Market Overview

14 September 2020

A Week of the Fed and Technical Messages

This week will be full of meaningful statistical releases, therefore, it stands to reason that the particular technical signals on price charts at certain time points could be identification attributes for different groups of assets and for the general market's style of trading for now. A neutral close of the European stocks' week, as well as a prominent corrective decline in the U.S. techs and also in the S&P 500 broad market index for the second week in a row, added by a reluctancy to break through the major local support near 3,300 points on profit taking extension, may only contribute to this sentiment.

Energy sector shares remain pinned down amid fuel demand concerns, as Libya is sending out messages that it may end the blockade and resume production, while Brent oil benchmark prices already slipped below $40 per barrel during the last few days on Saudi discount for Asia consumers. The Libyan marshal Khalifa Haftar, a former team mate of Muammar al-Gaddafi and his rival later, who controls the Eastern part of the country now, is said to be committed to ending a months-long siege of oil facilities. However, another tropical storm came on Sunday to the Gulf of Mexico to disrupt the oil production for the second time in less than a month after the other two hurricanes. All this happened a few days before the regular meeting of the Organisation of the Petroleum Exporting Countries (OPEC) and its allies, which is going to start on Thursday, September 17, where they will have to check to what extent the different OPEC members follow their relative production quotas, and if there is any need to deepen the current cuts.

Early on Tuesday morning, the data on fixed asset investments of China in August is scheduled, which shows the change in the total spending on non-rural capital investments such as factories, roads, power grids, and property. Industrial production and retail sales figures of Chinese companies will also be released. This set of data may shed more light on the pace of recovery from the pandemic bottom, as China is not only one of the two giant economies but also a proper role model for the recovery shaping in other regions of the world. So, any good numbers from China could promote an earlier end to the technical correction period on global markets. From the same angle, the index of current conditions and the index of economic sentiment by the ZEW institute can be considered, with separate readings for Germany and for the whole Eurozone, after these business activity indicators are published on the same day.

The Chinese data mentioned above may also affect the U.S. Dollar's exchange rate against the Yuan, as USD/CNY is near its fresh 6.82 annual low this month, and the prevailing tendency is still in favour of the Chinese currency. The single European currency also holds the latest gains against the U.S. Dollar, while EUR/USD is still in the high range between 1.18 and 1.19. In addition to Tuesday's statistics, the Euro could also be supported by the results of German 30-year bund auction on Wednesday, in case of vast demand for the German securities. 

Some pressure on EUR/USD could be exerted in theory due to the last statements of the World Health Organisation (WHO), which reported a record daily rise in new infections. The biggest increases in COVID-19 cases were in India, the U.S. and Brazil. Israel is the first and now the only country to re-impose a real three-week national lockdown, after a second-wave surge of new cases, Prime Minister Benjamin Netanyahu said on Sunday. During the lockdown, which comes during the Jewish high-holiday season, Israelis "will have to stay within 500 metres of their house, but can travel to workplaces which will be allowed to operate on a limited basis," according to the Guardian's article.

Apparently, none of the European countries are ready to close again, as the authorities are counter blasting any ideas of large lockdowns or other forms of large-scale quarantines. The leaders of France and Austria urged the people to be more careful, to wear masks and to keep social distances, while also commenting that if a local outbreak does occur, actions will be put in place to restrict the virus from reaching a national level   without closing borders and stalling the economy anymore. In Austria, the so-called "coronavirus traffic light" is on the yellow mark only in Vienna and in some other territories, while the real alarm signal is considered to be red or orange lights.

In the U.K., Prime Minister Boris Johnson announced the return of the ban on gatherings of more than six people. At the same time, the Prime Minister stressed that the appearance of such restrictions does not mean another lockdown. Switzerland is also following the example of its European colleagues and is not going to impose serious restrictions, as the current situation is under control, despite the increase in cases, the representatives of the country's Health ministry said on the weekend. In late August, Italian health Minister Roberto Speranza said in an interview to Bloomberg that he ruled out a second closure of the country, and he noted that the main reason is the low load on hospitals and the clear percentage decline in fatal cases. Restriction of movements is not the basis of protection, the several WHO's experts also said recently.

Technically, even if any negative effects would be able to weaken the position of the European currency, then it makes sense to talk about a possible change in sentiment and alternative scenarios for the Euro. But not before the key local support at 1.17 is passed.

The Federal Open Market Committee (FOMC) members of the U.S. Federal Reserve (Fed) will formally vote on where to set the interest rates on Wednesday. In fact, the head of the Federal reserve, Jerome Powell, has already let it slip that the Fed may even allow for higher inflation for some time, which is a new monetary policy paradigm, and it logically means that the U.S. interest rates may remain at current near-zero levels for the next few years, almost certainly. Markets could hardly expect any new high-profile statements about additional Fed's incentives at this September meeting, since extensive programs in the "money printer" ideology were already adopted in the spring and expanded most recently during the summer months.

So the most interesting of the Fed's statements for now are the so-called "economic projections", where the U.S. financial authorities are usually indicating more optimism or, vice versa, more pessimism in their views on the speed of recovery, which may become the guiding star for the investment community for the last quarter of the year. The Fed’s message, therefore, may really help markets to find a balance between reasonable caution and a reckless determination to reach new heights in stock indexes before the November elections. That is why the second half of the week, after the Fed meeting results, could become more indicative in terms of forming some clear technical signals to recognise the mood, to continue the technical correction or to join another stage of a bullish spiral.


Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.

Lysakov Sergey
Market Focus

Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.

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