Markets Outlook: Equity markets ignore virus headlines

The Fed headlines the week’s economic calendar amid unusually confused messaging
Equity markets ignore virus headlines (provided more mobility restrictions remain at bay)

Will the chop-fest continue over the coming week? Yes, it probably will. Still, US stocks ended a volatile week with modest gains as investors took solace in robust consumer data while sitting patiently for additional stimulus from Washington.

This week’s market economic calendar kicks off with appearances by Fed Chair Powell and Vice Chair Clarida on Monday, but neither is expected to break new ground. But, hopefully, it will give them a chance to get on the same page.

The Fed’s messaging has been unusually confused of late. While all Fed members are on board with average inflation targeting and enhanced guidance towards the labor market and inflation, there are divergent opinions on the extent of an inflation overshoot and the outlook’s strength.

The US equity markets continue to ignore Covid headlines – and even spikes in new cases – as long as no significant mobility restrictions are being put in place; as seen in price action in Europe last Thursday, mobility matters to stock market sentiment.

GBPUSD

The never-ending Brexit carousel continues to spin. GBPUSD is a little lower as PM Johnson failed to commit to additional talks but called on the EU to make concessions so that talks could resume. The GBP’s relatively mild reaction suggests the market views this kind of rhetoric as brinkmanship and that negotiation will eventually deliver a deal. But the UK’s stance does seem to have hardened a touch.

EURUSD

The Euro was very lazy into the weekend with nothing provocative to whet traders’ interest beyond the fluctuation of equity sentiment to offer direction.

It seems that those who needed to cut did so, while the majority are still holding on to the weaker USD dollar post-election bias. I don’t see 200 pips in either direction, so until something gives on the lockdown landscape, I prefer to express Euro negative sentiment via safe-haven CHF.

AUDUSD

Over the past few weeks there was much interest in buying AUDUSD on the China commodity impulse as the mainland’s consumption engines were firing on all cylinders. Then the unexpected RBA dovish pivot on Wednesday erased any bullish thoughts and maybe until we clear the November’s RBA decision.

Gold Markets

It’s easy to forget that gold has already rallied by more than 25% this year and higher prices are killing physical demand, which helps partially explain why it’s getting harder to make huge profits on gold these days.

Gold looked very shaky last week when European equities started underperforming. And the US dollar gathered steam as the market quickly priced in the second wave of Covid lockdowns, which would sap global growth. I think significant signals will get generated by the S&P 500 e-minis. Fortunately for gold, US equity markets continue to ignore Covid headlines – and even spikes in new cases – as long as no significant mobility restrictions are being put in place.