Calmer seas on Friday the 13th?

13 November, 2020

Asian stocks are mostly tracking Thursday’s declines on Wall Street, with most US and European equity futures edging lower at the time of writing. The VIX is now around its lowest levels since August, while the VIX futures have returned to pre-pandemic levels. Meanwhile, volatility in the currency markets around the world has reached a near 4-month low, as measured by the J.P. Morgan Global FX Volatility Index.

Market sentiment is merely bobbing about amid the cross currents in global financial markets, with investors awaiting the next gust of wind that could bring them further into risk-on waters. Monday’s post-US elections cheer and vaccine optimism have clearly ebbed, with market participants now facing a tepid end to the trading week.

Central banks urge cautious optimism

That isn’t to say that investors have nary a care in the world; there are dangerous undercurrents lurking below the surface. The persistent concerns over the state of the global economy, given the alarming resurgence of Covid-19 cases across major economies, from the US to Japan, have given risk-appetite reason to pause.

Investors should pay heed to the words of caution from some of the world’s most influential central banks, namely the Fed, ECB, and the BOE, whose chiefs have just warned against getting too excited about what a vaccine could actually contribute to the global economic recovery. The vaccine, when it reaches the world, may not be potent enough to immediately heal the mental scars left by the pandemic. Such an outlook suggests that more concerted monetary and fiscal support may be required in order to facilitate a full global economic recovery, with a longer runway potentially needed before marking such an event. Investors’ fears that this Covid-19 resurgence across major economies could derail their fledgling recovery are keeping safe havens well bid, with the Dollar index not straying far from the 93.0 mark for now.

Gold set to form death cross

Speaking of safe havens, a traditional pillar of this asset class appears to be falling out of favour. Gold prices are set to form a death cross, with its 50-day simple moving average about to move below its 100-day counterpart. Such a technical episode may herald further declines in the precious metal.

However, with US Treasury yields essentially halving its advance from the first half of the week and pulling further below the psychologically-important 1% level, it allows Bullion some breathing space for now.

Still, Bullion bulls are at risk of being left at the altar, waiting on more significant policy signals as to how US inflationary pressures will be boosted. Given that Thursday’s release of the October US CPI prints came in below market expectations, Gold may find itself on a softer footing, curtailing attempts to push higher from current levels.

Unless Friday the 13th lives up to superstitions and investors are blindsided by an “unlucky” event, it’s set to be a ho-hum day in global markets.

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