September 18, 2020

Futures Trade Steady, But Investors Remain Skeptic

Futures Trade Steady, But Investors Remain Skeptic

U.S. futures are trading higher as investors are trying to pick up the momentum from Asia. All major Asian indices spent most of the day in positive territory. However, traders are still very cautious because this stock rally is missing the next significant catalyst. 

The Federal Reserve’s meeting this week failed to prop up the markets. However, next week, we do have a lineup of speeches by Fed’s committee members who can further clarify the Fed’s narrative. Having said that, this may not be enough because the market is looking for something new, and in the absence of that, it is more likely that this stock rally will continue to consolidate or grind lower.

From the market’s price action, it is clear that traders are more interested in taking profit off the table when it comes to the tech sector. The momentum in the U.S. stock market isn’t strong enough to support the sector rotation. Earlier this week, we saw some sector rotation evidence where the money started to flow into industrial and energy sectors, but this shift in momentum was very short-lived. That is because there is just too much concern over the recent surge in coronavirus. Investors are anxious about the targeted lockdowns and how they are going to influence economic activity around the world.

This surge in coronavirus cases has become a real headache in Europe, and more importantly, investors are not fully certain if there will be a vaccine as early as November. Chinese coronavirus vaccine has got clearance in the UAE, and several other countries are also giving clearance for this vaccine as emergency use. But the fact is that the whole international scientific community isn’t behind this Chinese coronavirus vaccine, and this is denting the overall optimism.

Donald Trump has tried his best to assure the U.S. that a vaccine will be here really soon, and this could happen within a few weeks. However, this has done nothing but made the sceptics laugh. There are also concerns that even if we do get a vaccine, the economic recovery isn’t going to return to the previous level rapidly. There is too much structural damage, and it will take a while for confidence to return.

Over in the U.K, the British pound fell off the cliff yesterday on a report that the Bank of England could be pushing the interest rates in negative territory. The bank has involved regulators in studying the effect of this. The likelihood of the BOE moving the interest rates into negative territory is very slim, but the fact is, that if we have a no-deal Brexit, one cannot discount anything. Literally, anything is possible, and a negative interest rate will be the last thing that anyone will be concerned about. For now, there are strong expectations that a rate cut could take place in November, and the bank is likely to introduce another asset purchasing programme in November. 

In terms of the commodity market, it is all based on the weaker dollar story. The yellow metal is still holding on to its $1,950 price level. Given the fact that the equity markets aren’t going anywhere, it is likely that traders may start to hedge their riskier bets by buying gold. Under that scenario, we could see the price of the precious metal skyrocketing once again. In terms of support level, the immediate support is near $1,930, and the bigger support is just above the psychological level of $1,900. The primary catalyst for the gold price is the U.S. Consumer Confidence data. If we see an improvement in the Consumer Confidence number, it is likely to push the dollar index higher, which may not be positive for the gold price.