Heavyweight tech stocks and gold tumbled in overnight trading. The trigger was comments from House Majority Leader Mitch McConnell that the negotiations between Democrats and Republicans over an extension of Covid-19 support measures are at a “stalemate”. Base metals and crude oil dropped, and the US dollar strengthened. However bonds also sold off, on anticipation of large issuance to come.
The swing in sentiment is a little surprising, given the well-known gap between the opposing parties. Earlier in the overnight session European indices posted solid gains, and US stocks opened in the green. Things turned ugly with just two hours remaining in the US trading day. The impact on popular tech stocks was dramatic, as investors scrambled to lock in gains as the selling began. Apple fell 3%, Facebook dropped 2.7%, and Netflix shed 3.5%, and the Nasdaq 100 index fell further than the SPX 500.
Anticipation of heavy issuance saw bond markets sell off. US junk bond raisings in July / August will likely exceed all of the issuance for 2019. Additionally, Federal programs must be funded, increasing the supply of government bonds. US ten-year bonds finished the session at 0.64%, up from 0.50% last week.
Gold fell in the intersection of growth and haven concerns. The cash price dropped more than 5%, taking gold below its previous all-time high near $1,920. This is co-incidentally the 38.2% Fibonacci retracement level, and traders are unsurprised that gold is stabilising around this level in early Asia Pacific trading.
The Reserve Bank of New Zealand is widely expected to maintain interest rates at current levels at its meeting today. Analysts are divided on the potential extension of the RBNZ’s asset purchase program, with some expecting the bank to lift the amount for the current $60 billion. No change could push the NZ dollar higher.