Market Outlook

Investors are focusing on the FOMC’s meeting. Besides the update of the GDP, unemployment situation and inflation prediction, the Fed may further hint its policy stance and rate expectations. The meeting's result is scheduled as the afternoon of Wednesday in the US.

The recent Sterling has become key focus of FX market as investors are worried about no deal situation, causing pressure on the Sterling. The GBP/USD dropped to 1.28 level, setting a clear downtrend these days against the dollar. On Monday, the Asian stock markets were generally trading higher as the sentiment improved and the futures of those US indexes were doing good. Although the global pandemic is still severe, with more than 29 million confirmed cases, more than 920000 deaths, the restart of the vaccine trials by AstraZeneca and Oxford University in the UK boosts optimism.

Traders are closely watching the trend of the greenback, which can spark the volatility of global equities. A slip of the dollar is normally suggesting an improvement in risk appetite. On Wednesday, the dollar fell against all major currencies and commodities. Gold price reached a high around $1950 despite the recovery of risk appetite.

“Cash is King” once again reflected the recent strength of the dollar. Dollar index has bounced around 2% from 91.75. Investors sold riskier assets in a such bearish condition, turning back to hold dollar, driven by risk aversion demand. The fears of “hard”Brexit pushed the Sterling to 1.29 level, dropping around 200 pips against dollar on Tuesday.

The NFP showed 1.371 million jobs were added in August, slightly less than the expectations around 1.4 million. But, the unemployment rate in August unexpectedly dropped to 8.4%, far lower than expected. As there is no fundamental change in the US economy, investors believe that such tumble was just a normal correction, and the three major indexes finally rebounded after the fluctuation.

The Wall Street overnight was bullish together with the bouncing dollar. S&P 500 and Nasdaq hit record highs again, and the DOW reached 29000 level, the highest since the late February. However, stocks in Asian trading session were just mixed on Thursday as investors react differently to the latest economic data. The US stocks even closed higher after the disappointing ADP figures, showing that the private payrolls only increased by 428000 in August, far below expectation of over 900000, triggering concerns over the US labor market.

On Tuesday earlier, weak dollar was the market theme in the financial market. However, after the economic data announcement in the US session, the dollar obviously regained its loss. A better than expected ISM manufacturing figures restored the confidence over the dollar, and further improved the market sentiment. The three major Wall Street indexes rose, of which the Nasdaq jumped nearly 1.4%.

In Asian trading session, the dollar index was once as low as 92.15. After the Fed announced the latest monetary policy framework, investors expected that the Fed will maintain the low interest rates policy for a long period of time, hurting the outlook of the dollar. Following the momentum of last Friday, the US indexes futures remained strong.

The markets believe that the Fed will set the inflation like an average range, meaning that the Fed would accept a higher or lower inflation rate for a period of time. Any remarks made by Fed Chairman Powell in this two-day “online” annual meeting, will be treated as a guideline for the September FOMC meeting. That’s why investors may see this annual meeting as a key risk event.

Last Friday, the US stock market was boosted by the strong figures. The three major Wall Street indexes all rose. The S&P 500 closed 0.34% higher, another closing record. The Nasdaq jumped 0.42%, another record also. Generally, investors are looking forward once again to economic recovery, triggering such solid gains.