Daily Market Comment – Stocks lick wounds; pound tumbles on lockdown fears



  • Selloff in equities eases but sentiment still subdued amid virus and political woes
  • Dollar and yen hold firm as clouds gather over economic recovery
  • Pound braces for new UK restrictions
  • Aussie skids after RBA’s surprise dovish turn

Just a wobble or start of a deeper correction?

The market mood remained undeniably downbeat on Tuesday following yesterday’s acceleration in the selloff that’s gripped equities during the course of September. European shares took the heaviest beating as banking stocks were pummelled from allegations of money laundering, while across the Atlantic, election anxiety beset investors already nervous about the stalemate in Congress over the new virus relief bill.

The fresh jitters come against a backdrop of surging COVID-19 cases in Europe and a slowing recovery in all the major economies. With neither the Federal Reserve nor the European Central Bank expected to unleash any new stimulus anytime soon, markets are struggling to maintain their upward momentum. In the meantime, the October 15 deadline for the Brexit talks and the November 3 election in the US are fuelling the uncertainty as the economic and political landscapes could be about to undergo a dramatic shift.

Nevertheless, the wild trading had calmed a bit on Tuesday and European stocks attempted to recoup some of yesterday’s losses, though US futures were mixed.

Safe havens thrive, except gold

The growing list of headwinds hanging over the outlook drove investors to the safety of the US dollar and yen on Monday and the two currencies extended their gains today, signalling that markets were still very much in a risk averse mood.

The dollar index climbed to a six-week top, while the yen soared to multi-week highs against all its major peers. The Japanese safe haven had even brushed 6-month highs versus its US counterpart before the greenback caught up.

The sudden reversal in dollar/yen has raised suspicions about currency intervention by the Japanese government. But nonetheless, the dollar appears to have trampled over gold in its comeback bid. The precious metal remains heavily skewed to the downside despite the diminishing risk appetite and looks set to breach the $1,900/oz level.

Pound steadies before Johnson briefing

Sterling was on a steadier footing on Tuesday as fears of a new nationwide lockdown in the United Kingdom subsided. The prime minister is expected to announce new restrictions later today that could force pubs and restaurants to shut early and encourage people to work from home if they can.

The pound had fallen sharply yesterday, slipping below $1.28, on the prospect of much tougher curbs to combat a jump in the virus infection rate in the UK. But like in the rest of Europe where virus cases are also rising uncontrollably, there seems to be little appetite for national lockdowns.

In a further boost for the pound, the UK and EU announced today they will resume high-level Brexit talks next week, indicating the two sides have not given up on reaching a post-Brexit trade deal after tensions flared recently.

Aussie struggles as RBA flags more easing

Not faring so well today was the Australian dollar, which slid to 4-week lows after RBA Deputy Governor Guy Debelle raised the prospect of further monetary easing. Debelle said that expanding yield curve control, cutting rates and forex intervention were some of the options the Bank was considering. The comments mark an unexpected U-turn for the RBA after recently signalling it would stay on hold for the foreseeable future.

Another central bank that is keeping its options open is the Reserve Bank of New Zealand, which is due to announce its latest policy decision tomorrow. The RBNZ is not expected to announce any changes in policy but could hint at negative rates as New Zealand faces a potentially slower recovery from the pandemic. The kiwi was trading flat on the day ahead of the decision.

Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.

All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.

Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.

We are using cookies to give you the best experience on our website. Read more or change your cookie settings.

Risk Warning: Your capital is at risk. Leveraged products may not be suitable for everyone. Please consider our Risk Disclosure.