Daily Market News: Trade war hots up as markets look to bounce back

Adam Vettese, UK Market Analyst at eToro, has provided his daily commentary on traditional and crypto markets for September 28, 2020.

The trade war between the US and China was in focus once more this morning, after new sanctions from the US battered one of the leading Chinese stocks.

The country’s biggest chipmaker fell more than 7% at one stage in Hong Kong after Washington imposed export restrictions that could cut off Semiconductor Manufacturing International Corporation (SMIC) from crucial US equipment and software.

The sanctions are the latest attack in a trade war, which has dragged on for most of the year against the backdrop of coronavirus. Despite the heavy losses for SMIC, Hong Kong’s Hang Seng index managed to make gains on Monday, up 0.8% as markets on the whole were buoyed by a resurgent Chinese economy. European markets have opened positively with the FTSE and Dax up 1.5% and 2.7% respectively and US futures are signalling gains of around 1%.

Last week the S&P 500 posted its fourth straight negative week, thanks to a combination of valuation concerns, stalling stimulus package negotiations, and news that US regulators may set tough standards for the emergency introduction of a Covid-19 vaccine. On Wednesday, the S&P came close to touching a 10% loss from its recent record high at the start of the month, before Friday’s 1.6% rebound brought it back from the brink. A 10% drop would have put the index officially into correction territory for the first time since the initial Covid-19 induced market sell-off in February and March.

On Sunday night, US stock futures pointed to a continuation of Friday’s upswing, after House Speaker Nancy Pelosi said on Sunday that another stimulus package is still on the cards. Democrat lawmakers are working to put together a smaller $2.4trn bill that they hope will bring the White House back to the bargaining table. All signs point to a new round of fiscal stimulus being required to build momentum behind the US economic recovery, and investors are watching closely for signs of progress.

forex and crypto market analysis

Energy stocks fall 8.6% in a week

While the S&P 500 and Dow Jones Industrial Average both fell last week, the tech heavy Nasdaq Composite managed to eke out a 1.1% gain. Tech giants Amazon, Apple and Microsoft all posted positive weeks, but remain down between 9% and 10% apiece over the past month. In a Friday note analysts at investment firm T. Rowe Price noted that a strong performance from Nike – which climbed 8.4% during the week – helped consumer discretionary shares, while energy stocks suffered. In the S&P 500, the energy sector fell 8.6% over the course of the week, while the consumer discretionary sector added 1.3% and information technology stocks added 2.1%.

Markets ended the week on a positive note across the board, with the S&P 500 gaining 1.6% on Friday, led by cruise firms Norwegian, Carnival and Royal Caribbean after analysts at Barclays upgraded their rating on the trio. Boeing also enjoyed a positive day, climbing 6.8% (and further in after-hours trading) after reports that the firm’s troubled 737 Max airliner will undergo a test flight conducted by Federal Aviation Administration chief Steve Dickson.

  • S&P 500: +1.6% Friday, +2.1% YTD (-0.6% last week)
  • Dow Jones Industrial Average: +1.3% Friday, -4.8% YTD (-1.8% last week)
  • Nasdaq Composite: +2.3% Friday, +21.6% YTD (+1.1% last week)

Travel and energy stocks slump in face of UK second wave

Both the FTSE 100 and FTSE 250 suffered last week, both down around 3% as fears of what a Covid-19 second wave could mean for the UK and European economies mount. Prime Minister Boris Johnson has said that the UK is now witnessing a second wave, with new daily case records being set. New lockdown restrictions once more pose a threat to a host of industries, with hospitality, travel and energy names under particular pressure. British Airways parent International Consolidated Airlines Group fell by 14.4% last week, while oil giant BP sunk by 5.1%. Airline engine maker Rolls-Royce faced a tough week too, falling 14.1%. In a Friday note, analysts at John Hancock Investments pointed out that sterling continued to slide versus the dollar last week, extending a seven-day losing streak, due to renewed concerns around a no-deal Brexit.

  • FTSE 100: +0.3% Friday, -22.5% YTD (-2.7% last week)
  • FTSE 250: +1.4% Friday, -22.1% YTD (-3% last week)

What to watch

Weibo: Chinese social media firm Weibo, which has a US listing via an American Depository Receipt (ADR), has sunk by 30% year-to-date while many tech names have soared. The reason for that is the firm’s dependence on advertising revenues, despite the Covid-19 pandemic creating a surge in usage of the platform, the consumer digital advertising market has been disrupted by the pandemic. Weibo will hold a second quarter earnings call on Monday morning New York time, where one likely point of discussion will be progress of the firm’s Instagram-esque photo sharing app Oasis, which it launched in 2019. Wall Street analysts currently lean towards a hold rating on the stock.

Thor Industries: American recreational vehicle manufacturer Thor sells motorhomes and travel trailers, and counts Airstream among its subsidiaries. The firm’s stock has jumped 25% in 2020 so far, as with international travel severely hampered by the pandemic, consumers in the US and abroad are turning to domestic options for their holidays. Thor, which has a $5.2bn market cap, will deliver its latest set of quarterly earnings today before the US market opens. Supplier and distribution difficulties caused by the pandemic are one likely feature of the firm’s earnings call.

UK property market data: On Tuesday, some key data points will be released that will provide a window into the health of the UK residential property market. Mortgage lending and mortgage approval data for August will be put out, in addition to consumer credit data from the Bank of England. In July, just over 66,000 people were approved for a mortgage in the UK – a jump of more than 50% versus June – and expectations are for that figure to have passed the 70,000 mark in August.

Gold in decline despite second wave fears

The price of gold plunged last week, ending at around the $1,860 mark, well below its $2,000 plus record in August. Pessimism around the US economic outlook and a Covid-19 resurgence in Europe might naturally feel like factors that would drive investors towards precious metals such as gold, but a recovery in the value of the US dollar has hurt the asset class. When the value of the dollar increases, it hurts demand for gold as it becomes more expensive for buyers in other currencies (the metal is US-dollar denominated).

Crypto corner: Only 2.5m Bitcoin left to mine

There is only 2.5m bitcoin left to mine after the total amount in circulation reached the 18.5m mark, new figures have shown. In a tweet, ChartBTC said the Bitcoin network had passed the 18.5 million mark, with the total amount of bitcoin ever to be mined set at 21 million coins.

The report said of the remaining 2.5 million bitcoin, half will be mined in the next four years.

The Bitcoin network has already undergone three halvings, with the third halving taking place in May this year. As the issuance of new coins is halved every four years, the last bitcoin is not expected to be mined until 2140. No new Bitcoin can be mined after that year.

In the face of a resurgent US dollar, Bitcoin dipped in price last week, falling below $10,200, but it has rallied in recent days to reach $10,800 this morning.

All data, figures & charts are valid as of 28/09/2020. All trading carries risk. Only risk capital you can afford to lose.  

This is a marketing communication and should not be taken as investment advice, personal recommendation, or an offer of, or solicitation to buy or sell, any financial instruments. This material has been prepared without having regard to any particular investment objectives or financial situation, and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Any references to past performance of a financial instrument, index or a packaged investment product are not, and should not be taken as, a reliable indicator of future results. eToro makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared utilizing publicly-available information.

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