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2020 Market Panic part 2? - DAILY MARKET UPDATE

Chart of the Day: AUD/USD (daily candlesticks)

•    Stock markets just had worst day since March sell-off
•    Yields tumble in Fed Hangover
•    Oil price crashes nearly 10%
•    AUD/USD turns lower from 0.70 & 11-month high
 

MARKETS


The mood in markets has taken a severe turn for the worse as we head into Friday. Shares in Asia set the tone on Thursday and things only got worse with Wall Street having its worst day since the panic in March. There was a clear preference for haven currencies with the dollar, Swiss franc and the Japanese yen the only net gainers. FX pairs that have done well in the last few weeks like AUD/USD fared worst. Oil came in for sweeping losses with WTI crude losing close to 10%, while gold was lacklustre in what was a very risk-off environment.
 

GURU WISDOM


“Do not anticipate and move without market confirmation - being a little late in your trade is your insurance that you are right or wrong.” - Jesse Livermore
 

The Fed’s fault?


After the initial positive reaction to the Fed’s dovish meeting on Wednesday, investors woke up to the dire economic forecasts the Fed had just made. Of course they were necessary to justify the very accommodative policy. The difficult drawn out recovery suggested by the Fed didn’t match the all-out buying spree of cyclical shares and currencies. So it’s true the Fed have played some role in waking up investors who thought this would be any easy ride for the economy. Nonetheless, the ‘Fed put’ is in place and that is a strong force against a bigger drop in markets.
 

Next crash starting? 


Possibly not. There are some technical dynamics to what’s going on in our opinion that means there could still be hope. Investors are piggy-backing on higher bond prices because the Fed just promised to buy them in higher quantities than previously thought. As bonds rallied, so did other havens like the US dollar and assets that performed well on bets of a global ‘reopening’ did not.
 

Second wave


The chance of a second wave of the coronavirus has been an ever-present risk throughout this rebound in stock markets and matching slide in the US dollar. A source of optimism has been that secondary outbreaks in China and other parts of Asia have been effectively quashed. The bigger risk for the second wave always looked like the United States. There are some numbers to back up those fears now, including Texas recording its highest number of daily infections and Florida recording its biggest weekly total. Added to that there is also the real possibly that protests across America, all done without any consideration for social distancing could easily spread the coronavirus.
 

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