‘Relief rally’ pushes equity markets higher; bonds flat

The dollar index fell on Sunday, erasing some of last week’s gains, down 0.4 percent on the day at 94.157. (Reuters/File)
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Updated 29 September 2020

‘Relief rally’ pushes equity markets higher; bonds flat

  • Dollar falls from two-month highs; US Treasury yields hover near 0.66 percent

NEW YORK: Global equity markets surged and the dollar fell from two-month highs Monday as investors moved into the shares of beaten-down sectors such as banks and travel stocks on the heels of a sharp stock market sell-off the week before.

Asian shares gained, with Chinese shares boosted by data over the weekend showing China’s industrial firms grew for the fourth consecutive month in August.

“We’re seeing a bit of a relief rally,” said Jonathan Bell, chief investment officer at Stanhope Capital. “Things got oversold perhaps a little bit in the short term.”

“We saw quite a lot of exuberance in July and August, with prices, particularly of tech stocks, rising and that then has come off a little bit recently,” he said.

MSCI’s gauge of stocks across the globe gained 1.79 percent following broad gains in Asia and Europe.

The STOXX 600’s banking stock index was up 4.4 percent, after hitting a fresh all-time low on Friday. In midmorning trading on Wall Street, the Dow Jones Industrial Average rose 488.98 points, or 1.8 percent, to 27,662.94; the S&P 500 gained 54.73 points, or 1.66 percent, to 3,353.19; and the Nasdaq Composite added 162.86 points, or 1.49 percent, to 11,076.42.

Hotels, banks, and airline stocks all gained more than the broad market, with shares of Delta Air Lines Inc. up nearly 4 percent and Bank of America Corp. up nearly 2.5 percent.

The dollar index fell, erasing some of last week’s gains, down 0.4 percent on the day at 94.157.

Investors remain broadly cautious in light of rising new COVID-19 infections in Europe, which pose the risk of further restrictions on activity.

Benchmark 10-year notes last fell 1/32 in price to yield 0.661 percent, from 0.659 percent late on Friday.

“You’re seeing a nice bounce for stocks, but it’s more of an oversold bounce, and the bond market is still apprehensive about totally buying in on this equity move,” given the uncertainty over additional fiscal stimulus in the United States and the Nov. 3 presidential election, said Ryan Detrick, chief market strategist at LPL Financial.

US crude recently rose 0.62 percent to $40.50 per barrel and Brent was at $42.14, up 0.52 percent on the day.


‘The stock market, stupid’ — Trump’s claim is looking hollow 

Updated 29 October 2020

‘The stock market, stupid’ — Trump’s claim is looking hollow 

  • The timing of the Wall Street downturn is the worst possible for the incumbent, who has declared every new peak in the S&P as a personal victory throughout his presidency
  • The likes of Apple, Amazon, Alphabet and Facebook are due to declare their earnings for the third quarter, and how those numbers are received could give the indices a boost

Before the US election of 1992, candidate Bill Clinton summed up what he saw as the reason he would become president: “It’s the economy, stupid.” He was proved right as voters disowned the economic policies of President George H.W. Bush in their droves to elect Clinton. 

Until the COVID-19 pandemic began to ravage the US economy in March, President Donald Trump would have been able to make the same claim. For the four years of his presidency, the US economy had continued the progress initiated by his predecessor to recover from the 2009 global financial crisis.

By most measures — growth, employment, inflation — the Trump years had been good, and those on the top of the pile had even more reason to be grateful thanks to the big tax cuts he had made a flagship policy.

The pandemic changed all that in the space of a few weeks as lockdown measures shocked the economy. Jobless claims soared to all-time records, bankruptcies and closures affected large swathes of American business, and gross domestic product collapsed. The International Monetary Fund forecasts that the American economy will shrink by 4.3 percent this year.

But Trump could still claim instead that “it’s the stock market, stupid” as a reason he could be re-elected. Mainly because of the trillions of dollars injected into the economy in the form of fiscal stimulus, US share indices had swum against the economic tide.

The S&P 500 index hit an all-time high in September, allowing Trump to boast that under his administration, investors and the millions of people whose livelihoods depended on the financial industry had never had it so good.

Now, it looks as though even that final claim is looking more fragile. For the past couple of days, US and European stock markets have gone into reverse as investors took fright at the rising number of COVID-19 cases and the re-imposition of economic lockdowns in many countries.

Trump might argue, with a little justification, that Wall Street is worried about the prospect of Joe Biden being elected president by the end of next week. Certainly the contender, by definition, is something of an unknown quantity in terms of economic policy.

He is also known to favor some policies — such as tighter regulation on environmental sectors, more spending on health care, and higher taxes for federal services and projects — that have traditionally been regarded as contrary to the philosophy of “free market” America.

In particular, the energy industry is worried about possible restrictions on shale oil and gas production that Biden and his “green” team are believed to favor. However, it should be pointed out that the Democratic candidate has specifically said he will not ban shale fracking, as some environmentalists want.

In any interesting side-story, the state of Texas — one of the biggest in terms of electoral college votes — would seem to have more to lose than any other if the energy scare stories about Biden were true. Yet the contest there between Democrats and Republicans is the closest it has been for decades, according to opinion polls.

The timing of the Wall Street downturn is the worst possible for the incumbent, who has declared every new peak in the S&P as a personal victory throughout his presidency and a sign of his deal-doing prowess. If even this claim is denied to him in the final week of campaigning, it would make the uphill battle against the polls even more difficult.

There is a chance that Big Tech might offer some relief. The likes of Apple, Amazon, Alphabet and Facebook are due to declare their earnings for the third quarter, and how those numbers are received could give the indices a boost, given that they were the ones largely responsible for the big market gains earlier in the year.

But for Trump, any such respite might be too little, too late. It looks as though Wall Street and Main Street are finally catching up in their gloom, and there is nothing the president can do about it.