News

The closer the US elections, the more difficult the situation in the financial markets. This election should be the most controversial election in the modern history of the United States, and investors are very concerned about it.

EUR/USD

An interesting situation is emerging in the US Federal Reserve. At different times, the members of the reserve system begin to contradict each other and even to refute statements made by colleagues. Of course, everyone has their own opinion, but not in a structure where the action plan must be shared. Some Fed members believe that the economic recovery has been weak and uneven. It is now clear that the US Federal Reserve will act on the circumstances and may even raise the rate if necessary. There is no specific plan.
Congress has not yet agreed on financial assistance measures for companies. The labour market has been sending signals for a long time that this assistance is absolutely necessary. In this uncertain climate, the hand of the investor will always be next to the “sell” button.
It is likely that stock indices have reached some saturation point and are not going to try to make new highs. Today we are waiting for data on initial state unemployment claims. If they turn out to be at previous levels, we can expect the indices to decline further. On Wednesday, the DAX closed with an increase of 0.39% and the S&P500 falls by 0.8% to 3280.

Euro

On Wednesday, the EUR/USD pair broke through the lower bound of the eight-week trading range of 1.1700. So far the price is very close to this level and the recovery is not ruled out. The situation in Europe is not easier than in the USA. However, the poor state of affairs in the US is on the contrary strengthening the dollar. This can now be clearly seen. We have recently discussed that the ECB has no desire to strengthen the Euro, but there are virtually no options to put it down. Therefore, the current exchange rate situation is more than satisfactory to it.

Oil

WTI oil prices on Wednesday are still under pressure. Although there was an increase during the day to $40 per barrel, there are still quite a few factors on which further developments will depend. The first factor is the coronavirus and the probability of a lockdown, which will inevitably affect the price. The second factor is the resumption of oil supplies from Libya after eight months of civil war. The third factor is the rising US dollar, which is putting pressure on the price. The US oil reserve figures are worse than predicted, which is another reason for sellers.

What awaits us today?

10.00 IFO Business Climate Index in Germany for September
14.30 Number of initial applications for unemployment benefit in the USA
16.00 Sale of new housing in the USA for August

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

The beginning of the week brought some resonance to the constantly growing stock market and made investors think. It turns out that serious sales can start against the background of any negative information. In the current case, this is another wave of coronavirus, as well as growing tension between the US and China.

Gold

The U.S. Congress is still unable to approve financial assistance for its country. Due to fears of a second wave of COVID-19, there have been serious asset sales in most markets.
Markets are concerned that they can very quickly lose the profit they have accumulated since April this year. The CBOE market volatility index (VIX), the so-called investor worry index, has jumped to its highest level in a couple of weeks.
So what will happen next? Of course, the pressure of the bears is strong now, but investors should still pay attention to macroeconomic data, which improves with each report. The S&P500 index stopped falling on Tuesday and rose 0.2% to 3285, the DAX closed at 12594, which is 0.41% higher than the opening price.

US Dollar

The U.S. dollar quickly converted to the currency of the “safe haven”, along with the Japanese yen. In the current situation, statements by the US Federal Reserve and uncertainty in government have played a role. Investors are worried about the negative news background and are trying to exit all risk assets. The US dollar is growing for the third consecutive trading session. On Tuesday, the US dollar index came close to 94 and is about to leave even higher.

Gold

Perhaps many people have wondered why the gold market has been falling simultaneously with the stock market since the beginning of the week. Such actions usually take place because investors do not have a certain plan for the near future. The U.S. election campaign is already starting, and Trump’s sharp statements towards China are jeopardizing the development of market relations. As a result, investors have seen the opportunity to buy the dollar. Still, gold is a metal in demand and it is only a matter of time before growth resumes. On Tuesday gold is traded at a strong level of $1900 an ounce.

What awaits us today?

04.00 Statement from the Reserve Bank of New Zealand
09.30 Business activity index for the German manufacturing sector for September
16.00 Address by Mr. Powell, Head of the US Federal Reserve.
16.30 US crude oil reserves

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

22.09.2020 – Special Report. The major indices on Wall Street have just dropped below the 50-day line. Maybe this is just a bear trap. But maybe the worst is yet to come for the bulls. Because a broker now sees the beginning of the worst week of the stock market year. Other factors also call for caution.

