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Research Market strategy
by Swissquote Analysts
Daily Market Brief

US Equities Might Conclude Worst Month in At Least A Year


US Equities Look Weak

By Strategy Desk

US equities cannot reverse the downtrend, judging by the futures on the three main indices. Both the Dow and the S&P 500 futures are down 0.64% at the time of writing, while Nasdaq has declined by 0.76%. Last Friday concluded the third bearish week in a row, which is already the longest streak in about a year. The stock market has lost almost all gains from August, which was the best August in over three decades. The main topics of interest are the aggravating coronavirus pandemic, the COVID vaccine race, and the nearing US election.

The three-week slide was driven by the tech sector, which previously boosted the market. Tech stocks have dropped on investors’ fears of overvaluation after hovering too much within the overbought level. Also, options of many individual stocks and ETFs expired, triggering the selloff.

Meanwhile, US lawmakers still can’t find consensus on a new stimulus package to support the economy amid the pandemic. The debate between Democrats and Republican will become even more consuming after Supreme Court Justice Ruth Bader Ginsburg has died and the two parties will enter a difficult nomination process.

Asian stocks are bearish at the start of the week, as investor sentiment is hurt by an increase in coronavirus cases in Europe and following the correction in the US stock market.^

At the time of writing, China’s Shanghai Composite is down 0.55%, and the Shenzhen Component has declined by 0.40%. Earlier today, the People’s Bank of China maintained the benchmark lending rate for corporate and household loans at previous levels for the fifth consecutive month, in line with expectations. Thus, the one-year loan prime rate (LPR) remains at 3.85%, while the five-year LPR is at 4.65%.

South Korea’s KOSPI has edged down 0.92% after initial gains, and Australia’s S&P/ASX 200 is down 0.77%.
Japanese markets are closed for a holiday.

Hong Kong’s Hang Seng Index has tumbled 1.69%, with the share price of HSBC’s Hong Kong subsidiary – the largest bank in Hong Kong – falling to their lowest level since 1995. HSBC is one of the banks charged with moving large amounts of illicit funds over about two decades, according to a file leaked from the Financial Crimes Enforcement Network (FinCen). German Deutsche Bank has reportedly facilitated more than half of the illicit transactions from the leaked document.

In other individual corporate news, Donald Trump approved a deal involving TikTok’s parent ByteDance, in which Oracle and Walmart would take minority stakes in a new entity called TikTok Global. While Oracle will have the permission to check the source code of the video-sharing app, ByteDance said it wouldn’t give algorithms and technologies to Oracle. Meanwhile, ByteDance is also pondering an IPO instead of the deal.

As for the European equities, markets will open in the red as investors are concerned about the second wave of the pandemic. Denmark, Greece, and other countries have re-imposed restrictions, while the UK is thinking about a new lockdown. The WHO has noted that in the last two weeks, the number of new cases in more than half of EU states has doubled.

In the commodity market, oil is juggled by bulls and bears. Initially, crude futures increased as the US Gulf Coast is about to see a third storm in about a month, which will continue the disruptions in production. However, prices have suddenly dropped on concerns about the increasing number of new COVID cases and fresh oil supply from Libyan reserves, which are reopening after an eight-month blockade of crude exports. Both WTI and Brent have lost over 0.80% so far.

Gold can’t leverage its safe-haven status at the moment, maintaining its bearish tone in early trading. Investors are waiting for another speech from US Fed chief Jerome Powell to get clues about the central bank’s approach on inflation. Besides Powell, Fed officials, including Charles Evans, Lael Brainard, James Bullard, Raphael Bostic, Mary Daly, and John Williams will also deliver speeches later this week.

The decline in gold is capped by a weak US dollar, which also waits for the comments from Fed’s officials. The USD index is down 0.09% to 92.862, while EUR/USD is up 0.20% to 1.1860.

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