US equities finished slightly higher overnight as investors turn more optimistic on the possibility of a US stimulus bill that would provide a lively bounce to the economy at the perfect time, just as consumers turn downcast with the coronavirus showing signs of 2nd and 3rd wave propensity.

At this point in the recovery, a return to the Covid-19 abyss due to stricter lockdown measures is quiet frankly something the global economy cannot afford. After all, look at this week’s stock market beat down on a return to March – ultralight level of mobility restrictions.

I think we dodged a bullet on this one so far, but this is not to say lawmakers who were slow to respond to the initial coronavirus outbreak will not re-impose stricter mobility restriction if the Covid-19 curve steepens.

Before the street started to pick up on the more favourable stimulus overtones US equities had been climbing steadily since the open with Tech and pockets within Cyclicals/Value leading the way midday.

Apple is again setting the tone for Tech. Defensives outperformed out of the gate, although the last leg up seems more Cyclical and Value-driven. Many folks think this market cannot run without Financials, so with Financials acting better and Tech finding support, one could easily make a case for a low-volume melt-up in the near term.

Bumpy Ride

Not too unexpected, mind you, it has been a bumpy ride this week with investors worrying about the upcoming US election, top-down concern over the US economic recovery, and doubts about the prospects for Congress to deliver more financial aid for struggling Americans.

At the same time, the uncertainty over how soon drug makers will be able to develop a coronavirus vaccine and is keeping that ultimate prize more of a pie in the sky at this juncture

With the market momentum-shifting with lightning speed and often reversing on little more than a whim, its been a week for the nimble of the foot on the global trading floors. We saw equities have corrected lower and the US dollar squeezed on the dampened prospects for further fiscal and monetary stimulus. The tightening of Covid-19 restrictions in Europe also added to the overall risk-off sentiment.

What’s next?

The near-term catalysts outlook brings the first Presidential debate and payrolls data in the US for immediate concerns.

If the polls tighten further, November risk premium will shoot higher and a miss in payrolls will only add more fuel the data deceleration narrative.

But the situation is fluid, and risk has already sold off a decent amount – and there is some hope on the street today that lawmakers and the White House may still try to reengage on stimulus talks.

For now, we keep an eye on the recent ranges and rely on our signals to pick and choose our spots before taking outright directional views. No easy pickings to be had this week, but fortunately, it brings to end my five days of pain view and time to go out for a nice dinner tonight.

Yuan bounces

Yuan bounces on the FTSE inclusion news, but curb your enthusiasm.

This morning FTSE said that China’s CGB bonds would be added to its flagship World Government Bond Index. The inclusion will start in October 2021.

USDCNH is selling off on FTSE Russell’s confirmation of China’s WGBI inclusion. This is a medium-term positive and it is undoubted that sharply-higher bond inflows recently have been a critical driver of RMB appreciation in the context of the US-China real yield gap.

This is big news. FTSE has the farthest reach and is one of the most impressive indexes since it has a massive AUM tracking and chock-full of passive and mega real money mangers that comprise and mark to mark the fund, and does open up China’s 1.5 trillion bond market to a broader band of passive investors.

US dollar weakens

The US dollar weakens on US stimulus hopes as that optimism adds more levels to the towering skyscrapers of twin deficits.

And with the market buying all the EURO selling flows with relative ease, I suspect the US dollar bulls are packing it in for the week with global risk sentiment getting a spark from US stimulus hopes.

Political clouds hang over the Ringgit

The political jockeying in Malaysia remains the most significant cloud in the sky for the Ringgit. But with oil prices stabilising higher and the US dollar trading slightly weaker, we could see the Ringgit trade more favourably. And it is expected that Malaysia Bonds will not be excluded from the FTSE flagship WGBI.


Even as the dollar buying eases a bit, metals opened in Asia today, with retail/brokers and banks selling again, although volumes are low. The US dollar will likely be in demand through the month-end rebalancing, but even then, there is more conviction building in the market that the USD weaker theme from last month is coming to an end.

Gold is still struggling and underperforming but let us see if its recent positive correlation to equities and risk prevails positive correlation to equities and risk prevails.

But I expect that behaviour to be a function of positioning and the dollar. Having said that, the correction has come quite far now, and I am not sure there is enough bearish sentiment in the tank to test out the key $1830 levels this week.

International markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp