Asian equity indices kicked off the week on a mixed note, as US stock futures recovered after a dip at the open. Stocks in Sydney (+1.68%), Seoul (+1.43%) and Shanghai (+0.42%) gained, but the Hang Seng (-0.36%) slid. Tokyo was closed due to bank holiday.
Stock traders will focus on two important topics this week: the US fiscal negotiations and the review of the US-China trade deal that could be at jeopardy due to escalating tensions over Hong Kong and technology.
US policymakers couldn’t find an agreement on the much-expected fiscal relief package on Friday, as the Trump administration rejected a compromise offer from Democrats. Negotiations will resume this week, with no clarity on when or if the two parties will strike a deal. Our base case scenario is still an agreement on a $1.5-2 trillion pandemic relief package.
The delay and uncertainties on the US next fiscal boost make some investors nervous, without however impacting the overall optimistic and patient wait for a further fiscal expansion. With the virus wreaking havoc on the US economy, policymakers are expected to come to an agreement sooner rather than later.
Meanwhile, the Covid infections in the US exceeded 5 million, the last million being added over the last two weeks confirming that the situation is far from being under control. For investors however, it is not the number of infections per se that matter, it is how governments and central banks react to numbers that set the mood. There shouldn’t be an important deterioration in the risk sentiment unless we see another round of extended confinement measures and lockdowns that would have an impact on the economic activity.
Friday’s jobs data has been a certain relief for investors, as the data confirmed that the US economy added more than 1.7 million jobs last month despite the persistent spread of infections. There is still a far way to go before the US employment market recovers to pre-crisis levels. However, any progress is cheerfully welcomed.
Activity in FTSE (+0.72%) and DAX futures (+0.72%) point at a positive start to the week, but the direction could be blurred by thin summer trading volumes and a shaky global risk appetite.
