Notícias de mercado & insights

Liquidity Crisis High levels of liquidity happen when there is both supply and demand for an asset, meaning transactions can take place easily. A market is considered to be liquid if it can absorb liquidity trades with significant changes in price. A liquidity crisis is, therefore, an acute shortage or drying up of liquidity.

In simple terms, it occurs when there is a simultaneous increase in demand and a decrease in the supply of liquidity across many financial institutions or businesses. As the impact of the coronavirus has rattles markets, global central bankers and governments are ramping up efforts to address liquidity issues across markets. Gold – A Highly Liquid Asset In times of uncertainties, investors generally seek safety with traditional haven assets like Gold.

Why is Gold also selling off? Gold is set apart as it has a feature of a liquid asset just like cash. Investors are on the hunt for liquidity which is prompting the gold market sell-off.

An environment of thin liquidity and high volatility is forcing investors to unlock capital in gold to fulfil liquidity requirements. Gold was seen outperforming this year which makes it a profitable asset- prompting investors to take profit. As the turmoil in global stocks intensifies, investors are looking for ways to cash in to meet margin calls.

At the same time, the safe-haven status of the gold is being hammered by a stronger US dollar. Despite the Fed’s bold emergency rate cuts, the greenback made an impressive comeback against its peers. Another wave of global easing hits markets, making the US dollar the preferred choice compared to other major currencies.

The unusual tandem between the US dollar and Gold seen since the beginning of the year seems to have also faltered at the start of March. Gold has recently lost some of its haven appeal as investors search for liquidity, but it has remained around elevated levels seen in the past 12 months. On Tuesday, reports of a big stimulus package of more by $1 trillion have helped the gold to rebound slightly Source: Bloomberg Terminal Gold Stocks Gold is a victim of the sell-off because of its outperformance and liquidity features which are beneficial to investors during times of financial crisis.

However, gold miners’ stocks have the potential to rally in anticipation that the price of precious metals will go up once the markets stabilise. In the Australian share market, the rebound on Tuesday was mostly driven by the gold mining stocks, which surged by more than 15% despite a fall in gold price. Source: Bloomberg Terminal It is therefore not uncommon for gold to act as a source of liquidity at the start of a liquidity crisis.

As investors are convinced that central banks’ intervention measures like rate cuts and quantitative easing will inject enough liquidity in the financial market, Gold will likely find buyers.

In the wake of the global financial crisis, the G20 summit has become a popular forum of global governance and cooperation. In the heat of the disaster, G20 members came together to sustain global financial stability. The G20 has been a useful pool of information and decision making that have steered the global financial markets since 2008.

G7 Summit The Group of Seven consists of the most industrialised and advanced countries in the world representing 58% of global net worth and 30% of the world’s economy. The G7 Summit focuses on the broader array of economic and political challenges. G20 Summit The financial crisis in 2008 recognize the era where countries need to seek more cooperation among themselves to promote a sound global financial system.

Therefore, the G20 is primarily dedicated to international economic cooperation and allows China, India and other emerging nations to take a more significant global role. It acknowledges the shift towards emerging economies. G20 accounts for 84% of global investment and 63% of the world’s population.

Argentina has set “Building Consensus for fair and sustainable development” as the slogan for the leaders’ summit this year concentrating on three key priorities “ the future of work, infrastructure for development and food security. ” However, protectionism measures have been the main talks ahead of the summit. In the meeting in Bali earlier this year, all the members agreed that heightened trade and geopolitical tensions are among the most critical downside risks in the short and medium term. The G20 summit is, therefore, the “Golden Opportunity” for Trump and other leaders to engage in trade talks.

Face- to face meetings might be better to ease trade frictions. As of writing, news that China has outlined a series of trade concessions are emerging. Hence, investors are optimistic that the G20 meeting might bring more positive news than anticipated couple of weeks before given that the US-China decided to restart trade negotiations.

The Summit has the potential to move the financial markets, and any headlines will likely go under intense scrutiny. Mark Your Calendar – 30 November – 01 December!! *Follow us on Twitter for more updates regarding the upcoming G20 summit

President Trump is on the “Tweet Rally” with positive headlines on the trade front and much confidence ahead of the Summit in Hanoi, Vietnam. Singapore Summit The Singapore Summit marked the first-ever meeting between the Head of State of North Korea and the United States. Both leaders signed a joint statement during the Summit and agreed on: Security guarantees New peaceful relations The denuclearisation of the Korean peninsula The recovery of the American soldiers The first meeting was “big” on the geopolitical front and made history, but the Summit delivered little on the specifics or concrete details on a roadmap to complete denuclearisation.

After a wild 2017 whereby a series of new missile was tested, North Korea undertook a few significant steps: No ballistic missiles or nuclear weapons Blown up the entrances to its atomic test site Hanoi Summit The relationship between both countries has undergone a dramatic turnaround, and there were probably more diplomatic communications than before: “If I were not elected president, you would have been in a war with North Korea,” Trump said last week. “We now have a situation where the relationships are good — where there has been no nuclear testing, no missiles, no rockets.” However, the expectations around the second meeting are relatively low compared to last year. The months that followed the Summit provided little optimism that there will be complete denuclearisation. Washington wants more concrete steps from Pyongyang while North Korea demanded the US to take more corresponding measures.

