Friday November 13th, 2020

Equity markets up, US$ is flat and oil prices slip as COVID-19 case surge globally and US political uncertainty continues. The rising virus cases across the US and Europe and the prospects of the economic fallout has tempered the initial market enthusiasm from the vaccine news. The US$ stalls and risk appetite in currency markets eased as investors recalibrate as the vaccine boost fades. US political uncertainty continues as the President-elect wins Arizona, but the Present has yet to concede. Sino/US tensions continue on Thursday as the US President bans US Investments in Chinese firms liked to the Chinese military. Asian currencies are 0.1% on average while CNY is flat vs US$. Trading currencies remain volatile with NZD down 0.2% while ZAR, JPY,NOK & AUD are up 0.2% and MXN is up 0.4% vs US$. Fed Williams and BoE Bailey will be speaking today. Focus remains on the US President and the US election results. Intraday US PPI and Michigan Consumer Sentiment Index will be watched closely by markets. 

Oil prices slip 1% as markets tackle the realities that a vaccine is unlikely to boost demand until at least Q3/21. Higher US crude stocks, rising Libyan oil production tops 1.2 mio BPD and the potential of loosening Iranian sanctions will likely keep pressure on Oil prices in Q4/20. C$ hit 1-week lows overnight after a volatile week that saw C$ trade in a 1.2994-1.3170 range. The US elections and vaccine news were the primary volatility drivers this week for the oil and equity markets. Markets are stabilizing and refocusing as a vaccine rollout isn’t probable until Q2/21, this will likely see potential for weaker C$ into year end. Support rises to 1.3085, with resistance at 1.3170, if breached look for potential rebound to 1.3240.

Euro strengthens despite revised downward Eurozone GDP, Covid concerns and expected macroeconomic projections likely also revised downwards in December. Overall, it’s been a volatile week with Euro trading in a 1.1744-1.1919 range due to vaccine hopes amid surging coronavirus cases globally. ECB’s De Cos says it will take time before the COVID vaccine has a positive impact on the EU economy and stressed bold economic policies were still needed to due to the pandemic. Any sustained EUR rally beyond 1.19 will likely cause concerns for the ECB while the EU economy remains stalled by the pandemic. Support at 1.1780 with resistance rebuilding at 1.1880.

GBP edges higher on a weaker US$ and Brexit optimism. Brexit talks continue without any reported progress, but Friday is typically the day when negotiators provide their comments. The EU’s stance appears to be its now down the UK PM to secure a deal, while fisheries and state aid continue to be the key stumbling blocks. The UK PM is under significant pressure over Brexit and his response to the covid pandemic with comments “we are witnessing the end of hope in Boris as a second-term PM”. Overall the market sentiment remains positive for a Brexit solution, but the PM political issues is starting to hit GBP ability to rally. BoE Baily and Tenreyro are both speaking today. Support rises to 1.3170 with resistance holding at 1.3280, if breached look for possible extension to 1.3482 (Sep1st).