Markets Feeling The Heat, Interest Rates And US GDP Estimate

Market Is Feeling The Heat

Yesterday, the equity markets were all trading in the red, especially the European ones, with DAX leading the way by losing the most, -4.17%. Once again, the main culprit for that were fears of the coronavirus spreading way too quickly, which could lead to stricter lockdown measures being implemented. Some countries have already imposed strict measures, like in the south of Europe, where people are forced to obey the nightly curfews. Certainly, that is having the biggest effect on the hospitality and travel industries, which are on a brink of a major collapse. Not to mention different suppliers and other businesses that heavily depend on those two industries. Some European indices have reached levels last seen in April and May, when the recovery had just begun. Certainly, such activity is raising fear in the market again and also the upcoming US Presidential election is also making investors cautious, forcing them to limit their exposure in riskier assets, such as stocks.

Euro Stoxx 50 — Technical Outlook

After exiting the medium-term range this week through the lower bound of it, Euro Stoxx 50 continued to slide, taking out some of its key support areas on the way. Given that the market is currently driven by coronavirus fears, unless we see some positive headlines on that subject, the downside could stay the more probable outcome, hence our bearish approach for now.

BoC Left The Rate Unchanged

Yesterday, the Bank of Canada, as it was expected, kept its interest rate unchanged, at +0.25%. The Committee said it will maintain its current forward guidance, supplemented by the QE program. Also, they have projected that 2020 will end up with a 5.5% economic contraction, but for now, they believe that the economy in 2021 and 2022 will have an average growth rate of around 4%. Policy makers also stated that they will keep the interest at the lower bound until the 2% inflation target is achieved.

BoJ and ECB Interest Rates

Today the economic calendar looks slightly busier, comparing it to yesterday’s. During the early hours of the Asian morning we received news from the Bank of Japan in regards to it interest rate decision. With a majority vote of 8 to 1, the rate remained the same, at -0.10%. In the accompanying monetary policy statement, the Bank said that they will continue purchasing the necessary amount of Japanese government bonds (JGB) without setting an upper limit, in order to keep the 10-year JGB yield at around 0%. The Bank also revised their real GDP figure for the 2020 fiscal year, which was set for a negative 5.5%. This comes inline with the BOC projection mentioned above. There was no major reaction from the Japanese yen.

EUR/JPY — Technical Outlook

After yesterday’s sharp decline, EUR/JPY has managed to rebound somewhat, however it still remains below the short-term tentative downside resistance line, taken from the high of October 20 th, and below the 123.00 level, which now may take the role of resistance. Even if the rate climbs a bit higher but struggles to overcome either the 123.00 hurdle, or that downside line, we will continue aiming lower, at least for now.

As For The Rest Of Today’s Events

The 1st estimate of the US GDP for Q3 is coming out, with the forecast pointing to a 31.9% qoq SAAR rebound following a 31.4% contraction in Q2. That said, the Atlanta GDPNow model suggests a 35.3% rebound and thus, we would consider the risks surrounding the official release as tilted to the upside. Germany’s preliminary inflation data for October is also coming out, with the CPI rate expected to have slid to -0.3% yoy from -0.2%, and the HICP one to have held steady at -0.4%.

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