European and US stocks caught the risk-off bug yesterday due to the impending stringent measures imposed by several European governments to combat an alarming rate of rising coronavirus infection cases in Europe.

Also, US fiscal stimulus optimism had flipped to pessimism as negotiations among stakeholders remained stuck in a gridlock as time was running out to hammer out a deal before the 3 November US presidential election.

The S&P 500 and Nasdaq 100 tumbled by -1.9% and -1.6% respectively while the Russell 2000 underperformed with a loss of -2.2%, the steepest decline seen in four weeks. Selling was seen across the board in US sectors except for the defensive utilities (-0.05%, almost unchanged). The worst performances were value-oriented stocks; materials (-2.5%), industrials (-2.5%) and energy (-3.5%), evidence that sentiment and flow can alter the dynamics in a short period of time.

The US dollar did not have a massive safe-heaven bid as the US Dollar Index inched up by +0.3% to 93.07, still below its four-week high. Also, the JPY, another safe-heaven proxy currency, did not get bided up where USD/JPY ended yesterday’s US session almost unchanged at 104.83, still above its 104.40/104.00 medium-term range support in place since 31 July.

No significant movement was seen in Gold futures (COMEX) where it continued to trade sideways below its 1,940 range resistance in place since 6 October. Even though US treasuries had recorded modest gains that pushed the 10-year yield down by four basis points to 0.801%, it still managed to hold above the former range resistance from 16 June, and now turns support at 0.784%. Hence, the movement seen among cross assets does not indicate a massive risk-off scenario yet.

In Asia, key benchmark stock indices had started off on a better footing compared to the carnage seen overnight in US stocks, as losses were muted with Hong Kong’s market resumed its trading from a public holiday closure yesterday. Japan’s Nikkei 225 (-0.25%), South Korea’s KOSPI 200 (+0.02%), Hong Kong’s Hang Seng Index (-0.3%) & Hang Seng Technology Index (+1.38%). China’s CSI 300 (+0.22%). Underperformers were Singapore’s Straits Times Index (-0.45%) and Australia’s ASX 200 (-1.7%).

One of the main reasons for the general outperformance of Asian stocks, especially China-related technology stocks in Hong Kong’s Hang Seng Technology index, was due to positive feedback triggered by impending Alibaba Ant Group IPO, after it finalised pricing for its dual listing: Shanghai (CNY68.8 per share) and Hong Kong leg (HKD80 per share). Total capital to be raised will be around $34.5bn, making it the world’s largest IPO. Its Hong Kong IPO leg will start trading on 5 November, two days after the US presidential election, while the Shanghai leg’s start date has yet to be confirmed.

Events to watch

Microsoft Q3 earnings after the US session close today the first of the big tech firms to announce earnings result this week. Census estimates polled by FactSet are expecting revenue of $35.76bn (up by 8% annually) and earnings per share at $1.54.  

US durable goods orders for September; core durable goods orders are expected to grow at 0.4% month-on-month, unchanged from the August figure of 0.4%, but the slowest growth in five months if September's figure comes in at 0.4%.

Chart of the day: USD/JPY

Watch the 104.40/104.00 key medium-term support on USD/JPY.

Source: CMC Markets


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