Jitters infect trading, Fed withdraws

A large increase in reported coronavirus infected patients saw European and US investors step away from shares in overnight trading. Initial jitters were eased by a WHO official’s statement that the increase was simply a full accounting of cases so far. US indices recovered and made gains, until the US Federal Reserve announced it was tapering its repurchase agreement program, effectively withdrawing liquidity.

The Fed’s change of direction coincided with further increases in US inflation. Both the headline and core readings, at 2.5% and 2.3% respectively, are now above the Fed’s 2% target level. Slowing growth and rising inflation is a nightmare scenario for markets. Any further upward momentum in inflation would tie central bankers’ hands, leaving asset prices at the mercy of the markets.

In a night of hard to reconcile moves both precious and industrial metals rose with oil prices, yet commodity currencies like the Australian and New Zealand dollars fell. Bonds rose, despite the reduced liquidity, and short-term interest rate markets priced rate cuts more aggressively. Cryptocurrencies marched to their own beat, and continued their five-week climb.

The mixed leads left Asia Pacific share futures flat, indicating a cautious start to trading. The official count of ne COVID19 cases is a likely focus for the session, and is expected in early trading. Australian investors take a breather today, ahead of the busiest week of reporting season. Overall profit numbers are improving as US reporting approaches the 80% mark.