The Moment of Truth?
Since the pandemic bottom, the balance of rates vs uncertainty has tilted towards the massive influx of central bank easing. It's led to unprecedented bounces is equities, a major move in gold and never-before-seen lows in interest rates.
By many metrics, it's gone too far. Then again, central banks may have also gone too far. In explaining his FOMC dissent on Monday, Kaplan said the Fed risked inflating a bubble by pledging to keep rates at zero even after its goals are accomplished.
Up until Monday, the dip in technology stocks was largely ignored by the FX and rates market. That changed with equities taking a broader leg down on Monday, led by Europe. What may have changed is that rising COVID case numbers are triggering fears of new restrictions. The US has so far shown a high threshold for COVID-driven economic weakness but other jurisdictions haven't been challenged in the same way. Most likely, the kinds of numbers many US states are tolerating right now would lead to major curbs in the UK or Canada but that remains to be seen.
The balance of it all begs for another look at the charts. Despite some larger moves on Monday, there were few breakouts. Cable held the Sept low, the euro rebounded back into the range from a five-week low and gold finished back above $1900. Here is a recap of Ashraf's calling the top of gold & silver 15 hrs before the peak.
Note too that markets bottomed in June on the Monday after the FOMC.
In spite of the mountain of worries, the potential for a vaccine and easy policy are powerful tools and it's far too soon to say that balance is broken. Ultimately, it will come down to the charts and the data. On Tuesday we get August existing home sales (exp 6.0m) and the September Richmond Fed (exp +12).Soft numbers and other day like Monday would be a strong signal.
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