US Open – Fed Got Your Back

Fed to the Rescue Once Again

Stock markets are continuing to rebound strongly on Tuesday after Wall Street’s u-turn at the start of the week as the Fed announced the start of corporate bond purchases.

It seems you can count on the US central bank to step in at the slightest hint of vulnerability in the market at the moment. Thursday’s sharp losses have come as we’re seeing a rise in cases across various US states, while Beijing has also seen a spike in new cases following an outbreak in its largest wholesale market, Xinfadi, which drove early losses on Monday.

We were experiencing a bit of a wobble in the markets after a remarkable rebound in recent months and the Fed, it seems, has wasted no time in announcing its corporate bond purchases which has settled everything down again. There’s such a huge disconnect between the markets and economic reality but when so much cash is being thrown at the problem, what’s to stop the rally continuing?

At the same time, the Trump administration is reportedly drawing up a $1 trillion infrastructure plan in a bid to stimulate the economy and soften the carnage caused by the pandemic. It’s no wonder investors are getting a little overexcited.

Jerome Powell will deliver the semi-annual monetary policy report in front of the Senate Banking Committee today, which I’m sure investors will be paying very close attention to. These affairs can often be very political and, as it turns out, less interesting as far as markets are concerned. Today may be very different though, given the extraordinary times we’re living through and the role the Fed has played in restoring calm.

Furlough scheme masking weaknesses in UK labour market

The UK jobs data today in many ways highlighted how many people are being impacted by the pandemic and the toll it’s taken on the labour market. That said, it’s still extremely difficult to guage just how bad the longer term impact is going to be. Unemployment remained at 3.9% but that’s only because the furlough scheme is currently masking the huge number of redundancies that will inevitably follow in the months ahead as it draws to a close. Only once those numbers start to become clear will we understand the true extent of the damage.

Oil may see more resistance to rallies

Oil prices are bouncing once again, alongside overall risk appetite in the markets. It may face more resistance around these levels than it has over the last couple of months, especially if the lockdown in Beijing tightens and other cities and states around the world continue to experience rising case numbers and are forced to make some extremely difficult decisions. WTI may continue to struggle around the $40 level until we see more successful reopenings and the risk of renewed restrictions subside.

Gold rally facing same old challenges

Gold reversed early losses on Monday and is pushing higher again as improved sentiment in the market brought an abrupt end to the dollar recovery trade. With the greenback edging lower once again, gold’s near-term outlook is looking a little brighter. That said, it continues to face the same barriers, being $1,750 on a technical level and the dollar’s popularity on a more fundamental one. This could make it a slow grind higher for the yellow metal.

Bitcoin benefits from improved risk environment

Bitcoin is another that is benefiting from the broader improvement in risk appetite. We saw some pressure around $9,000 at the start of the week but that once again provided strong support for the cryptocurrency. The level continues to look vulnerable, although $10,000 may see some pressure before we see another run lower.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

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