Bearing in mind that 2020 elections are looming, President Trump is under pressure to produce a concrete roadmap to denuclearisation. A lack of major breakthrough could have some negative political ramifications for President Trump. We saw a softer stance by the US President in the run-up to the Summit: "I don't want to rush anybody.

I just don't want testing. As long as there's no testing, we're happy." The President also hinted that North Korea has the potential to become an “economic powerhouse”. Does the vast majority of investors think the same?

How much of their nuclear weapons is North Korea willing to give up for fresh economic investment?

In the month of May, major currencies were stronger against the US dollar as risk sentiment improved and haven currencies like the US dollar, the Yen and Swiss franc have lost momentum. Commodity-linked currencies were among the best performers against the US dollar; lifted by higher commodity prices. Source: Bloomberg The US Dollar As geopolitical tensions continue to rip through markets, protests following the death of Mr George Floyd is spreading nationwide and overshadowing the reopening of states and raising fears of new waves of coronavirus outbreaks, the US dollar might struggle to rebound.

The US dollar index which tracks the performance of a basket of currencies against the greenback is back to levels seen mid-March. US Dollar Index Source: Bloomberg The Antipodeans Australia and New Zealand were able to better contain the spread of the virus and have eased lockdown measures quicker compared to their peers. Both the AUDUSD and NZDUSD pairs are back to trading in the familiar levels seen before the sharp plunge linked to the coronavirus jitters.

However, the US-China tussle is keeping a lid on gains and at those levels, traders will likely await for fresh positive catalysts to push the pairs higher. AUDUSD and NZDUSD (Daily Chart) Source: GO MT4 Australia seems to have gone through the worst of the pandemic and the lockdown measures are slowly easing across the country. While the national health outcomes were better than feared, the reopening of the economy is also happening faster than initially anticipated.

After the Australian Treasury announced the $60 billion accounting error, investors were reassured that the Australian economy was not as severely impacted as initially forecasted. The coordinated monetary and fiscal measures have helped the RBA and the government to provide assistance to households and businesses. The Bank taped into quantitative easing (QE) mid-March for the first time in history and purchased $50 billion of Australian Government Securities (AGS) and semi-government securities (semis).

Given that the measures put in place are working as broadly as expected, the RBA has even started to scale back daily market open operations. Unlike some major central banks, the RBA has also ruled out negative interest rates. Based on the current developments and the prospects of a quicker recovery, the RBA is widely expected to remain on hold on Tuesday and to maintain a less-dovish tone compared to its peers recently.

The recent Governor Philip Lowe’s speech before the Senate Select Committee was also broadly positive about the economy and its recovery. The Aussie dollar may have some room for upside momentum if the Bank maintains its optimistic tone. Other notable events to watch are the GDP numbers and Retail Sales figures on Wednesday and Thursday.

In New Zealand, the economic calendar is relatively subdued for the week. There are enough positive developments to help the Aussie dollar and Kiwi to hold on to gains. However, the Antipodeans may struggle to push the rally seen recently further as US-China risks loom.

The Euro The downside risks for the Eurozone have eased which has helped the Euro to advance higher, but the shared currency was unable to benefit fully from the overall risk-on sentiment and the weakness of the US dollar dragged by the political dynamics within the Eurozone. On the economic calendar, the focus will be on the ECB. Interest rates are not expected to shift, but attention will be on the central bank’s decision to expand the QE program.

Following recent comments from policymakers, market participants are widely expecting more easing next Thursday with an expansion of the Pandemic Emergency Purchase Programme (PEPP) by EUR500 bn. The impact on the shared currency would likely depend on the extent the ECB will go to support the eurozone economy. Until geopolitical risks recede and there is a compromise on the EU recovery plan, the EURUSD pair may struggle to firm outside its current range and significantly above the 1.10 level.

EURUSD (Daily Chart) Source: GO MT4 The Pound The Sterling Pound was the worst performer against the US dollar in May and will likely remain under pressure dragged by Brexit uncertainties. The negotiations have stalled and as the deadline for extending the transition period is coming closer, traders are finding little positive narratives to rule out a no-deal Brexit. All eyes are on the resumption of Brexit negotiations this week.

As of writing, the GBPUSD pair is trading just below the 1.24 level - buoyed mainly by the broad weakness in the US dollar. GBPUSD (Daily Chart) Source: GO MT4

Fed in Focus - US Repo and Funds Rate During the week, it was all about the Repo market. A Repurchase Agreement known as Repo is a form of short-term borrowing for dealers in government securities. The Repo market plays a key role in supporting liquidity in the financial markets.

It facilitates the flow of cash and securities around the financial system which benefits both the financial and non-financial firms. Repo Market Explained In simple words, the Repo market consists of one party lending out cash in exchange for an equivalent value of securities to another party. The Borrower will, therefore, pay a fee to the Lender.

