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The world markets continue to have an extremely negative situation. Yesterday's regular sale on the US stock market with a simultaneous rise in the US dollar indicates that the markets have entered a period of high volatility, which may last before the US presidential elections or, even worse, after it.
Today, financial markets were focused again on the speeches of the FRS members, who consecutively commented on the economic situation in the US. In particular, Evans, Mester, Rosengren and Quarles, unanimously argued that economic risks still remain while noting the recovery in the US economy. But, in our opinion, this was not the reason why the US stock market continued to decline, resulting in the strengthening of the dollar.
On another note, the issue regarding the COVID-19 outbreak has grown significantly in the past two weeks and came forward. Earlier, we have repeatedly pointed out that the risk of a second wave of COVID-19 in Europe and in particular, Britain may stimulate countries again to introduce quarantine measures tightly, which is extremely harmful to the economy as experienced last Spring. So, yesterday, the coronavirus vaccine company AstraZeneca announced the suspension of trials as federal investigators seek "answers to important questions" to test its safety for patients.
In our opinion, this news was the reason for the low demand in risky assets and the growth of the USD and the JPY. However, the markets were completely knocked out by the media report, which indicated that D. Trump will not accept transferring its power peacefully if he loses the election.
In general, all that is happening in the United States demonstrates an escalation of the political crisis. This is paired with the fact that the slowing recovery of the world economy as a whole and in particular, American, Chinese and European economies due to increased pressure from COVID-19, will push the demand for shares and maintain defense assets, which include the dollar, the Japanese yen and government bonds of economically strong countries.
Today, the market will focus on the speeches by S. Mnuchin, Minister of Finance, and J. Powell, Head of the Federal Reserve at the Senate Banking Committee. It is difficult to say what they will bring new to the markets. Mostly, investors are waiting for regular incentives, which the Republican and Democratic parties cannot agree on, and it seems that the pre-election political race will not allow them to do this. This means that we should expect the US stock prices to continue to decline as well as expect the strengthening of both the dollar and yen in the currency markets.
Forecast of the day:
The EUR/USD pair is trading at 1.1650, which is expected to continue to decline to the level of 1.1600.
The GBP/USD pair is under pressure amid Brexit issues, as well as the global strengthening of the US dollar. Thus, we believe that after the pair breaks through the level of 1.2680, it will move quickly 1.2600.
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