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Research Market strategy
by Swissquote Analysts
Daily Market Brief

Equities Bearish on Monday, Focus Remains on US & EU Stimulus


Focus Remains on US & EU Stimulus

By Strategy Desk

US stock futures are not foretelling anything good as of early Monday, after the third consecutive week of solid performance. Investors are worried that the rapid increase in the number of COVID cases and deaths would hinder a rapid economic recovery. US policymakers and European leaders will negotiate further stimulus packages this week, which might define the next market trends.

Last week, the S&P 500 rose about 1.3% and Dow surged over 2%, mostly on hopes that an efficient vaccine would stop the pandemic. US biotech firm Moderna revealed some successful results and advanced to the next phase of its trial.

It seems that the market is getting out of the tech FOMO and focusing on value stocks. Amazon, Facebook, Netflix, and Microsoft had been mostly bearish last week.

At the time of writing, all three index futures – Dow, Nasdaq, and the S&P 500 – are down 0.39%, anticipating a bearish session.
Asian stocks are not doing any better, as the pandemic seems to be uncontrollable for now. Investors mostly ignored upbeat economic data from the US and China. On Thursday, Asia’s largest economy reported a better-than-expected GDP reading for the second quarter. While markets admit the economic recovery continues, there is no way a V-shape rebound is possible.

Japan’s Nikkei 225 index has declined by 0.16%. The Land of the Rising Sun is struggling with the never-ending economic sunset. The trade-reliant country reported a 26.5% slump in June exports. Shipments to the US collapsed by about 50% again last month as demand for cars plummeted. Exports to China remained sluggish as well. For Japan, June was the fourth straight month of double-digit declines in exports. This points to perhaps the worst crisis after WW2.

South Korea’s KOSPI is down 0.13%, and the ASX 200 has lost 0.52%. The Australian government is due to release a mini-budget later this week.
Hong Kong’s Hang Seng Index was recently down about 0.10% but has managed to recover and now fluctuates where it opened. The city saw a record 108 coronavirus cases on Sunday.

Chinese stocks are bullish on Monday. The Shanghai Composite is up 2.81%, and the Shenzhen Component has surged 1.71%. The People’s Bank of China maintained its benchmark interest rate unchanged for the third month in a row, in line with expectations. Thus, one-year loan prime rate keeps at 3.85% and the five-year LPR stays at 4.65%.

All in all, equities can quickly reverse the tone if investors shift their focus from pandemic figures to fresh stimulus. The US Congress is scheduled to begin a debate on new stimulus measures later this week. Some of the existing measures are about to end within two weeks.

In the commodity market, gold prices are flat after a bearish start. Gold futures are trading at around $1,808, as investors weigh the possibility of more stimulus. Besides the US, European leaders are also negotiating a potential plan to support the bloc’s economy. However, the demand for the safe-haven might increase as some European diplomats are thinking to delay further talks to next month.

Elsewhere, oil prices declined on the back of a rapid increase in the pace of COVID infections around the world. Both WTI and Brent futures are down about 0.70%, to $40.52 and $42.89, respectively.

Today, more than 14.6 million people have been confirmed positive with the new coronavirus, and more than 608,000 have died of the disease caused by the virus.

Demand for oil is far from pre-COVID levels, even though it has managed to recover from a 30% decline in April. US demand for gasoline continues to decline. Japan's oil imports dropped 14.7% in June compared to the same month in 2019.

In FX, the US dollar is slightly up in early trading on Monday, as investors are waiting for the US Congress debate over new stimulus measures. Nevertheless, Republicans and Democrats are not on the same line already. Trump’s party wants to cap the cost of the bill at $1 trillion while the Democrats are eyeing about $3 trillion. The greenback is also benefiting from its safe-haven status amid the increase in COVID numbers. The USD Index is up 0.04% to 95.927.

Despite a strong US dollar, the euro is beating it so far, as investors hope that European leaders would reach some consensus later this week. EUR/USD is up 0.20% to 1.1448, close to the highest level in four months. The bloc countries will debate over a 750 billion euro recovery fund.

The sterling is down against both the USD and euro, as Britain reported some downbeat economic data last week. Also, the post-Brexit uncertainty persists.

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