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Research Market strategy
by Swissquote Analysts
Daily Market Brief

Wall Street Retreats, China Stays Strong


Wall Street Retreats, China Stays Strong

By Strategy Desk

US equities tumbled on Wednesday, as investors focused on the surging number of COVID infections and the fresh lockdown measures reimposed in the US and Europe. The COVID pessimism offset the vaccine hopes even after Pfizer released an updated report on its COVID vaccine candidate developed in collaboration with BioNTech. Specifically, they revealed a 95% success rate after their late-stage trial. Previously, Moderna announced a similar rate for its experimental vaccine.

Still, the fact that the pandemic continues to accelerate and prompt new lockdown measures puts pressure on stocks. The S&P 500 fell 1.16%, Nasdaq dropped 0.82%, and Dow Jones also fell 1.16%.

All 11 sectors in the S&P 500 declined, with energy being the worst performer.

The third-quarter reporting season is concluding, and almost 85% of the 468 companies in the S&P 500 that reported so far have topped expectations.

One of the latest companies to report on its Q3 performance was Nvidia, whose results surprised to the upside as well. The company saw record revenues in its gaming and data center businesses.

As for the Dow, it was initially lifted by Boeing, which obtained the nod of the Federal Aviation Commission to resume flights of its 737 MAX aircraft. However, the share price of Boeing reversed course as hurdles remained and after Morgan Stanley warned that it was too early to turn bullish, dragging the index down.

Tesla stock surged another 10% during the second day after S&P Dow Jones Indices announced it would add the stock to the S&P 500 index. The share price surged 20% since late Monday when the announcement came, getting closer to the record high. Tesla has jumped 500% year-to-date, becoming the world’s most valuable carmaker.

In Asia, stocks are mixed in early trading on Thursday, with bears dominating some markets following the selloff in US shares.

At the time of writing, China’s Shanghai Composite is up 0.20% and the Shenzhen Component has gained 0.80%. China’s market is supported by positive investor sentiment that the economy is recovering after the virus was contained. China has the First In – First Out advantage in dealing with the pandemic, which enabled it to open the economy much earlier and push the manufacturing industry up. Macro data also supports this narrative, as the country reported upbeat industrial production data for October, surging exports to the highest since March 2019, and positive retail sales data for the same month.

Mobility and travelling in China has returned close to pre-COVID levels, with airlines, restaurants, and hotels working at full capacity and expected to surpass pre-COVID levels by the end of December.

Meanwhile, as we previously reported, China signed the Regional Comprehensive Economic Partnership (RCEP) agreement on Sunday along with 14 other countries. This is the largest trade agreement in history, as it covers 30% of both the world's population and GDP.

Another bullish fundamental comes from a geopolitical standpoint. The Biden victory means more conciliatory policies towards China regarding trade, which should eventually ease volatility in China-related stocks, thus benefiting emerging markets as a whole. Maurice "Hank" Greenberg, chairman of Starr Insurance Companies, told Reuters yesterday that Biden had a chance to start fresh with China.

In Hong Kong, the Hang Seng is down 0.45%.

Japan’s Nikkei 225 closed 0.36% lower. South Korea’s KOSPI is up 0.07 after initial losses.

In Australia, the ASX 200 managed to close in the green by adding 0.25% after initial losses. The bullishness has to do with the recent labor market data, according to which the unemployment rate surprisingly rose to only 7.0% in October from 6.9% in September, while analysts expected an increase to 7.2%.

In the commodity market, oil prices are retreating after hitting the highest level in two months. WTI has dropped 0.70%, and Brent has lost 0.38% on the back of demand worries amid new restrictions. The prices are supported by demand in mainland China and a smaller-than-expected build in US inventories as reported by the Energy Information Administration.

Gold continues to decline amid vaccine hopes and a stronger US dollar. The metal is down 0.80% to $1,859, close to the lowest level since July.

In FX, the US dollar is supported by persisting virus worries. The US Index rose 0.16% to 92.457. The index is still very close to the lowest level since March 2018. EUR/USD is down only 0.02% to 1.1850.

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