Forex news for New York trade on October 28, 2020:
- US equities fall most since June 11
- Macron announces new measures to curb covid
- Merkel reaches deal for one-month partial shutdown
- Germany will provide up to 10B euros for locked down businesses
- Bank of Canada sees output gap and below 2% inflation through 2022, re-calibrates QE
- Bank of Canada raises 2020 GDP forecast
- Macklem Q&A: QE adjustment is about maximizing effectiveness of program
- Macklem: CAD has been a bit stronger than assumed in July
- Italy posts record 24,991 virus cases vs 21,989 yesterday
- UK reports 24,701 new Covid cases vs 22,924 yesterday
- Switzerland says bars to close at 11 pm. Nightclubs shuttered
- US EIA weekly oil inventories +4320K vs +1500K expected
- US wholesale inventories for September -0.1% vs. +0.4% estimate
- US Sept advance goods trade balance -$79.4B vs -$84.5B expected
- Hurricane Zeta grows into category 2 storm as it nears gulf coast
- Gold down $31 to $1876
- US 10-year note yields flat at 0.769%
- WTI crude oil down $2.24 to $37.33
- S&P 500 down 119 points to 3271
- JPY leads, AUD lags
The combination of election uncertainty and rising covid cases was finally too much for the market to tolerate on Wednesday. The rout started in Europe but worsened throughout the day with few bounces on the way down.
If anything though, the FX market wasn't quite as spooked as equities; with the exception of AUD, CAD and NZD, which were hit particularly hard as commodity prices also plunged.
The Bank of Canada decision caused some small further CAD selling on the headlines but I'd chalk that up to sellers waiting in the wings and a deterioration in broader sentiment at the same time as the announcement.
Cable got a midday bounce on signs of positive progress in Brexit talks. It had been bouncing from 1.2900 ahead of the headlines and bounced to 1.3000 before some mild late selling.
USD/JPY hit the lows of the day just as New York arrived but carved out a bottom there and chopped sideways in a relatively uneventful trade even as sentiment worsened.
An interesting sidenote is that Treasury yields clawed back to unchanged on the day, recouping a 4 bps decline in 10s. That might be a sign of some reflexivity in the market; the belief that a stock market drop hurts Trump and thus makes a blue wave and larger fiscal spending more likely.
That said, gold didn't show any signs of a fiscal response even with Germany, France and Canada talking about more deficit spending. I'd argue that's typical and it usually takes a few days for gold to find a footing.