Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Why Stocks Fell But Currencies Rallied

Published 08/26/2020, 03:38 PM
Updated 07/09/2023, 06:31 PM
At the start of the New York trading session, investors were buying currencies and equities. The S&P 500 and Dow Jones Industrial Average climbed to record highs, leading high beta currencies like the euro, sterling and the Commonwealth dollars higher. Even USD/JPY saw healthy demand, with the pair ending the day above 106.00. Although the S&P 500 recovered earlier losses, the Dow still ended the day in negative territory. The early morning reversal was sparked by a significantly weaker-than-expected consumer confidence report. The Conference Board’s index dropped to 84.8 from 91.7, a six-year low. This means that even with low death rates and new virus cases stabilizing in certain parts of the country, consumers are worried that the economy will remain subdued for the foreseeable future, including persistent unemployment. So while new home sales were much stronger than expected and manufacturing activity in the Richmond region improved, weaker confidence in August could translate into softer economic activity.   
 
Yet, investors remain optimistic as new virus cases in the U.S. stabilize and pharmaceutical companies move closer to developing a successful vaccine. Both China and the U.S. also confirmed their commitment to a Phase 1 trade deal, easing some of the market’s concerns. As long as the positive headlines flow in, the party in equities and high-beta currencies can continue. We are watching the spike in cases in Europe closely, but investors have largely shrugged off these developments. Despite the deterioration in Eurozone PMIs, the German IFO increased for the fourth month in a row, helping to drive EUR/USD back above 1.18. The best performing currency today was sterling. There was no data from the UK and the lack of news actually allowed sterling to trade purely on risk appetite.
 
Positive headlines on U.S.-China trade relations almost always lift the Australian, New Zealand and Canadian dollars. Investors were unmoved by warnings from New Zealand's finance minister that the Auckland lockdown shaves GDP by NZD$500 million per week. Trade data is due for release from New Zealand tonight, and given the improvement in manufacturing activity, healthier numbers are expected. All three commodity currencies are overbought, but as long as stocks continue to rise, they could revisit multi-year highs.  

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.