Multiple expiration date

Russ Visch of the Bank of Montreal recently encouraged the bears and scared the bulls: “we are in the worst calendar month of the year for equities both here and in the U.S. and it’s not even close. In addition, the week following the September quadruple witching has also been one of the most consistently negative weeks of the year with the S&P 500 closing lower nearly 80% of the time over the past 30 years.”
That’s quite a quota: In almost 80 percent of the cases the stock market made losses in the past 30 years after the quadruple expiration date. In fact, futures and options on stock indices expired last Friday, as did stock options and futures on individual stocks. This coven only takes place four times a year.

These are the important levels

Visch said in early trading on Friday that the momentum was still negative. Should the S&P 500 close below the mid-September low at 3,310, this would open the door for a test of support at 3,233. In fact, the SPX closed at 3,319 and looked to the Nasdaq in the same vein: if support at 10,850 does not hold, a slide to 9,838 is possible. And here the composite fell to 10,793, with only a few mega-caps responsible for the sell-off. And the situation is not bad yet: “the market is letting some “steam” out of the areas that need it the most”. And further: “so far nothing about this pullback has us concerned about the broader, bullish backdrop.”

Morgan Stanley advises caution

Meanwhile, Andrew Sheets, Chief Global Strategist at Morgan Stanley, cited other factors that will continue to have an impact beyond this week, suggesting challenges in September and easier market engagement. In the US, the next stimulus programme, CARES 2.0, is not expected to be adopted until the end of the month. The first presidential debate on 29 September will be the most important milestone before the elections. As far as Corona is concerned, the end of the summer and the possible reopening of schools and universities threaten to increase the number of cases. In addition, the chance of a no deal on Brexit is increasing.
And then there is politics: in view of the death of Ruth Bader Ginsburg, judge in the Supreme Court, Morgan Stanley’s overall verdict was: “holding lighter exposure is prudent, and that investors will get a better opportunity in the near future to be more aggressive. We have just covered the issue in our own special report – if the Supreme Court seat is not filled for the election, the Supreme Court is threatened with a 4:4 stalemate. And then there is no quick decision on possible election challenges, which are as certain as the Amen in the Church because of the postal vote. Then the decision of a lower court will remain, which in many states will probably be a lengthy recount. The absolute disaster for politics, business and Wall Street.

Pre-Election-Correction

Lance Roberts of RealInvestmentadvice.com also frowned at politics. But only a little. The break of the 50-day line in the SPX is now pushing the 200-day line into focus. We had also announced this to you some time ago. However, according to Roberts, the market is already quite oversold, so that a “bounce” in the next few days is very likely. A small correction on the stock market in September and October before a presidential election is also normal.

The professionals have sold

There is also another interesting warning signal. As Bloomberg explained, the ultra-rich have recently sold many stocks into weak hands. Which would also explain the ongoing setback. In the week leading up to 11 September, insiders sold $473 million worth of shares and bought only $9.5 million. Heinz Hermann Thiele of Knorr-Bremse AG, for example, had sold shares for around 1.2 billion dollars. Mitchell and Steven Rales of the Fortive Corporation collected around 1 billion dollars.
We believe that the stock market will probably not pick up speed again until the strong hands reach out. And that could only happen after the risk factors mentioned above have been clarified. Especially since investors are now no longer betting on the Federal Reserve – their verdict last week was disappointing. The Fed announced a sudden halt in the purchase of corporate bonds and index funds. Furthermore, the US Federal Reserve does not intend to raise key interest rates any more in the next three years. The stock market players wanted more, many had bet on negative interest rates and even more cheap money for Wall Street. But shortly before the US elections, the Fed’s position seems too delicate. The Bernstein Bank wishes successful trades – we will keep an eye on the situation for you!

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

The World Bank predicts that the economy will not recover before 2025. The forecast is not encouraging. To achieve the recovery enough measures have to be taken, but some countries are in no hurry.

USD/JPY

The US Congress is slow and unable to approve $3 billion in financial aid. Powell, in his speech, believes that the economy is recovering faster than predicted, but everything in the future will depend on the course of the COVID-19 infection. Vaccines are still being tested and drug supplies are constantly being delayed.
On Friday, the S&P500 index fell by 1% to 3317. Investors are disappointed that they have received virtually no specific information from the speech and press conference of the US Federal Reserve.
China is coming to the fore and becoming a growth driver for the world economy. Fourteen different coronavirus vaccines are already being tested in China, and the government believes that the epidemic is under full control.

