Market Overview

Global investors were "slowing down on chasing summer winners", the high tech sector and different gold instruments, as the financial flow into that group of assets showed its minimum values for the week to September 9 vs the similar readings of the last several weeks. Such information has been released today by the Bank of America’s (BofA) analysts citing data provided by the Emerging Portfolio Fund Research (EPFR). EPFR, which is one of the world's leading structure to track fund flows and allocations, also wrote that inflows to the U.S. corporate bonds fell to $12.8 billion only in the same week before September 9, while the EPFR statistics also observed a “laggard rotation with year-to-date underperformers" such as the stocks of alternative sectors and emerging market stocks, attracting $3.4 billion, the largest figure in nine weeks.

This probably sets the ground to the fact that emerging market currencies have slightly increased in price. The South African Rand came very close to the highest values since the end of July, after USD/ZAR used numerous opportunities to find new sellers almost daily after a series of bounces from the major 16.55 support for now. The U.S. Dollar has also lost more than 5% against the Brazilian Real and 2% vs the Indian Rupee since August 20. The Chinese Yuan is trading in the direct vicinity of its monthly and annual highs, and the previous time it was located at such levels in June 2019. The USD/CNY suffers even though the U.S. President Donald Trump continues to threaten to “decouple” the American economy from China.

And even the Russian Rouble has managed to rise by the same 2% against the Greenback since Wednesday, thanks to the successful floating of a new issue of public debt securities to receive about $2 billion for the Russian government from the investors which decided not too much attention to the Damocles' sword of possible new sanctions after the contradictory story with a Bundeswehr's report of poisoning the opposition politician Alexey Navalny. Russian police says it has a timeline of Mr. Navalny movements, and is trying to locate a witness who has left the country, also is ready to send the investigators to Germany. They interviewed five of the six people who accompanied Navalny on the journey to Siberia when he fell ill, looking for a sixth person, a U.K. resident, who flew to Germany and whose whereabouts were currently being established.

This friendly sentiment to the higher-yield emerging markets, as well as the BofA-EPFR reports, accurately reflect the situation when the Wall Street's tech rally came to an obvious halt on a crowded profit-taking wave after a five-month marathon that prompted the Nasdaq index to climb more than 87% from its pandemic bottom levels of March and almost 28% higher vs its pre-crisis highs of February. Facebook, Amazon, Apple, Tesla, Microsoft, Alphabet (Google) and Netflix, together known under the new informal "FAATMAN" nickname, collectively lost more than $1 trillion in market capitalisation for the last six trading sessions, experts calculated at Reuters. The logic is that a portion of the free money flow after the tech's sell-off is looking now for the ways to relocate for a while or maybe for a longer time into some less overheated stocks, like retail companies, or even to other countries than the United States. BofA, however, said it doesn’t see a bear market is coming, with the U.S. central bank “so easy” and Wall Street “flush with cash”.

Thursday on Wall Street was marked initially by a wider rebound of the U.S. and European stock indices and by some moderate rise in such hot assets as Amazon or Google shares, but in the second half of the American day they resumed to fall down. The trigger to this slide was the news that the Republican version of a long-awaited stimulus package failed to win enough votes in the Senate to proceed. A proposal was to provide only around $300 billion in a new coronavirus relief act as opposition from Democrats argued the sum falls far short of what is needed in the midst of a pandemic. The Republican backers were unable to get the 60 votes needed to advance the legislation in the 100-member chamber. Democrats initially promoted the $3 trillion program, than lowered their bar by half, and the deadlock can't be cut yet.

Another disappointment, though temporary, came from the market's flagship, which is Apple Co, as its shares lost all the initial gains to finish the day in red zone, more than 3.6% lower, as some holders preferred to take profits when they heard of the new iPhone model presentation to be delayed for next month. All this rather unfavourable information quickly ate up the positive effect of the European Central Bank (ECB) Chairwoman speech. Having held a big online press conference, Mrs Christine Lagarde reassured the markets that the strong recovering rebound is taking place in the EU economy, but that accommodative monetary policy with zero interest rates is necessary for the long term precisely because it works. And that all asset purchases under special pandemic programs like APP and PEPP will continue at least throughout 2021, as well as until full recovery.

It is significant that twice responding to questions about the possible overvaluation of the single European currency, the Chairwoman noted that the ECB has no plans to target the exchange rate, and it considers the value of the Euro only in the context of the inflation risks, but that the inflation problem is not yet on the agenda for now. This quickly helped EUR/USD to jump above 1.19, but then the rate fell by a whole figure to the area of 1.18 in sync with the downward correction movement in U.S. stocks, since the U.S. Dollar still enjoys a residual safe haven demand at such stress moments. However, after the European Friday's noon, the Euro rose again to 1.1870 vs the U.S. Dollar, and European stock indexes, which also suffered before the market closing a day before, are trading in a small surplus today. Perhaps, this may be considered as a collateral evidence of possible technical expansion of the downward correction, or of its extension in time, but also this points to the rationality of BofA conclusions about the lack of reasons to call the market "bearish" so far.

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