Markets Jul 29

Markets pause ahead of Fed statement

Wall Street under pressure with US consumer confidence down in July and little sense of a political compromise over a second relief package proposed by Republicans in the Senate

Markets pause ahead of Fed statement
Migrant workers are seen on a train platform in India. Millions returned to their homes in rural areas after a national lockdown was announced by the government but many have yet to return to their old jobs in big cities. Photo: Reuters.

(ATF) Investor sentiment is edgy ahead of the Federal Reserve’s statement at the conclusion of the two-day meeting later today with the US Senate wrangling over a $1-trillion stimulus package also weighing on people’s minds.

While Wall Street was under pressure following data that showed US consumer confidence retreated to 92.6 in July from 98.3 in June, the $1-trillion Senate Republican coronavirus relief proposal unveiled by Majority Leader Mitch McConnell is yet to be passed.

Friday marks the end of the $600-a-week jobless payment and there seems to be little compromise between the two parties in Washington DC.

“Unfortunately, the Republican-held Senate and the Democrat-led House are still far apart in agreeing on a second stimulus plan. Despite this, the Fed is not expected to make any monetary policy announcement at tonight’s FOMC meeting,” DBS economists Philip Wee and Radhika Rao said in a note.

“It could, however, highlight the risks of more bankruptcies and job losses if US lawmakers fail to deliver another package to counter the coronavirus resurgence.”

Gold continues to hover above $1,950 per ounce off its record highs and the US dollar remains under pressure ahead of the Fed’s statement, which is widely expected to be dovish.

“The last time we saw such a steep, prolonged upward trajectory was during the 2008-2011 period of the Financial Crisis and, until a vaccine becomes available, there is every chance that the flight to gold will continue over the coming months,” Seema Shah, Chief Strategist at Principal Global Investors, said.

“The very same dynamics are driving the dollar lower – dollar weakness looks like it will be a feature for the remainder of 2020 at least – possibly considerably longer. From an asset allocation perspective, the big winner could be Emerging Markets – particularly in the debt markets – as dollar-denominated borrowing and repayment costs are continuing to fall.”

Credit markets remain busy with bond offerings from China’s State GridRonshine Chinaand Sunac ChinaSecondary markets are marginally wider with the Asia IG index moving out to 75/76 bps and sovereign CDS widening by 1-2 bps.