Japanese Yen

For the fifth consecutive trading session, the yen is being strengthened. For the sixth time since 2018, an attempt has been made to pass level 105. The Bank of Japan will continue to ease monetary policy. It was also noted in the statement that economic activity is resuming and is gaining momentum. Investors are encouraged by the change of power in Japan and seem to share the Bank of Japan’s view on the recovery. The USD/JPY pair is strengthening and at a record pace. Taking into account all factors, further strengthening to 104 can be predicted, and the road to 100 opens up further.

Silver

It has been a long time since we paid attention to a metal such as silver. Like gold, silver has spent part of September in the side trend. Now there are some signs that growth must continue. One important growth driver will of course be the cheaper US dollar. China’s reviving economy is also having a positive impact on the price of silver. If the price can pass the $27.40-27.60 levels, it will open the way to the last highs of $29.24 and 29.92. The psychological target for silver will be a level of $30.

What awaits us today?

03.30 NBK base credit rate.
14.30 New housing price index in Canada for August
16.00 Address by US Federal Reserve Chief J. Powell

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

Thursday was a day of disappointment. This is how the expected speech from Powell turned out to be completely unspecific and greatly upset investors. It is not clear whether the turmoil in the markets will start or whether investors will buy again.

WTI

How much investors wanted to hear specifics from the US Federal Reserve to decide what to do next in the markets, but no luck. All we heard was the US Federal Reserve’s strong position in terms of maintaining an adaptive monetary policy, its belief in economic recovery, and some revision of the US unemployment forecast as well as economic growth.
These statements have turned out to be completely unhelpful for investors, resulting in a sale of S&P500 futures throughout Thursday. There were many different statements at the conference which will indirectly affect the market. The Fed is waiting for further financial stimulus, which is not available. There is no way Republicans and Democrats can agree on what kind of stimulus it will be in form and volume.
In the near future, analysts will analyse Powell’s speech in detail and draw certain conclusions about what he wanted to say and what the US Federal Reserve will do.

Euro

The US Federal Reserve expects inflation to rise to 1.7% this year and rates to remain at the same level for a long time, until 2024. Given these figures, it can be assumed that the US will already have a real negative interest rate of 1.3%-1.5%. This is a negative signal for the dollar, so in this situation investors will buy high-yielding assets and currencies that are more stable. In the current situation, the Euro looks attractive and we can consider buying from 1.1750 with further growth to 1.1850 and further to 1.20.

Oil

Oil continues its growth for the fifth consecutive trading session. The falling US dollar is setting the pace, but there are some signs of price reversal from current positions. Recently we have seen a negative oil price and it has risen to $40 per barrel, which is very significant. The Coronavirus is beginning to rage in Europe, which could in turn affect the economic recovery. A correction to $36 per barrel can well be expected in the current situation.

What awaits us today?

08.00 UK retail sales volume for August.
14.30 Basic retail sales index in Canada for July
16.00 Consumer sentiment index from the University of Michigan in the USA for September

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

Wednesday proved to be an optimistic day for decision taking. In anticipation of a press conference from the US Federal Reserve, most investors tried to buy while waiting for statements from the US Federal Reserve.

WTI

Let us try to look at the current market situation from the theory side. The coronavirus pandemic, which was to bring chaos to all financial markets, did not work. The US stock market continues to trade near its record highs. Why?
There used to be one definition called the “Minsk moment”. Analyst Haiman Minski said that when the market grows irrationally for a long time, a deep collapse will inevitably follow. Such movements took place in 1998 and 2008, when market collapses triggered various economic factors.
The US Federal Reserve injects huge amounts into the economy. Given zero interest rates as well as bond yields, money goes directly into company stocks. It is not yet known what such an entrance into companies’ positions can do for investors. If there is a sale cascade that triggers a certain wave of market positions, we may see the greatest sale on the stock markets in 20 years.

