US president Donald Trump’s Covid-19 infection was the main market mover last Friday, where risk assets tumbled on the onset of the news release. US stock indices futures, the S&P 500 and Nasdaq 100 tumbled by close to -2%, together with USD/JPY, which declined by 60 pips to breach below 105.00, its steepest intraday fall since 21 September 2020, to print an intraday low of 104.94.
Risk assets started to recover some lost ground after the US session opened, the S&P 500 trimmed its earlier losses to end the session at 3348 (-1.00%) but closed below the 50-day moving average (3362) while the Nasdaq 100 underperformed with a loss of -2.8%.
The President Trump’s diagnosis and the spread of the coronavirus among his inner circle of aides had created uncertainty and chaos on financial markets coupled with the upcoming US presidential election that is just four weeks away. Interestingly from a US sector rotation perspective, value, cyclical and defensive stocks managed to lock in robust gains; real estate (+1.6%), utilities (+1.1%), energy (+1.0%), materials (+0.8%) and financials (+0.7%). A shift away from high beta growth related stocks that underperformed; information technology (-2.6%) and communication services (-2.0%). Hence, it was a positive observation that the carnage did not trigger a sell off across the board.
One of the possible positive catalyst was that US House Speaker Nancy Pelosi said the current situation had changed the dynamic on the fiscal relief negotiation talks that implied that the second fiscal stimulus package faces lesser political gridlock going forward and progress of a deal may come sooner than expected.
On the economic front, September employment report was relatively disappointing; the unemployment rate dropped to 7.9% from 8.4% but non-farm payrolls increased by 661,000 (below consensus estimate of 850,000), the third month of consecutive decline in jobs growth since July. In addition, the labour participation rate fell to 61.4% from 61.7%. These observation suggest that the labour market recovery process is getting more arduous with the risk of permanent job losses that is increasing.
In today’s Asian session, stocks are starting the week on an upbeat note after US President Trump’s doctors say over the weekend that Trump was recuperating well and may be discharged from hospital on Monday. At this time of the writing, the US stock indices futures; S&P 500 and Nasdaq 100 gained about +0.6% and +0.9% respectively. Japan’s Nikkei 225 and Hong Kong’s Hang Seng Index upped by +1.4% after the latter reopened from two days of holiday. Even the USD/JPY has recovered to last Friday’s level at 105.60 before the President Trump’s coronavirus infection news broke out.
Singapore’s retail sales for August; the retail sector had started to show signs of improvement in July where it recorded a smaller loss at -8.5% year-on-year versus June’s figure of -27.7% after the government eased the lock-down measures in late June. Consensus estimate for August is at -1.5% year-on-year.
Extended Brexit negotiation talks between UK and EU officials; UK Prime Minister Boris Johnson said on Sunday that Britain “can prosper mightily” without a post-Brexit trade deal with the European Union after agreeing to extend stalled talks with Brussels on Saturday. The clock is ticking closer to the October 15 deadline where a European summit is held in order for the latest agreeement to be ratified in time to take effect by 2021. The GBP/USD had traded higher by +0.08% in today’s Asian session but it remained below a key resistance level of 1.3035.
US ISM non-manufacturing PMI for September; the service sector is expected to show resilience with consensus estimate set at 56.3, almost the same as August’s figure of 56.9. If September figure comes in as expected, it will mark the fourth consecutive month of expansion since June.