(13 AUGUST 2020)DAILY MARKET BRIEF 1:S&P500 flirts with record highs
The downside correction in US technology stocks didn’t last long. Nasdaq rebounded more than 2% on Wednesday, and the S&P500 (+1.40%) traded above the all-time closing high completing a full circle to return to its pre-Covid levels.
Apple (+3.32%), which announced a 4-to-1 split from September, is about to come under some pressure due to the US’ attack on Chinese TikTok and WeChat for security reasons. If WeChat, China’s most popular and most used messaging app is removed from Apple’s AppStore, it would be almost impossible to sell iPhones in China and the company’s global shipments would drop by 25-30%, until the decision is reversed.
The emerging tensions over TikTok and WeChat will be sitting on top of the priority list for the upcoming trade discussions between the US and China. The two countries are expected to review the phase-one trade deal and we can already tell that the negotiations won’t be smooth, and the existing deal could be at jeopardy. A further deterioration in the US-China trade relationship is an important downside risk to the global equities at the moment, but the price pullbacks will likely remain short-lived as stock investors continue relying on government and central bank support to keep the illusion alive.
Data-wise, the headline inflation in the US rose 0.6% m-o-m in July, more than expected. The 0.6% increase in core CPI was the fastest since 1991. Digging into these numbers, the surge in consumer prices came mostly from motor vehicle sales and apparels, which are volatile items, if filtered out showed there has not been a material change in overall inflation levels. Food prices, on the other hand, came off slightly following a sharp rise during the pandemic. To us, there is nothing alarming in the latest inflation figures.
What’s more worrying is the army of 16 million jobless in the US, who are craving for the next fiscal stimulus package to pass as infection numbers continue surging. But talks haven’t borne fruit so far. Due today, the US unemployment claims are expected to remain above the 1 million mark.