Oil

There is a very ambiguous situation on the market. On the one hand, the coronavirus pandemic, which is gaining momentum every day, is putting pressure on the global economy and forcing investors to try to forecast the situation for months to come, although a vaccine is about to appear which will save everyone. On the other hand, oil reserves have fallen by 150-200 million barrels since the summer peak of 1.2 billion barrels in the autumn.
Statistics say the opposite and make the price of WTI oil rise. On Wednesday, the oil price rose by more than 4% in just one trading session and traded at $40 per barrel. This was once again supported by a cheap dollar and optimistic sentiment among investors.
All of this looks great in the current situation, but everyone remembers the April collapse when the price of futures went down. The main thing in this situation is to know that the oversupply reaches a point where the cost of chartering a floating storage tanker is a bit profitable. At the time, the price of oil was around $10 per barrel.
The second wave of coronavirus will be a major obstacle to both the growth of the oil market and the world economy. Perhaps the “bubble” that has already been inflated will burst soon. All we have to do is wait for the catalyst.

What awaits us today?

03.30 Change in employment rate in Australia for August
09.00 Press conference of the Bank of Japan
11.00 EU Consumer Price Index from the beginning of the year
14.30 Number of initial applications for unemployment benefits in the USA

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

16.09.2020 – Special Report. So now US equities have corrected: the trend has been downwards for about two weeks. The S&P 500 is dancing pretty much on the 50-day line. The question is whether Wall Street will create a convincing rebound. Or whether the 200-day line will be the next stop at currently around 3100 points. We analyse the currently determining stock market factors.

Tesla Surprise

One of the most important factors for the youngest setback in the broad market index was the surprise in the Tesla matter: contrary to expectations, the mega-share was not included in the S&P 500, the stock lost easily 30 percent since its high. The index operator made no statement, elite clubs never do. Instead, the e-commerce platform Etsy, the test equipment manufacturer Teradyne and the pharmaceutical company Catalent were included. Who?
Exactly – a big surprise. And a beating for Tesla. Many fund managers, hoping for Tesla, had replicated the index by buying other important SPX shares and then disappointedly sold their shares again. Unfortunately, the Tesla boost to the index could be gone for quite some time. The reason is the salary of CEO Elon Musk.

The greed of Elon Musk

Charley Grant of the ever-readable “Wall Street Journal” suspected that the options Musk was indulging in might permanently block Tesla’s path into the S&P 500. After all, the Tesla boss had collected 9 billion dollars in just three years, while his company was sitting on a cumulative loss of 6 billion dollars. In the course of accounting according to US-GAAP (Generally Accepted Accounting Principles), profits are likely to be at risk in the coming quarters. This is because, given the mega-performance of the stock – before the recent crash – the cash box at Musk could keep ringing. After all, he is not paid according to profitability, but according to market capitalisation. However, the index operator demands consistent company profits – and also shuns pump-and-dump stocks that bring short-term speculative bubbles. Thus, the recent fall of the Tesla share is likely to disqualify the stock. As a result, a strong price push for the SPX is missing.

Short warning from JPMorgan

Off Tesla, a quantitative analyst at JPMorgan, Peng Cheng, issued a bearish warning for the market as a whole. This would not be of further interest if he had not already issued a correct sell-off warning for tech stocks on August 18. We have also given you the reasons for this at this point: An increasing concentration of capital in a few shares, the improving chances of US President Donald Trump (which points to the break-up of Big Tech) and increasing tensions between China and the US. In addition, rising yields.
Now Peng has followed suit: These factors continued to have an impact. Cheng sees institutional investors as key players in the recent market correction. Retail investors also played a role. His verdict: “stocks popular with retail investors tend to outperform in the short term but reverse those returns in the long term. In other words: the sell-off is not over yet.

No broad base in the index

Indeed, the question is whether the recent correction has eliminated the over-performance of a few stocks and put the S&P 500 on a broader base. This would make the market more immune to shocks. Probably not – and thus a sell-off of a few stocks is likely to pull the overall market further down. Especially since the feeding frenzy at the White Whale SoftBank seems to have come to an end. The support of a gigantic buyer with deep pockets is therefore missing.
The Bank of America, for example, just found out that in August just ten shares had lost more than half of their 7.2 percent return. Among them Apple, Amazon, Salesforce, Berkshire Hathaway, Facebook and Nvidia. The financial blog ZeroHedge went even further and titled the S&P 500 “S&P 5”. Based on Bank of America’s analysis, it said that only FAAMG represented 23 percent of market capitalisation – Facebook, Apple, Amazon, Microsoft and Google (i.e. the mother alphabet). The situation was similar in 2000, when Microsoft, Intel, Walmart, General Electric and Cisco made up 18 percent of the total market. And then came the crash…

