Market Drivers For September 2, 2020
- Euro falls through 1.9000
- Nas and SP at new highs
- Nikkei 0.47% Dax 2.42%
- UST 10Y 0.68
- Oil $43
- Gold $1970/oz
- BTC/USD $11745/oz
Asia and the EU
- AUD GBP -7.0%
- EUR Retail Sales -0.9%
North America Open
- USD ADP Employment 8:15
Equities continued to soar to fresh highs in Asian and early European trade driven by momentum buying from yesterday’s US session as investors remained hopeful that the worst of the COVID induced slowdown is over and that global economic growth will return with a vengeance into the close of the year.
NASDAQ Futures were up by more than 1% while S&P 500 added another 70 basis points in an essentially straight-up move that saw no retraces. Nasdaq is now up more than 30% year to date and we noted yesterday that this parabolic price action reminds us of nothing more than the move in bitcoin circa 2018 as the move has all the signatures of a blow-off top.
Several analysts have pointed out that the current valuations in equities stand at near all-time highs as the total capitalization of the stock market is quickly approaching 200% of GDP. It’s extremely difficult to remain short in such strong momentum conditions but with every tick higher stocks are setting themselves up for a quick and vicious correction if the economic data does not confirm the sanguines scenario.
Today’s ADP employment data could a catalyst for a selloff if the numbers miss the mark. The market consensus is for a gain of more than 1.2M jobs which is a high target and could be ripe for disappointment especially if the figure prints below 1M indicating that while overall demand has picked up, labor demand may lag.
In FX the story was more sedate with the exception of the EUR/USD which tumbled further losing the 1.1900 figure in overnight trade after its foray above 1.2000 was quickly rejected in yesterday’s US dealing. The primary reason for further weakness was the commentary by ECB economist Lane who noted that “The euro-dollar rate does matter. If there are forces moving the euro-dollar rate around, that feeds into our global and European forecasts, and that in turn does feed into our monetary policy setting.”
The 1.2000 level is a clear point of concern for the ECB which fears that a rising currency would offset the monetary and fiscal stimulus in the region by making credit conditions tighter and export sales more difficult. At this point, the policymakers can do little to control the FX flows but if their jawboning takes effect the EURUSD could retreat towards the 1.1700 figure as medium-term traders take profits from the current rally. Euro’s weakness, in turn, would lead to dollar strength and would be yet another reason for equities to turn lower as US assets become more expensive in other currencies.