The securities being sold, which is often the Treasury notes are the collateral. Such transactions allow companies that own lots of securities but are short of cash to cheaply borrow money from parties that own lots of cash. As the collateral are government bonds, the risks are generally low.

US Borrowing Costs So ared On Tuesday, the Repo rate soared to record levels above 8% which is more than four times the normal rate. Even though the money market experienced a significant outflow on Friday ahead of the tax deadline, the sharp increase stunned investors and created fears of the abrupt tightening of the US money markets. There was another alarming signal as the surge in the Repo rate caused the average funds rate to rise to the upper end of the Fed’s current target range.

The Fed quickly intervened with a move it has not used in more than a decade and injected billions of dollars in the financial system to calm money markets. The move succeeded in bringing some relief and allowed the Repo rate to drop. The Fed further reassured market participants that it is willing to spend another $75 billion on Wednesday.

Bad Timing At a time where there are deep disagreements within the Federal Reserve over the path of interest rate outlook, the chaos in the repo markets complicated matters. Investors have priced-in a 25-basis point rate cut, but are uncertain about the future “dot plot”. The manufacturing sector is slowing, and trade tensions continue to overshadow the financial markets.

However, the consumer-orientated parts of the economy are holding up. Consumers remain one of the bright spots – Personal Consumption grew at a healthy pace in July. The employment sector also remains strong.

Hawkish Rate Cut This meeting will help traders to gauge how policymakers are assessing the recent economic data and the trade tariffs developments. There have been some sorts of a rethink in the markets regarding further easing. Do the current economic conditions justify more rate cuts?

At this stage, the economic data does not fully justify the second-rate cut, but the Fed will likely proceed with the cut as insurance against slowing growth due to external factors rather than a slowing domestic economy. Irrespective of how the Fed conveys its monetary outlook, the Fed is set to trigger high volatility!

Federal Budget - "Back in the Black" "Returning the budget to surplus, delivering more jobs, providing lower taxes, guaranteeing essential services." We are in the election year, and the government needed a budget that will please voters. Treasurer Josh Frydenberg delivered his first federal budget and conveyed his plans for a stronger economy. The two dominant headlines surrounding the budget are: “Budget in Black, Australia back on track” & “A Tax System that rewards effort and underpins a strong economy” Returning the Budget to Surplus Despite downgrades to domestic economic forecasts and heightened global growth concerns, the Treasurer announced the first budget surplus of $7.1 billion in 2019-20 in over a decade.

However, the budget surplus does not come without a catch. It is conditional upon the Coalition winning the election. The Budget Surplus is also based on optimistic economic forecasts, and if the rosy predictions are softer than expected, the actual revenue flows will be undermined and the surplus will not materialise.

It should be highlighted that the outcome of the 2019-2020 budget will not be known until September 2020, and Australia is facing a softening economy which can make “Budget in Black, Australia back on track” challenging to achieve: The housing sector remains a concern Weak Wage growth persists Retail Sales is sluggish Global Growth is slowing Tax Cuts The Australian Government is keen to build a simpler and more competitive tax system for the hard-working taxpayers and small businesses. There are three main themes to consider in the Government’s plans to build a better tax system: Lower taxes for hard-working Australians Immediate tax relief of up to $1,080 for singles or up to $2,160 for dual income families of low-and-middle-income earners to ease the cost of living. Lowering the 32.5 per cent rate to 30 per cent in 2024-25 Source: www.budget.gov.au From 2018-19, the Government will provide immediate tax relief for the low- and middle-income earners and larger tax benefits will be mapped out over the next couple of years through the Government’s enhanced plan should the Coalition party win the election.

Source: abc.net.au As from 2024-25, the Government will adopt further structural changes to the tax system and improve incentives for working Australians to rewards efforts. Source: www.budget.gov.au Backing small business The Government will be lowering the small business tax rate and will also increase and expand access to the instant asset write-off: “ Increasing the instant asset write-off threshold to $30,000 and expanding access to medium ‑ sized businesses with an annual turnover of less than $50 million to help them reinvest in their business, employ more workers and grow. Around 3.4 million businesses will be eligible to benefit.

Fast-tracking the company tax rate cut to 25 per cent for small and medium ‑ sized companies with an annual turnover of less than $50 million and increases to the unincorporated small business tax discount rate. ” Making Multinationals and big business pay their fair share The Government also want to make multinationals and big business pay their fair share. “$ 12.9 billion in tax liabilities raised from tax compliance activities since July 2016. New funding for the ATO to target tax avoidance by multinationals, big business and high‑wealth individuals.” The reaction following the release of the budget in the financial markets was subdued. The Reserve Bank of Australia was the main event that moved the AUD pairs yesterday.

Trade balance, and Retal Sales figures came in better than expected this morning and helped the Australian dollar to pare the losses made yesterday after Governor Lowe’s Rate Statement. AUDUSD (Hourly Chart) Source: GO MT4