These are the important brands

And what happens next? The Bank of America expects Wall Street to calm down in the rest of September as a new stimulus is due to be passed in the US. Moreover, the money already distributed is slowly reaching the real economy. However, the correction from its all-time high could quickly turn into a severe sell-off. The SPX should hold the 3,300 mark and the Nasdaq the 11,000 mark.
We think: Friday is encouraging – a sharp late sell-off in the S&P 500 was followed by moderate coverage shortly before the end of trading. The bargain hunters dared to move forward again. So the matter remains exciting – the Bernstein Bank wishes successful trades and investments!

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

16.09.2020 – Special Report. Now things are getting exciting again at Sterling: because of a British law, negotiations with the EU are on the brink of collapse. This threatens ultra-hard Brexit and even a trade war with Europe. Which should pull the pound down. We highlight the most important factors for traders.

At this point, we had already pointed out some time ago a scenario that now appears to be becoming reality: After the convincingly won election, he is cruelly crushing the EU’s demands.

Internal Market Bill as divorce paper

The House of Commons is expected to adopt the Internal Market Bill or Intermarket Bill. And thus make it clear that London will never be the servant of the European Union in the future. The bill is about London making trade between the four territories of England, Scotland, Wales and Northern Ireland barrier-free. And to bring most of the rights and powers that will finally return from Brussels on 1 January 2021 to Westminster – and not to the Scottish or Welsh Parliament. Which is why the nationalists are raging there. De facto, the Bill would also cancel out the “Irish Backstop”, hated by the Tories.

The hardest possible Brexit threatens

The EU has already deplored the violation of the Withdrawal Agreement and international law – and has set an ultimatum for the end of September to drop the Bill. Which could affect traders and put another heavy burden on the pound. Even the ever competent Michael Every from Rabobank sees new price pressure and possibly even a trade war with the EU. Specifically: “This raises the risk of not just a Hard Brexit, but the hardest of all possible Brexits, one where the well is poisoned and the earth salted. And further: “This might leave Britain without a trade agreement with the Big Three. China is already angry about Hong Kong. And House Speaker Nancy Pelosi of the Democrats thinks that if the Bill is passed, London can forget about a free trade agreement with the USA.

Major trading partner EU

One thing is clear: barely four months before the end of the transition period, there is no sign of agreement on a comprehensive free trade agreement with the EU. Thu Lan Nguyen, foreign exchange expert at Commerzbank, recently warned against this. And that would mean a hard economic break at the turn of the year. Penalty tariffs from January 1 would be a severe blow for Great Britain, Nguyen continued. For 43 percent of British exports of goods and services go to the EU, 51 percent of imports come from the European Union.

Risiko Negativzins

A hard Brexit would be a further blow to the British economy hit by Corona – in the second quarter, Great Britain’s economic output was down 20.4 percent. There is a risk that it will take “several years” before the economy reaches full capacity again, warned Gertjan Vlieghe of the Bank of England. Therefore, the key interest rate is at a historically low 0.1 percent. According to Adam Cole, chief foreign exchange analyst at RBC, Corona and a hard Brexit kept the fear of a negative interest rate alive.

Only an emerging market currency

The Bank of America also recently joined the chorus of sceptics. According to it, the pound could degenerate into an emerging market currency – small and highly volatile. BofA experts suspect that the liquidity of the GBP market will continue to deteriorate until the end of the year – the end of the Brexit transition phase. The pound is therefore less like a G10 currency. Especially as the country’s debt situation is also approaching emerging market levels – with enormously high foreign trade deficits, which would tend to argue for a devaluation.

