E-mini S&P 500 Futures (September): Settled at 3136.50, down 35.50
E-mini Nasdaq-100 Futures (September): Settled at 10,532.25, down 66.25
U.S benchmarks finished broadly lower yesterday, but it was banks, industrials and energy that were hardest hit. A record rise in Covid-19 cases domestically and underlying U.S.-China tensions certainly weighed on the risk-appetite.
In recent weeks, the reemergence of the virus across mostly southern U.S. states has slowed the reopening. However, with a Federal Reserve Balance sheet lingering above $7 trillion and promises of more monetary and fiscal measures if necessary — reiterated again by Fed Governor Richard Clarida yesterday — the fresh outbreaks have had little to no impact on sentiment. We noted at least 2 weeks ago that we believe the death rate is what matters most to the market; as long as there continues to be a dissipating trend in deaths, the market finds the rise in cases correlated to testing and doesn’t believe another shutdown is possible. Furthermore, the average age of new cases has been younger than the threshold of dire concern relative to supporting statistics. Reports now show the average age of new cases rising. It cannot go unnoticed if the death rate follows suit.
Last week and again Monday, we have highlighted the subtly rising tensions between the U.S. and China and the communist nation’s steps to tighten their grip in the Asian region. We said the Hong Kong Security Law is proof that China will lie, cheat, and steal to get what they want, if you needed further proof. We firmly believe the market isn't pricing in the true risks, but the market also understands where U.S. policy is focused right now. It doubts President Trump will dismantle what is perceived to be positive steps with China ahead of the election; he cannot afford to use lose this supporting narrative nor allow it to slash stock market gains. Furthermore, the social issues domestically have diverted headlines and focus from China. To accompany potential legislation working through Washington, yesterday there were rumors the administration is looking into undermining the Hong Kong Dollar’s peg to the U.S. dollar. The idea has since been shunned due to concerns of the ripple effects, however, Hong Kong-heavy HSBC lost 4% yesterday and was down another 2.5% pre-market.
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