2nd Virus Wave Mutes Powell Effect

Fed Chair Powell left no doubt that the Fed is unconcerned about the rally in risk assets and that there is no intention to slow easing. But the escalating number of Covid-19 cases in the southern US is weighing on indices. JPY and CHF are the only gainers vs the USD. The question now is whether the Fed's 'all-in' is enough for risk assets. A new Premium trade will be issued ahead of the London Close.

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Before we cover Powell, it's worth mentioning that Texas reported over 2500 new cases of coronavirus cases, the highest since 1-day rise since the outbreak of the virus. Florida had over 8K new cases, the biggest of any 7-day period. Experts have yet to determine whether the latest surge is a result to recent re-openings.

The main action from the FOMC was to pledge at least $120B per month in combined Treasury and MBS purchases for the coming months. It was an upside surprise and ensures that the taper has been halted.

The initial reaction was strong selling in the dollar but that receded when Powell shied away from promising yield curve control. The market may have gotten that one wrong because his message on YCC wasn't that the Fed didn't want to support the recovery, it was that they aren't sure yield curve control will work, especially with yields already so low.

Otherwise he uttered what was were some of the most-dovish phrases ever said by a central bank leader in: "We're not thinking about raising rates, we're not even thinking about thinking about raising rates." and "We will continue to use our powers forcefully. aggressively and proactively."

He addressed the rebound in risk assets directly and dismissed it outright by saying that acting to hurt an asset bubble wouldn't be desirable if it hurt the jobs market. The Fed is focused on 2% inflation and low unemployment and high stock prices aren't going to derail that goal. Add it all up and the message was extraordinarily dovish. That was reflected in strong rallies in gold, silver and copper.

Today, the DOW30 is back below its 200-DMA, but gold is stabilising around 1730 as another question becomes unavoidable: "Will Corona Case become a US-specific problem?"