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Research Market strategy
by Swissquote Analysts
Daily Market Brief

Wall Street Extends Losses Amid Fading Stimulus Hopes


Wall Street Extends Losses Amid Fading Stimulus Hopes

By Strategy Desk

US equities extended losses on Wednesday, as investors got even more hints pointing to no stimulus before the presidential election scheduled for November. US Treasury Secretary Steven Mnuchin said that a deal between Republicans and Democrats would be difficult to reach before the election, adding to worries that the economic recovery would be delayed. Mixed quarterly earnings reports, mostly from banking groups, also put pressure on the benchmark indexes. The S&P 500’s banks index dropped by 2.4%. As for the index itself, it lost 0.66%. Elsewhere, the Dow fell 0.58%, and Nasdaq declined by 0.80%.

Several major banks presented their quarterly performance. Thus, Goldman Sachs saw the best quarterly results in 10 years, as trading activity surged while the bank doesn’t depend on consumer business. Goldman’s Q3 return-on-equity of 17.5% was the highest in a decade, and the EPS beat analysts’ forecasts. Trading revenue surged 29% as clients became more active during the pandemic in an effort to adjust portfolios. The share price of Goldman rose 0.6% following the report, though it’s still down 8% year-to-date.

Elsewhere, Bank of America and Wells Fargo dropped 5.3% and 6%, respectively, after releasing somewhat disappointing results. Bank of America’s EPS beat analysts’ forecasts, but revenue fell short of expectations. Wells Fargo bounced back to profits in the three months to September, thanks to a surging housing market. Still, the EPS of 42 cents was a little lower than the expected 44 cents. On a side note, Wells Fargo fired over 100 employees for allegedly defrauding the so-called Economic Injury Disaster Loan – a federal pandemic-relief program.

United Airlines stock fell after reporting bigger-than-expected Q3 loss, as the COVID pandemic continues to damage air travel. Quarterly sales slumped 78%.

In Asia, stocks are mostly bearish in early trading on Thursday amid pessimism surrounding the US stimulus package and the rapid spread of the coronavirus in Europe and other regions.

At the time of writing, China’s Shanghai Composite is down 0.09%, though Shenzhen’s SZSE Composite is up 0.02% after initial losses. Earlier today, China released inflation data. The country’s consumer price index rose 1.7% y/y last month, down from August’s 2.4% and the predicted growth of 1.8%. China’s producer price index declined 2.1% y/y, beating forecasts. Investors are worried about the worsening Sino-US tensions. Reuters reported that the US State Department had submitted a proposal for the Trump administration to include China's Ant Group to a trade blacklist. Ant Group is the tech arm of Alibaba and plans Hong Kong IPO.

Japan’s Nikkei 225 is down 0.52%, South Korea’s KOSPI fell 0.71%, and Hong Kong’s Hang Seng Index tumbled 1.43%.

Australia’s S&P/ASX 200 closed 0.50% higher after Reserve Bank of Australia (RBA) Governor Philip Lowe suggested possible rate cuts and more bond buying.

European stocks will open lower as futures are now flashing red amid the general bearishness and an accelerating increase in the number of COVID infections.

In the commodity market, oil prices have lost about 0.20% on Thursday morning, but they gained over 2% yesterday. Crude prices were boosted after the American Petroleum Institute reported a 5.4 million barrel draw in inventories for last week, while investors expected a draw of 2.3 million barrels. Also, OPEC countries seem to be complying with the production cut requirements. WTI trades near $41 while Brent hovers above $43.

Gold is declining amid a stronger US dollar, as investors realize that the next stimulus package might not come before the election. Gold futures fell 0.20% to $1,903.

In FX, the US dollar leverages its safe-haven status amid the deadlocked stimulus talks and increasing COVID cases in Europe. The USD Index rose 0.08% to 93.440. Still, the euro is stronger today, gaining 0.2% in pair with the greenback, to 1.1749.

AUD/USD tumbled by 0.57% after RBA Governor hinted to further interest rate cuts.

The British pound declined slightly against the USD and the euro after UK PM Boris Johnson expressed disappointment with lack of Brexit deal progress. Nevertheless, the sterling rose about 0.60% against the two majors on the news that the negotiations deadline may be extended from October 15 to January 1, 2021.

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