Washington Deadlock Sends Stocks Lower

October 26, 2020 10:05 AM
Another record surge in new Covid-19 cases in the U.S.
September Chicago PMI was in positive territory for the fifth straight month
U.S. and China relations are quietly in the spotlight
Equity Index futures

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Friday's Close

E-mini S&P 500 Futures (December): Settled at 3451.75, up 2.50 on Friday and down 10.50 on the week

E-mini Nasdaq-100 Futures (December): Settled at 11,663.50, up 13.75 on Friday and down 134.50 on Friday

U.S. benchmarks are on their back foot to start the week as the risk-appetite recedes due to deadlock in Washington, virus resurgence, and a gloomy earnings outlook. With the election a week from tomorrow, hopes of a Coronavirus Aid bill have all but vanished. Still, the posturing continues, and the White House is expected to deliver a counter to the House today. Another record surge in new Covid-19 cases in the U.S. was reported over the weekend. State and local governments have moved to expand restrictions on bars and restaurants to contain the spread of the virus. The picture is worsening in Europe as France registered more than 50,000 cases Sunday, Spain declared a state of emergency, top officials in Poland tested positive and Italy expanded restrictions.

Data from Germany this morning bore the burden of the deteriorating conditions. German Ifo Business Climate, a read that measures expectations over the next six months, came in shy of expectations. On the bright side, the Current Assessment, which measures current conditions, notched expectations.

September Chicago PMI was in positive territory for the fifth straight month. It also incurred the fourth consecutive positive revision. New Home Sales are due at 9:00 am CT, Dallas Fed Manufacturing at 9:30 am CT and there is a 5-year Note auction at noon CT.

On the earnings front, SAP is down more than 20%. The German multinational enterprise software giant cut forecasts and issued a warning due to lockdowns and the expected impact on its business in the first half of 2021. It noted that customers are prolonging investment and decision making due to the pandemic. Salesforce, a favorite of ours at Blue Line Capital, is feeling the shockwaves and down more than 2% this morning. Hasbro, the toy and board game company, is also down 3% premarket after an unenthusiastic earnings report this morning. After the bell reports include NXP Semiconductors and Twilio.

Lastly, U.S. and China relations are quietly in the spotlight after China announced sanctions on U.S. defense companies, including Boeing and Lockheed Martin, due to arms sales to Taiwan.

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