Risk Off Pervades as Markets Seek Stimulus

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IFO shows futures expectations improve
SNB mildly positive
Nikkei -1.11% Dax -0.55%
UST 10Y 0.668
Oil $40
Gold $853/oz
BTCUSD $10340/oz.

Asia and the EU
CHF SNB rates unchanged

North America Open
USD Weekly Jobless Claims

Its been a quiet night of trade in Asia and early European opening with risk-off flows dominating dealing as equity indices were lower by 50 basis points while currencies were flat on the day.

Yesterday’s testimony by Chair Powell indicated that the Fed is in a wait and see mode with respect to monetary policy and is looking for Congress to act. Given the highly polarized state of politics in the US at the moment the markets do not expect action on any stimulus package with Congress barely able to agree on a continuing resolution in order to keep the government going.

That in turn has weighed on sentiment as current improvement in economic data has been modest at best suggesting that the V-shaped recovery is running out of steam after the initial burst of activity after the re-opening of the US economy. Yesterday flash PMI readings which were essentially unchanged to slightly lower form the month prior confirmed that most of the big moves in the rebound have occurred giving stock traders little reason to get long.

Still, after a sharp selloff yesterday the selling has moderated as equity indices consolidate at the bottom and traders may see a small rebound today unless headline risk spurs another leg lower. Nasdaq remains the weakest of the bunch and if the selling flows accelerate the shorts will no doubt want to press for the key 10,000 level which if broken will do long term technical damage to the rally.

On the FX front, the action was moribund with data having little impact. In Europe, the IFO survey came in slightly lower than expected at 93.4 vs. 93.9 but the futures expectations component showed further improvement indicating that German business activity is stabilizing especially as demand in China picks up and German export orders see a rebound.

In Switzerland, SNB kept its rates unchanged at -0.75% but did note that there was some improvement in business activity over the past three months and further added that interventions have had an effect on further upward pressure on the franc. USDCHF rose about 25 pips as a result and continued to show dollar strength which has been the dominant theme this month. USDCHF is generally a good proxy for dollar strength but this months rally is still just a rebound off lower levels and unless USDCHF recaptures the .9500 figure the move should be seen as a retrace in an overall downtrend.

Boris Schlossberg
Managing Director

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