Market Overview

14 October 2020

The Corporate and Currency Stories Differ Against the Active Political Background

The U.S. S&P500 broad market index, as well as the European stocks on average, are holding the gains of the previous two weeks, despite uncertain expectations ahead of the November 3 elections in the United States. The British Guardian said yesterday that their own opinion poll showed, a Democratic presidential nominee Joe Biden’s lead over the sitting president Donald Trump has surged to even a record 17 points, so that Biden was ahead by a 57-40 margin before the final sprint. The handicap is even bigger than a 57%-41% margin discovered by CNN. The Guardian recalls that this is just short of the lead in the popular vote that Ronald Reagan enjoyed in his second victory in 1984. But even the authors of that poll gave an advance notice that four years later, a Democratic nominee Michael Dukakis led George H.W. Bush by the same 17 points to a defeat. That poll of 1988 was taken in July, and so Bush had ample time to recover, but everybody may remember how much the crowd of pre-election polls were wrong in 2016, when millions of Trump's hidden supporters were shy to admit it openly. 

But at least formally, former vice-president Biden now leads on healthcare, race relations, jobs and even the economy, which were usually seen to be  Trump’s strengths. As for a stimulus bill delay, it  certainly remains to be a source of worry, as U.S. House Speaker Nancy Pelosi said on Tuesday, even Trump's $1.8 trillion latest proposal "falls significantly short of what this pandemic and deep recession demand". The presidential offer included a new round of $1,200 stimulus checks plus money allocated for corona testing and small business aid, but the sides remain far away from each other over the state and local government funding, or a strategic plan to defeat the virus. 

CNN's Wolf Blitzer just pressed Pelosi on why she hasn't taken Trump's stimulus deal or why she wouldn’t accept at least some of the money, as many families and businesses need money. So, even a part of Democratic congressmen was urging her to agree, such as a one-time presidential candidate Andrew Yang and some centrists with tough re-election battles this fall, or Rohit Khanna, the U.S. Representative from California and the author of the book named Entrepreneurial Nation: Why Manufacturing is Still Key to America's Future. The journalist specifically asked, if the reason could be because Trump has allegedly demanded his name on stimulus checks that would be distributed to many Americans. But “with all due respect, you really don't know what you're talking about,” Pelosi said to Blitzer, and then she asked him to "do a service to the issue and have some level of respect for the people who have worked on these issues, have written the bill to begin with". 

Then the speaker added: “I can't get over it because Andrew Yang is lovely. Ro [Rohit Khanna] is lovely. But they are not negotiating this situation. They have no idea of the particulars. They have no idea of what the language is here,” and she was growing increasingly agitated when Blitzer interrupted her with a question on why she wouldn’t call up Trump to seek out a better compromise. “I don't speak to the president,” Pelosi answered. “Why not call him? And say, let's work out a deal. There are so many Americans in desperate need. Let's make a deal,” Blitzer responded. “What makes me amused if it weren't so sad is how you all think that you know more about the suffering of the American people than those of us who are elected by them to represent them at that table,” Pelosi said. Trump has previously told Republicans to "go big or go home," and probably Democrats decided they should do exactly that. And, in a more official atmosphere, the same Nancy Pelosi remarked before that she "remains hopeful that the White House will finally join us to recognize the needs of the American people, and take action to address the health and economic crisis in their lives". 

All this stuff is unlikely to please the markets and could potentially lead the asset prices to a breakdown any day now, and more volatility could become a severe reality during the following weeks, so investors are aware of the risks, of course. But there are also very mild estimates. "It's possible that a stimulus delay wouldn’t fully develop into the economic challenge it has the potential to be," Morgan Stanley's Mike Zezas argued. "Our economists now see evidence that U.S. consumption can carry on for longer without fiscal support, given built-up excess household savings. This is good news as there are many viable political paths towards stimulus over the next three months." So, at least some part of the market community is showing its willingness to look through the short-term stimulus talks saga and focus more on the prospect of a more effective package that would be agreed for the new year under a new, or even an "old new", administration, in addition to a small one-time package, which is still possible before elections. 

As for the separate corporate stories, they differ. Apple kept a lot of growing optimism ahead of the scheduled release of its 5G iPhone 12 on Tuesday, and the expectations strongly supported Apple stocks, which soared above $125 per share at the very beginning of the week. But the prices fell even before the tech giant unveiled its new line of iPhones as many details were released by insiders, and the famous principle "buy rumors, sell facts' was in action. Apple shares ended its Tuesday's trading session at Wall Street above the new technical support around $120, as the Cupertino-based online presentation was generally quite in line with expectations and was rather successful. Further price movements may not be as fast, as investors have enough time now to digest the event. 

