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Research Market strategy
by Swissquote Analysts
Daily Market Brief

Wall Street Short-Term Rally Continues


Probably Not for Long

By Strategy Desk

US equities continued to rally on Wednesday, regurgitating the news about Moderna’s COVID-19 vaccine. Goldman Sachs’ upbeat reporting also gave the stock markets a boost. The S&P 500 (+0.91%) has performed better than tech-oriented Nasdaq (+0.59%) for a fourth consecutive trading session, which happens only the second time since the recovery started in March. Dow Jones gained 0.85%.

At the end of July, Moderna will move to the final stage of the trial, during which it will test the vaccine on 30,000 people. The stock price of the biotech firm has surged almost 7% on the news. The hopes that an efficient vaccine would finally chase away the pandemic boosted the S&P 500’s airlines index and travel-related shares.

The bullish rhetoric was also supported by the Fed’s Beige Book report that showed US companies had experienced an increase in activity at the beginning of the month, as some states relaxed the lockdown.

Meanwhile, the number of coronavirus cases continues to surge in the US and worldwide. The US confirmed over 70,000 cases on Wednesday, showing the second-highest daily increase so far. The outbreak could hinder the Wall Street’s rally. In fact, US stock futures are already flashing red.

In Asia, investors ignored China’s upbeat GDP data and dumped stocks on the back of rising tensions between the US and China and the uncontrollable increase in coronavirus infections. Many regions are forced to reimpose strict social distancing measures.
At the time of writing, China’s Shanghai Composite has dropped 2.32% to the lowest since July 6, while the Shenzhen Component is down 1.41%.

The tensions between the world’s two largest economies don’t bode well for the stock markets. China pledged retaliation after US President Donald Trump ended Hong Kong’s privileged status and signed an executive order to sanction Chinese entities behind the city’s newly imposed security laws.

The news that China’s economy bounced back more than anticipated hasn’t helped much. China reported a 3.2% growth in its GDP in the three months to June compared to the same period in 2019, while analysts expected a 2.5% increase. In the first quarter, the country experienced a 6.8% contraction.

Hong Kong’s Hang Seng Index is down 1.53%.

Japan’s Nikkei 225 has declined by 0.79%. Elsewhere, South Korea’s KOSPI is down 1%. The Bank of Korea maintained the benchmark interest unchanged at 0.50% and restrained from further stimulus.

Australian stocks are down 0.85% as the country’s unemployment rate increased to the highest level in about three decades.
In individual corporate news, Goldman Sachs beat expectations with its financial results for the second quarter thanks to a boost from bond and equities trading. The banking giant reported EPS of $6.26 on revenue of $13.3 billion, which is the second-highest figure on record. Analysts anticipated EPS of just below $4 on revenue of $9.7 billion.

Elsewhere, iPhone maker Apple secured a major win as the EU’s second-highest court reversed an EU order for the US company to pay about $15 billion in back taxes for its two subsidiaries in Ireland. In 2016, the European Commission (EC) claimed that Apple took advantage of illegal state aid thanks to two Irish tax rulings. However, the General Court annulled that order, stating that the EC couldn’t demonstrate that there was a selective advantage.

European stocks should be ready for a bearish session as the futures are declining.

In the commodity market, oil prices slightly fell after OPEC and allies led by Russia agreed to ease the record production cut from August. However, the drop is moderate as investors hope the US demand for fuel would increase on the back of a decline in the country’s crude inventories. WTI is down 0.93%, and Brent has dropped by 0.72%, but the two brands are still trading close to weekly and monthly highs.

Gold is trading sideways around $1,810. The metal is in wait-and-see mode, as investors monitor the pandemic and the Sino-US tensions.

In FX, the US dollar is trying to reverse previous losses, as investors are still looking for safe-havens to hedge against the uncertainty. The USD Index is up 0.03% to 96.070.

The euro has declined versus the greenback, down 0.04% to 1.406. Investors are waiting for the ECB meeting later today to assess the monetary policy and the interest rate decision.

The British pound has dropped over 0.20% against the USD and euro. The UK Office for National Statistics (ONS) reported robust labor market data a few minutes ago, which might support the sterling.

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