are betting on crypto mining and trading in the days ahead.
On that framework, BTC/USD is trading positive on Monday for the first time in five days, and despite the asset held the 10,500 level, the chart looks bearish. The same history with ETH/USD. It managed to keep the 340.00 level, but it lacks momentum to try more gains beyond 365.00.
Summary: Uncertainty, but key economic data
Uncertainty, it is the word the market will face this week. Trump’s health will mark all financial market developments, even the stimulus, which will be a crucial factor for the dollar price.
Don’t forget to keep an eye on the economic calendar, including:
- Monday: Retail sales in the eurozone, Markit PMI data in major economies, and ISM report in the United States.
- Tuesday: Trade balance and RBA interest rate decision in Australia and EcoFin meeting in Europe.
- Wednesday: Industrial production in Germany and FOMC minutes in the US.
- Thursday: Jobless rate in Switzerland, trade balance in Germany, jobless claims in the US.
- Friday: UK’s GDP and unemployment rate in Canada.