Amazon.com’s two-day Prime Day sale started on Tuesday and is expected to give the world’s largest e-commerce company a real advantage over rivals who don't know exactly in what way they would work this year with pandemic-suffering consumers. That creates an evident obstacle for any commercially effective off-line Black Friday. Prime Day was delayed to October from July this year, so Amazon has a chance to yank the pivotal holiday season - a long-predicted “Christmas creep.” More than three in four consumers plan to shop earlier this year than a year ago, with a third citing health and safety concerns, according to an International Council of Shopping Centers survey released on Friday. And a poll conducted by Harris with Bloomberg found that almost half of consumers plan to do most or all of their shopping on the web. As Bloomberg says, "it’s a winning combination for Amazon, which earlier this year hired more than 175,000 people for its sprawling network of fulfilment centers after a spike in online orders briefly overwhelmed the company, forcing it to delay some deliveries." Investors have pushed the prices on Amazon shares up some 85% this year, the market value could be estimated as being about $1.7 trillion now, and Amazon prices were keeping to rise for the second week in a row again, almost going to touch the previous highs of the year which was around $3550 just at September 2. 

JPMorgan Chase financial group quarterly results beat analysts’ estimates as the U.S. biggest bankers reported Q3 2020 earnings of $2.92 per share vs $2.68 per share in Q3 2019, and a consensus estimate was around $2.24 per share only. The fresh revenues amounted to $29.941 billion, which is just -0.2% on a year-to-year basis and also much better than a consensus estimate of $28.12 billion. But JP Morgan shares rose moderately to $103.85 in pre-market trading and quickly dropped back again to the $100 psychological support, with a more than 1.5% loss as a day trading performance, as many investors are still worrying about the future results of the banking sector. 

The BlackRock Inc showed a +3.91% price jump as the world's biggest asset fund manager showed a record $9.22 profit per share and a record $4,37 billion revenue. Sandy Boss, head of investment stewardship overseeing the group's $7.8 trillion in assets, said BlackRock supported efforts to make it simpler for companies and investors to report and assess climate and other sustainability risks. "We'll able to build investment products and investment strategies using that data... (which) brings private capital together with the corporate demand that we know exists in the context of this transition," he remarked to support harmonising sustainability accounting rules and standards globally so that investors could better track how companies are transitioning to a lower-carbon economy. 

Procter & Gamble, that markets its products under many brands ( such as Old Spice, Safeguard, Head & Shoulders, Pantene and others) has rewritten its previous record for the share price on better expectations before the earnings release on October 20. Johnson & Johnson shares slipped to $148 area from the recent $153 as a pause in their COVID-19 vaccine clinical trials spurred concerns after an unexplained illness of a study participant. However, this could be a temporary weakness as the company raised its annual profit forecast. 

As for foreign exchange news, the British Pound created a tremendous volatility on a rather calm currency market, first slipping to the 1.2865 area and then erasing these losses to soar again above the 1.30 area. It just happened after the representatives of U.K. Prime Minister Boris Johnson signalled that his government would not immediately abandon post-Brexit trade talks. Boris Johnson had previously said he is going to walk away from the talks if there is no clear progress by the summit of the European Union leaders in Brussels on Thursday. But he will now make a decision on whether to end or to continue talks after this week’s meeting, according to a person close to the negotiations. 

Investors may now focus not on the October 15 date but more on November for a potential breakthrough of collapse in the talks. Officials on both sides are still in big trouble on several key issues like fishing rights and state subsidiaries. The Pound may remain vulnerable due to the trade negotiations, although the odds of a no deal have fallen. Just yesterday Michel Barnier, the main EU negotiator, mocked Boris Johnson for issuing a "third unilateral deadline" warning that the talks remain difficult with little prospect yet of the two sides entering a decisive "tunnel" negotiations. 

The German chancellor has pledged to "not let Ireland down" as the deadline for a breakthrough, set before by Boris Johnson, draws closer. German Foreign Minister Heiko Maas has previously described a no-deal scenario as "irresponsible" particularly during a global pandemic. On Tuesday, his French counterpart Jean-Yves Le Drian said that time for U.K. "tactics" was over. "As things currently stand, the hypothesis of a "no deal" is a very real one, and also one that is unfortunately very likely today," France's foreign minister addressed to the French parliament. "We have finished playing games, we have reached the due date," he added, noting that the "everything should be played out" by mid-November. 

Against this political background, EUR/USD is moving up and down within the 1.17 figure, as the single European currency dropped after the Dutch central bank President and the European Central Bank (ECB) Governing Council member, Klaas Knot confirmed on Tuesday that "early indicators point at slowing growth" and "it is clear the second wave will dent the recovery, but it is too early to say by how much." He added that the ECB would monitor the need to extend its own emergency support measures but would need more information on the economic outlook to make a decision. He hopes to "have reasons to believe the second wave will have a less dramatic impact than the first, for which we were totally unprepared... as we know a bit more about the virus now, and businesses have learned to adapt where possible, for instance through online retail.” On Tuesday, the Eurozone economic sentiment indicator by the German ZEW institute showed only a 52.3 points reading after the excellent 73.9 points in the mid-September, and that is not the first sign to prepare for a slower recovery than it was expected before.

 

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