Equities sold off yesterday as last week’s bullish mood was swapped for a more cautious attitude. There was an absence of positive news yesterday so the stories about the health crisis were at the centre of attention, David Madden, market analyst at CMC Markets UK, tells City A.M. this morning.
The Chinese authorises announced the country registered its highest daily rise in coronavirus cases in five months. China has held up “relatively well” in terms of the health emergency so the resurfacing of the crisis rippled through the markets, Madden said, pointing out Germany, France and the UK continue to endure high case numbers too.
The fall in stocks yesterday needs to be put in the context of the large gains that were posted last week, Madden stressed. “For some time there was chatter that equities were looking lofty so a move to the downside wasn’t exactly a surprise.”
In recent sessions, the speculation that President-elect Joe Biden will map out new stimulus plans has dominated the headlines. Also, the vaccine news is assisting the upbeat sentiment. Stocks on both sides of the Atlantic fell yesterday, but traders haven’t lost sight of the Biden and vaccination roll-out stories, he added.
Tech companies under pressure
The NASDAQ 100 was the underperformer of the US indices due to fears that big tech companies, in particular social media firms, could come under tougher regulation. President Trump’s Twitter and Facebook accounts have been suspended because of allegations that his comments sparked the riot in the Capitol building last week.
“People have been questioning the role of the social media firms in light of the incident, so the groups have found themselves under extra scrutiny,” Madden said.
Democrats introduced an article of impeachment against President Trump yesterday. “The move sends out a powerful message but in reality it will be difficult to remove him from office because the Democrats might not get a majority to back the article in the House of Representatives because of absences and lawmakers being on holidays,” Madden said. “Timing is a factor too as Mr Trump will leave office in one week.”
Around the world
The major stock markets in Asia are largely higher. China’s CSI 300 is up over 1.4 per cent, the Hang Seng is close to its one year high and the Nikkei 225 is showing small gains. European indices are expected to recover some of yesterday’s losses.
The US dollar index hit a three week high as the currency’s recovery continues. “Since last Wednesday the greenback has shrugged off a poor ADP employment report as well as a mixed non-farm payrolls update. Last week’s low could provide a floor for the dollar in the near-term,” Madden said.
Robert Kaplan, Dallas Fed President, said that if the US economy has sufficient growth this year, the talk about tapering the bond buying scheme should begin. Madden thinks “commentary like that” should assist the dollar.
Broadly speaking, commodities suffered yesterday. Lately, metals, as well as oil contracts, have been in high demand as stimulus chatter circulated.
“Hopes that mass vaccinations will heal economies also contributed to the bullish sentiment. With the exception of gold, metals came under a lot of pressure because of the firmer US dollar, profit taking was a factor too,” Madden noted.
“Gold was caught between the firmer dollar and safe-haven buying so its range was relatively small. Oil pulled back from its 11 month high that was achieved on Friday,” he added.
Bitcoin eyed $42,000 on Friday but yesterday it traded in the region of $30,300.
“The cryptocurrency is no stranger to high volatility, it is currently trading around $35,700. Despite the heavy losses incurred in the past few days, Bitcoin is up roughly 22 per cent on a year to date basis,” Madden concluded.