US equity markets heading for a negative start on Tuesday, the exception being the tech stocks ahead of a big 48 hours for Apple and Amazon.
Tech looks to have exploded again, with the Nasdaq posting 3% gains on Monday, well ahead of the broader market, with futures this morning almost 1% higher while the Dow and S&P 500 sit in the red. Is this another sign of investors preparing for more restrictions and favouring pandemic-proof tech or just a lot of excitement about a 5G iPhone and two days of discounts? Time will tell.
I can't imagine there's too much enthusiasm about stimulus talks on Capitol Hill or J&J pausing trials of its vaccine candidate as one candidate fell ill. We saw this last month with AstraZeneca which quickly restarted trials, except in the US where it remains under regulatory review. Perhaps investors anticipate a similar outcome, although it is curious that they are so relaxed about the situation. A vaccine is critical to the global economy getting back on its feet in a reasonable time.
Earnings season, usually at the forefront of investors minds, only makes an appearance in the final paragraph of this morning's summary. The final months of this year are jam-packed with major risk events for markets and earnings is just one of these. JP Morgan and Cirigroup will kick things off for the banks today, with earnings season as a whole expected to deliver more than 15% earnings declines and, I imagine, some stark warnings about the couple of quarters ahead.
UK unemployment on the rise as furlough scheme draws to a close
The next couple of quarters is going to be extremely challenging for many countries and the UK can count itself among those with the worst prospects. The economy has already been hammered by the pandemic, worse than most, and in the coming months we're going to see just how bad it's been. Unemployment hit 4.5% in the three months to August and it's going to get much worse again from October onwards, potentially peaking above 8% early next year.
The latest employment support measures are not going to be enough to stop a surge in unemployment and local furlough schemes, combined with the spike in joblessness, will take its toll on spending. And this is before we consider the prospects of a no-deal Brexit, which is looking unlikely at this point, but still very possible with the same issues unresolved. A critical few months ahead for the UK government.
Oil seeing temporary reprieve
Oil prices are rebounding on Tuesday, up around 2% after falling for the last two sessions. The gains came following the release of Chinese trade data which showed purchases from the world's largest importer surged last month. The IEA was also optimistic about the recovery from the pandemic in its World Energy Outlook, with the group seeing the global economy rebounding next year, although it's long term assessment for oil demand was bleak, in line with others.
While both of these have given crude prices some reprieve this morning, it doesn't change the fact that near-term risks are tilted to the downside. WTI may be holding above $40 for now but I don't expect that to last. It was given a bump by Hurricane Delta and strikes in Norway but both of those risks have passed and Libyan output is rising. Heading into a tough period for the global economy when restrictions are going to become more severe, the outlook for oil isn't great.
Gold hanging in there above $1,900
Gold recovered some overnight losses after coming close to testing $1,900 from above but continues to trade slightly lower on the day. The bullish case for gold has improved in recent days, although it's far from in the clear. Investors appear to have become more optimistic despite rising global Covid cases and no US stimulus (yet). The gold recovery will depend on that remaining in tact.
The fact that we may not be heading for as messy an election as feared may also be supporting risk appetite, with Biden's lead in the polls now very significant. And while the J&J vaccine development is unwelcome, there is still a belief that a candidate will be successful this year. It's not all doom and gloom which is very good for the longer term prospects of gold, especially against the backdrop of more monetary and fiscal stimulus.
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