Weekly Market Wrap 07-September to 11-September/2020

Marius Paun | London, UK | Senior dealer | Friday 11th September 2020

The European Central Bank Appears To Be Unfazed By A Stronger Euro

The US had the Labor Day bank holiday on Monday and President Donald Trump said there is a possibility his country will decouple the economy from China. He also used the press conference to reiterate his belief the US may have a coronavirus vaccine before November elections. In the meantime last week’s selloff in equities, led by the tech sector, continued as nervous investors may have finally decided to take some profits off the table.

This week China has introduced visa restrictions on foreign journalists working for the US media. Beijing authorities also made clear that temporary press credentials can be revoked at any time. China also raised the stake regarding Taiwan saying all US officials who visit Taiwan will be banned form the mainland as well as the companied tied to those officials.

In the UK, the weekend newspapers reported the European Union wanted a potential veto on UK laws and regulations after the exit. Telegraph quoted the Prime Minister Boris Johnson saying if there is no breakthrough in the trade negotiations with the European Union by October 15th, the UK will accept no deal and move on’.

Apparently senior figures in the UK government have estimated the chances of securing a trade agreement with Brussels are less than 20%. In reaction the sterling dropped against the US dollar from 1.3240 to below 1.28 going into weekend.

On the other hand the European Commission President Ursula von der Leyen tweeted she trusts the UK government to implement the Withdrawal Agreement….not exactly an official route. Furthermore, the EU reportedly could trigger legal actions against the UK if Downing Street will break the terms set out in the withdrawal agreement.

Elsewhere, European Central Bank kept its benchmark interest rate unchanged at its meeting on Thursday in the face of a low inflation reading last month, the weakest since 2001. Recently the euro strengthened against the US dollar making the imports cheaper and conversely hurting exporters but that did not convince the policy makers to change the coronavirus stimulus program. The Pandemic Emergency Purchase Programme was left at a total of 1.35 trillion euros.

Gold prices have been largely rangebound throughout the week. They found support at $1906 but conversely could not break above $1966.5 either. A strong US dollar following a sharp pull back in equities coupled with ongoing tensions with China and a rise in coronavirus infection rates-especially in Europe provided the headwinds. On the flipside, concerns that at some point the inflation may return in the US as 2% target was dropped and hopes another stimulus is in the making, acted as a reasonable support, so far.