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Research Market strategy
by Swissquote Analysts
Daily Market Brief

Equities Lose Initial Gains as US Lawmakers Can’t Agree on Fresh Stimulus

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US Lawmakers Can’t Agree

By Strategy Desk

US equities started the Tuesday session with a steep rally but gave up at the end of the day. Still, the benchmark S&P 500 index (+0.17) and Dow Jones (+0.60%) managed to secure gains. Elsewhere, tech-oriented Nasdaq tumbled 0.81%.
The major indices started to lose momentum when investors realized that the US lawmakers are not on the same page when it comes to unrolling further stimulus.

Senate Majority Leader Mitch McConnell hinted there were few chances that the new money would be green-lighted within the next two weeks. The bill in discussion includes new funds for the paycheck protection program to fuel it for the next six months.
Republicans and Democrats cannot reach consensus on the total sum of the stimulus. The lack of progress over the bill put pressure on equities, which reversed the initial uptrend.

Dow Jones and S&P 500 were driven by financial and energy sectors. Energy stocks rose along with the oil price, which surged on Tuesday. Technology and healthcare were the worst-performing sectors.

Asian stocks are mixed in early trading on Wednesday, as investors monitor the US debate over fresh stimulus. Without new money, the stock markets might halt its rally.

At the time of writing, Japan’s Nikkei 225 is down 0.55%.

South Korea’s KOSPI has declined by 0.08% after initial gains. Economists expect that official GDP data, due tomorrow, would confirm a recession in the second quarter.

Australia’s ASX 200 has dropped 1.37%. Melbourne continues to be under strict lockdown amid a fresh spike in coronavirus cases. Authorities required residents to wear masks.

Hong Kong’s Hang Seng Index is down 0.30%, after initial gains.

China’s Shanghai Composite is up 1.10% while the Shenzhen Component has surged 1.61%.

The same discord will be observed in European markets, as index futures are mixed at the moment.

In individual corporate news, Coca-Cola, a major component of Dow Jones, reported second-quarter earnings that beat forecasts. However, revenue missed analysts’ target. The beverage giant reported EPS of $0.42 on revenue of $7.15 billion, while analysts anticipated EPS of $0.4 on revenue of $7.21 billion. Coca Cola blamed the pandemic for its disappointing revenue.

In the commodity market, gold is getting closer to record highs as investors are embracing safe-havens amid US stimulus uncertainty and an increasing number of COVID cases. Gold futures have increased by 0.78% to $1,858, hitting the highest level in nine years and approaching the record peak.

The Sino-US tensions also make a good case for buying gold. The relationship between the world’s two largest economies is getting from bad to worse. Yesterday, the US Justice Department said that China funded hackers who targeted labs working on coronavirus vaccines.

Silver continues to rally as well, reaching the highest level in seven years after gaining over 6% on Tuesday. The white metal has surged about 15% since the weekend.

Oil is declining on Wednesday, after rallying yesterday. The American Petroleum Institute (API) reported an unexpected increase in inventories of 7.544 million barrels for the week. The sentiment is also suppressed by a surging number of COVID cases and related deaths in the US and worldwide. Yesterday, the US reported over 1,000 deaths for the first time since June. Moreover, President Donald Trump said the outbreak might get worse before calming down.

WTI futures are down 0.93% to $41.53 while Brent has declined by 0.78% to $43.97. On Tuesday, both brands added almost 3% after European leaders reached consensus on a massive stimulus package to support the economy. Vaccine hopes also fueled the rally.
In FX, investors ignored the greenback’s safe-haven status amid the pandemic and dumped it against majors as the US isn’t able to reach consensus on extending the stimulus programme. On Tuesday, the US Congress debated the extension of jobless benefits, which expire at the end of this month, and more funding to schools. The two parties are in disagreement over the figures, with Democrats asking for more new money.

The stimulus uncertainty doesn’t bode well for the dollar, especially when European leaders managed to unite for an unprecedented stimulus. The approval of a 750 billion euro stimulus package pushed the euro higher against majors. EUR/USD is now up 0.08% to over 1.1540, hitting the highest level in about 19 months.
Elsewhere, the British pound is down against the euro and even versus a weakening dollar as Brexit optimism is running out of fuel.

 
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