After a mild coronavirus scare for President Trump over the weekend, he was back in the White House for business-as-usual matters from Monday. However, Trump threw a risk-off bombshell to the financial markets yesterday, when he instructed his administration to halt talks with Democratic leaders on the second $2.2tn fiscal stimulus package passed by the Democrat-controlled House last week.

President Trump proposed to resume fiscal stimulus negotiations only after the November election despite “persuasion” from key Fed officials to enact another round of fiscal stimulus package as soon as possible due to softening economic conditions. Despite Trump’s latest antics and his bout with the coronavirus, voters seem to be unmoved by the sympathy factor, where Democrat presidential candidate Joe Biden is surging in national polls with the biggest lead since late July. According to a poll by CNN, Biden leads over Trump 57% to 41%.  

The S&P 500 and Nasdaq 100 tumbled by -1.4% and -1.9%  to close the US session at 3360 and 11291 respectively. High beta and growth related sectors were the main underperformers; S&P Consumer Discretionary (-2.1%), Communication Services (-2.0%) and Information Technology (-1.6%) with Amazon, the largest market capitalised stock in the consumer discretionary sector tumbled by -3.1%.

Gold, a traditional safe-haven asset, did not benefit from the sell-off seen in equities via its directly correlation with major stock benchmark indices in the past six months due to the liquidity factor amplified by ultra-loose monetary policies from global central banks. Gold futures (COMEX) tumbled by -1.9% overnight after a bearish reaction off the 1,929 key medium-term resistance. In today’s Asian session, gold futures continued to trade modestly lower to print a current intraday low of 1,877 at this time of the writing.

The US dollar as measured by the US Dollar Index, staged an upside reversal against the major currencies by +0.4% after it tested a key short-term support at 93.50 on Monday and recouped its prior session’s losses.

3 areas to watch

Risk of further negative feedback loop on US mega technology stocks: the US House anti-trust subcommittee has proposed the most dramatic proposal to overhaul competition law in decades to curb the power of US technology juggernauts Amazon, Google, Facebook and Apple. The ultimate endgame is a recommendation for Congress to break up their businesses, making it harder for them to acquire others and imposing new rules to safeguard competitions. Key medium-term supports to watch; Amazon (2,888), Google (1,400), Facebook (244.10) and Apple (102.80).

Ongoing Brexit negotiation talks: EU officials had responded negatively so far and offered no concession to UK prime minister Boris Johnson before the 15 October deadline set by the UK. The GBP/USD may continue to wobble in the short-term if no breakthrough is reached. Bearish reaction off the 1.3035 key short-term resistance overnight and the next near-term support to watch will be at 1.2780, followed by the 23/25 September 2020 swing low area of 1.2680.

Japan's leading economic index for August (preliminary): the gradual lifting of coronavirus restrictions had improved economic conditions in Japan for the two months since June 2020. August’s figure is expected to come in at 88, above the 86.7 recorded in July, to show three months of consecutive growth. USD/JPY is still trading below a key 105.90 short-term resistance after a recovery since Monday from last Friday’s losses inflicted by President Trump’s coronavirus infection news flow.

Chart of the day: further potential downside for Gold

Source: CMC Markets


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