Cautious but Bullish

What's New

- Markets in Asia followed suit on Wall Street gains and stopped their losing streak even though trade in currencies and commodities remained subdued as investors are still cautious regarding the macroeconomic outlook.

- MSCI Asia-Pacific (ex. Japan) was up 0.5% after hitting a one-month low yesterday, led by gains in the Chinese CSI300 which rose almost 1% and the Korean Kospi which was up 1.2%. On the other hand, the Australian ASX200 was down 0.6%. The Nikkei was up 0.8%, while S&P500 Emini futures were 0.1% higher, reversing earlier losses.

- Continuing with Asian markets, Indonesia's stock exchange was down 4% as the country's capital will reinstate social distancing restrictions as coronavirus infections rise.

- Despite the rise in the markets, the risky currencies rally appears to have stopped, as FX traders await the ECB's decision later today as the guide to the next movements of the Euro. Earlier in the week worries that the ECB is concerned at the euro's recent rise had the euro under pressure.

- However, hopes for an improving economic outlook, following a Bloomberg News report that ECB economic projections would be broadly steady since June, had the euro on the front foot in Asia at $1.1817. Analysts note that the risk now is that the euro could lift after the ECB meeting.

- This is something that would pull other currencies higher on the dollar, i.e. pushing the Dollar down across the board.

- As analysts note, price action suggests that buying interest remains strong despite market corrections, as market liquidity remains high. On the other hand, volatility has returned in the markets, with some wondering if this is a pause and the downturn will continue.

- Yesterday, US indices were up, benefiting from the rises in FAANG stocks which have seen their valuations skyrocket since the imposition of coronavirus measures. As a result, Nasdaq was 2.7% higher, while the S&P500 was up 2%.

- Volatility is now synonymous with Tesla, which rose 11%, just a day after its huge drop.

- The rebound in equities has steadied a sharp selloff that has highlighted the fragility of a rally that has carried the Nasdaq up 70% from March lows. Analysts speak of caution, as retail investors who had great success on the way up now facing a tougher environment.

- The yield on benchmark 10-year U.S. government debt (US10YT=RR) rose about 2 basis points to 0.71% overnight, but retraced a bit to 0.695% in the Asian session. Demand for new bonds was soft, at the latest $35 billion auction.

- In commodity markets, oil prices remained subdued, as demand worries continue, with WTI futures dropping to less than $38 per barrel, as Brent futures remain slightly higher than $40. Gold was steady around the $1940 mark.

- Earlier today, machinery orders were better than expected in Japan, jumping 6.3%m/m, beating the 1.9% forecast.

Up and Coming

- In Europe, industrial production releases are expected to come out positive on a m/m basis today, even though this will be overshadowed by the ECB meeting news release later in the day. No major changes are expected, but the macroeconomic outlook and projections could have a strong impact on the Euro.

- In the US, initial jobless claims are expected to have declined slightly since the previous week, at 846k, while continuing claims are forecast to have dropped below 13 million for the first time since April.

- For oil traders, crude inventories are forecast to have dropped by 1.3 million, a continuing trend of better than expected demand, reducing excess supply.

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