There’s life in the old dog yet

So the outlook for the pound is not good. But now it is time for a counter position. Because if the market is full of bears – who will sell GBP? So let’s look at the long factors for Cable for a change.
A weak pound has positive medium-term consequences for the British economy. For example, a premature buying frenzy in British industry. A weak currency could therefore counteract any tariffs and also boost tourism. Moreover, the UK is by no means an unattractive trading partner. For example, Johnson has just achieved a major success in free trade: He announced a historic agreement with Japan, which the EU has yet to achieve. Moreover, the close ties between the US and the former mother country are likely to outweigh the errors of a House Speaker who is soon to be deregistered anyway. We suspect a huge free trade agreement – which could be the turning point for the pound.
In short, we think it is premature to report the demise of the Empire. The Bernstein Bank is keeping an eye on the matter for you!

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

On Tuesday, stock markets were growing in anticipation of the Open Market Committee meeting and the subsequent press conference. At this conference, we are very likely to hear about the Fed’s next steps to improve the US economic climate.

BTC/USD

The third week of September generally began with positive news from various sectors. Information about the imminent arrival of the coronavirus vaccine, as well as good data on China’s economic recovery, was increasingly encouraging for investors.
Of course, the current decisions taken at the Fed meeting will determine further movement on financial markets. Only after the reports and the press conference will it be possible to try to predict future movements. So far, the markets have been waiting with a little optimism.
European investors are also looking forward to the upcoming meetings of the US Federal Reserve, Bank of Japan and Bank of England. A weak movement of major indices was demonstrated during the trading. DAX rose by 0.18% and closed at 13210.

Pound Sterling

European macro statistics show that inflation is slowing down further. The debate on Brexit in the UK Parliament is also fueling the fire. There is only a month left until the deadline between London and Brussels to reach an agreement.
All this is putting pressure on the pound, although he is showing signs of some recovery. It will probably not last long as the 1.30 level is a very strong resistance for the GBP/USD pair.

Gold

We have repeatedly said that gold will continue to grow and show new highs in the near future. Perhaps after the US Federal Reserve meeting, we will see an attempt to get above $2000 per ounce. Powell will be sure to raise the issue of inflation and explain how ready the central bank is to let the target level be exceeded. The more “pigeon” the Fed position is, the more likely it is that the US dollar will weaken. This, in turn, will be good for gold as the price increases and demand increases. As usual, before important events, the gold level has come close to the key level of $1960 per ounce, which the bulls will already be trying to pass.

What awaits us today?

08.00 UK consumer price index since the beginning of the year
14.30 US retail sales volume for August
16.30 US crude oil reserves
20.30 Press conference of the US Federal Reserve’s Open Market Committee

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

This week will be full of a number of interesting events, on which further market sentiment will depend. These relate to both the USA and the European Union countries.

USD/JPY

One of the most important events will be the last meeting of the US Federal Reserve before the presidential election. At this meeting, the Fed is expected to clarify some points with regard to interest rates. After all, the new approach to inflation means that interest rates will have to stay low long enough. The US is also expecting data on unemployment benefit claims. The last few weeks have shown that unemployment has stopped declining, which means that the Senate needs to receive a financial aid package faster, which will help the economy recover.
In Europe, all eyes are on Brexit and the upcoming vote in the UK Parliament. Once again, it is impossible to agree on the terms on which Britain will establish trade relations with Europe. Analysts are more inclined that all this will happen on the terms of the World Trade Organisation. The pound suffers from the current situation and loses its position against the dollar with each trading session. Even at the current exchange rate of 1.28, not all possible risks have yet been taken into account.

In Japan, the Liberal Democratic Party will choose the successor to Shinzo Abe. Although there are certain favourites for this position, it is likely that the current financial policy will continue.
There will also be a meeting of the Bank of Japan on 17 September at which further measures will be taken to stimulate the economy. Even though the Bank of Japan has been in the shadows for a while, it has acted with great determination. Its balance sheet has grown by more than 3% of GDP each month and now stands at 128% of the country’s GDP. By comparison, the Fed’s balance is about one-third of GDP and the ECB’s balance is just over 50%. So far, the Japanese Yen has hardly reacted to such changes, but it is a matter of time.
This is a challenging week for the markets, as these key events will make it clear in which direction to go. Volatility is increasing because of uncertainty, and there are fewer reasons for growth. In most cases, in this situation, investors choose to take profits and wait for the best news background.

What awaits us today?

06.30 Volume of industrial production in Japan since the beginning of the year
11.00 Volume of industrial production in the Eurozone since the beginning of the year
12.00 Eurogroup meeting

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.