US Open – Stocks selloff, Oil slumps as Libyan production returns, Gold down on strong dollar, LATAM in focus

Global stock markets are tumbling as coronavirus cases surge in Europe, political tensions in the US will likely derail any further fiscal support efforts, and after International Consortium of Investigative Journalists reported lenders’ delay in providing suspicious activity reports.  With little on the economic calendar, risk aversion could remain steady throughout on the session.   

Oil

Oil prices are sinking as Europe seems poised for coronavirus induced lockdowns and after Libya has restarted oil production.  A strong dollar and mounting risks to the global economic recovery will continue to put pressure on prices. 

OPEC+ tentatively provided some relief that the oil market was heading toward balance, but rising output from Libya puts that at risk. Crude prices looks very vulnerable here if the virus spread deteriorates further in Europe. 

Gold

Surging coronavirus cases and doubts over the next over the next round of fiscal support is triggering a wide range risk averse tone that is sending the dollar higher and sinking gold.  Exponential coronavirus growth is a big risk in Europe and that is sending the dollar sharply higher.  Dollar strength can go a little further as emerging market currencies have room for bigger declines. 

A deteriorating global economic recovery is growing as Europeans struggle to contain the latest wave of the virus, but that should only reinforce the stimulus trade going forward.  The US economic outlook is starting to look a lot worse as the path for a fiscal agreement seems unlikely given the Republican and Democratic battle over who will be the next Supreme Court justice. 

Gold remains trapped in its $1900 to $2000 range but a broad market selloff raises the risk that a scramble for cash could see a tentative breach of the lower bound. 

LATAM

Brazil

Brazil will be in the spotlight as the central bank will release both the minutes to last week’s policy decision, the first pause in 13 meetings in the current easing cycle, and their quarterly inflation report, which will see some positive upgrades for GDP.  Brazil’s outlook will continue to require extraordinarily high amounts of stimulus and that should keep the partial recovery intact. 

President Bolsonaro will undergo surgery on September 25th to remove a stone close to his bladder.  Bolsonaro’s health remains an issue for many after he suffered a deep and life-threatening wound to his intestines and lost 40% of his blood when he was stabbed on the campaign trail a couple years azzgo. 

Colombia

The Colombian central bank is widely expected to cut the interest rates by 25 basis points to 1.75%.  The end of the easing cycle is nearing, but all the economic continues to be rather depressing.  Colombia’s outlook is mixed and the likely scenario seems policymakers would rather be cautious and open to more rate cuts if the next couple of months of data improves significantly.

Mexico

Mexico’s policymakers will continue to deliver more accommodation to the economy.  The Banxico is expected to cut rates by 25 basis points, a clear indication that the pace of cuts is slowing. The prior five meetings saw 50 basis point rate cuts, which was warranted following the worse-than-expected declines with economic activity. 

The economy continues to reopen but the coronavirus death toll numbers are still high.  Mexico now has over 73,000 deaths, a figure topped only in the US, Brazil and India.   

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