(08 September 2020)DAILY MARKET BRIEF 1:Equities Eye Recovery After Worst Decline in 5 Months
The US stock market was closed on Monday, but the futures on the benchmark indexes are pointing to recovery attempts, except for Nasdaq. Last week, US equities saw their worst decline in over five months, slashing gains accumulated over the previous five weeks. The indices hit the lowest level last Friday, and their futures have rebounded slightly since then.
At the time of writing, futures on the Dow Jones and the S&P 500 are up 0.76% and 0.44%, respectively. However, Nasdaq futures are still flashing red, losing 0.33% for the day.
While the nosedive from last week cannot be clearly explained by any particular fundamentals, investors believe that the correction was caused by worries that the tech rally boosted valuations to overbought and unsustainable levels.
Asian stocks are mostly bullish on Tuesday, as equities recover from the last week selloff.
China’s Shanghai Composite is now up 0.21% as it reversed earlier losses. The Shenzhen Component is down 1.08% given that it’s more oriented to tech stocks, which still cannot recover.
The tensions between the US and China have worsened further after US President Donald Trump threatened to curb the economic relationship with China. Trump pledged to bring jobs back to the US from China and said that the US was losing billions of dollars. If the US didn’t do business with China, it wouldn’t lose those billions, the president concluded, stressing the word “decoupling” again.
Trump’s comments came after June comments made by Treasury Secretary Steven Mnuchin, who said that the two economies would be forced to decouple if China didn’t permit American companies to compete on a fair basis.
Besides the old conflict with the US, China has deteriorated relationships with India, as the two countries are debating over the border.
Hong Kong’s Hang Seng Index is up 0.14% after initial losses.
Japan’s Nikkei 225 has gained 0.66%, even as the country confirmed the worst contraction since World War 2. Japan’s GDP contracted 28.1% y/y in the second quarter, slightly better than analysts’ estimates of a 28.6% decline. Nevertheless, household spending and the current account readings for July fell short of expectations. The sentiment is supported by investors’ confidence that Yoshihide Suga of the ruling party will replace incumbent Prime Minister Shinzo Abe.
South Korea’s KOSPI is up 0.75% and Australia’s ASX 200 has added 0.80% amid hopes for a COVID-19 vaccine that may come to Australia as early as in the first months of 2021.
Elsewhere, European equities are diverging from the US tech nosedive, with DAX, FTSE, and CAC gaining about 2% on Monday. Their futures are now edging up as well.
