US equities followed up on Asian and European gains on Tuesday. Major US indices rallied to highest levels since March. The S&P500
(+1.23%) traded above the 3000 mark, but closed a touch below this level. Likewise, the Dow extended gains past 25’170, yet ended the session
slightly below the 25K mark on the back of some profit taking into the end of the trading session. Nasdaq tested 9500.
Hope for a vaccine
against coronavirus was a major catalyzer for the recent rally across world equities. The end of confinement measures has also contributed
to the positive momentum, although the risk of seeing another vaccine fail and a potential second wave of contagion don’t appear to be priced
in at their fair value. Hence, we see a mounting risk for a downside correction in the coming days.
Asian equities were mixed on Wednesday.
The Nikkei (+0.89%) and the ASX (+0.65%) edged higher, but on a softer positive momentum compared to the beginning of the week, while stocks
in China (-0.29%) and Hong Kong (-0.39%) pointed lower as investors’ focus turned to US-China tensions after the White House warned that the
new national security law in Hong Kong could compromise the city’s special status as a global financial hub.
Good news came from
mainland China however, where industrial profits jumped 33.7% on monthly basis in April, as downstream industries outperformed giving
hope that the healing process is now effective from the bottom-up.
Demand in safe haven assets remained limited; the US dollar weakened
across the board, the US 10-year yield advanced to 0.70% and gold retreated to $1705 per oz, giving traders a window of dip-buying
opportunity to hedge against a rising anxiety across risk assets. The higher volume of dollar purchases in Asia hints that the wind could
change direction starting from today.
Activity in FTSE (+0.52%) and DAX (+0.55%) futures hint at a positive start on Wednesday, but gains
are fragile as investors have an increased intent to realize profits and turn flat at these levels.
By Ipek Ozkardeskaya
