Rebuilding from Last Week’s Sell-Off - DAILY MARKET UPDATE

Rough Week

Volatility picked up again last week. The VIX index – a measure of volatility in the S&P 500 rallied from a low under 25 to over 40. The S&P 500 itself was lower by -4.7% last week while on Thursday alone it slide -5.9%. Concerns of a second-wave of the pandemic in some states including Arizona, Florida and Texas, which are still reopening hit US stocks. Other global stock markets were not immune to the weakness with shares in Asia turning lower amid a turn to havens, which drove up the dollar. 
 

Dollar Comeback

The US dollar made a comeback last week after a very dovish Federal Reserve meeting spooked investors who had been betting on a speedy global economic recovery over the past few weeks. The only currencies to outperform the buck were the Japanese yen and the Swiss franc. The outperformance of those ‘haven currencies’ comes before the respective central bank meetings this week.
 

China Data

There could be some early impetus for China markets and the Australian dollar, which saw a big sell-off from the 0.70 level last week. China industrial production is expected to gain +5% year-over-year and the decline in retail sales is expected to have slowed to -2%. The data needs to meet or exceed expectations to show the Chinese and global economy moving in the right direction.
 

Boris vs. Ursula

For Sterling traders, Brexit politics will be front and centre. British Prime Minister Boris Johnson will have a video call with President of the European Commission Ursula von der Leyen today- as well as the EU Council Charles Michel and EU Parliament President David Sassoli. Post-Brexit talks have stalled in recent weeks because neither set of negotiating teams have been able to back off from stiff mandates. The hope is that some “high-level” goal-post shifting will get things moving again. The biggest upside shock to the pound would be if Boris agreed to an extension to the transition period. If he were planning to do so, today would be the last big opportunity.