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Asia Open | Stocks: Traders try to weave a roadmap through an entangled web of mismatched economic and market pricing factors

Market Analysis / 2 Min Read
Stephen Innes / 11 Jun 2020

On the latest Texas coronavirus outbreak, Governor Greg Abbott said, "everything remains largely contained" as the state prepares to lift more restrictions this week. So it’s back to the task at hand: weaving a roadmap through an entangled web of mismatched economic and market pricing factors 

US equities finished weaker Wednesday after a spike higher in sentiment on an overall dovish Fed statement. But with the FOMC statement coming out mainly in line and less dovish than expectations, investors probably thought it best to pare risk as the markets could turn to focus on the lag between Main Street problems eventually becoming Wall Street's issues.

Concerns that the Fed was less dovish than expected or warranted are entirely misplaced. Reading between the lines, the central bank explicitly laid out a long road to recovery; it will keep the Fed funds low into the medium-term, which in any Fed playbook should be interpreted as super accommodative.

Provided there are no incidents or secondary cluster outbreaks, risk should come in spades. USD weakness underscored investors’ increased propensity for greater risk-taking in the run-up to the FOMC meeting. The enduring US dollar sell-off, which is expected to continue, reflects global, not local, factors including higher oil prices, carry trades unimpeded by US interest rates, an ongoing US equity market rally and higher US inflation break-even.

Although I'm a huge oil bull and virtually pocketing every dip, I must concede the US equity market rally, and higher inflation break evens could prove more persistent than the oil price rally at this stage, given the incessant supply overhang and patchy demand recovery.

While it’s far easier to write a list of things the market doesn't care about right now, the second wave of coronavirus is the sum of all fears for the investors. Hence the adverse market reaction out of the gates this morning when concerning reports hit the wires that Texas surpassed 2,000 hospitalized coronavirus patients for the first time Tuesday. Frankly, this will be something that will haunt the market until a vaccine is in the hands of everyone around the world.

The information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.

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