Stock Market Today
Futures in the United States and Europe are trading lower after Evergrande’s trading activities have been halted as a result of rumors of an asset sale. Last week, news of a game-changing drug to combat the infamous coronavirus flooded equity markets. According to reports, Merck, a pharmaceutical company based in New Jersey, demonstrated promising data indicating that a drug in development could potentially be administered orally to patients and reduce their chances of contracting the virus. As a result, the major equity indices closed in the green.
In Friday’s session, the Dow Jones Industrial Average rose 1.43%, and the S&P 500 index jumped 1.15%. The Nasdaq, the tech-savvy index, grew 0.82%, and the Russell 2000, the small-cap index, surged 1.69%.
Investors should keep in mind that the non-farm employment change data, which is due out on Friday, is the week’s most important event. This information is critical for stock traders because the Federal Reserve will use it to assess the state of the US labor market. A rise in payrolls will likely support the central bank’s stance to begin tapering before the end of 2021. Data for August came in lower than expected, with the U.S. only adding 235,000 jobs versus the expected 500,000. It is expected that nearly 475,000 new jobs were added in September.
Fed Chair Jerome Powell’s statement that stable coins should not be banned helped rally the bulls and drag Bitcoin prices up from the low $40,000s. Bitcoin is currently trading around $47,000, with the market capitalization expanding to $2.2 trillion on Sunday from $1.9 trillion on Wednesday. Other possible explanations for the rally include a short squeeze and the end of the historically volatile month of September. However, failure of Bitcoin to cross $50,000 depicts that bulls do not have their energy tanks full yet.
Moreover, crypto traders should understand how the proposed $1 trillion bipartisan infrastructure bill, if passed, will affect crypto markets. A provision in the bill could be used to require cryptocurrency brokers to report their activities to the Internal Revenue Service. The term “broker” is, however, incredibly vague and does not clearly exclude other blockchain participants such as miners, wallet providers, and software developers. The proposed bill seeks to raise $28 billion from the blockchain sector over the next ten years to fund infrastructure development such as roads and bridges.
Traders should remember that an OPEC meeting is set to be conducted today. As a result of rising oil prices because of demand recovery and supply constraints, the cartel is under pressure to raise its production to assist global economic growth. In July, OPEC+ decided to increase output by 400,000 barrels per day each month until April 2022. This was agreed to be gradually reduced to 5.8 million barrels per day after the first emergence of coronavirus cases. However, the cartel is considering adding more supply than initially planned. Last week, Brent crude oil surged above $80, a three-year high.
The fall in the dollar index fueled a boost in gold prices by making the precious metal more affordable to people in other countries. Furthermore, according to Patrick Harker, President of the Fed Philadelphia, the central bank may meet its inflation target this year. However, it will take another year for the government to meet its employment target before taking any action to change its current interest rate. Gold has traditionally been considered a safe haven commodity, and it is purchased to diversify against rising consumer prices. Rising interest rates, on the other hand, raise the opportunity cost of holding gold and drive prices down.
Beijing has been flying its planes near Taiwan’s territory over the past few days to demonstrate its military strength and to commemorate China’s founding. According to the defense ministry of Taiwan, the military of China, the People’s Liberation Army, conducted 38 flights on Friday, 39 flights on Saturday, and 16 flights on Sunday.
During the Chinese maneuvers, Americans urged their Chinese counterparts to halt their “provocative” actions, warning that such pressures could destabilize the region and lead to miscalculated moves with long-term consequences. Furthermore, Washington has requested that Beijing refrain from putting economic, diplomatic, and military pressure on Taiwan. A potential conflict between the world’s two largest economies, the United States and China, will have a negative impact on stock markets.
It seems like the Chinese government is in no mood to bail out Evergrande Group as it comes near to a substantial restructuring. However, Beijing is extending a helping hand to the company’s key stakeholders, including homeowners, developers, and the overall real estate sector. These precautions are being taken to avoid a general market spillover.
Last week, Chinese officials took steps to encourage financial institutions to provide credit to property buyers and to support the overall real estate sector. Similarly, the Chinese government bought Evergrande’s stake in a struggling bank and pumped $71 billion (460 billion yuan) into the economy to boost liquidity. These actions demonstrate that the Chinese government intends to do everything possible to prevent a spread of the crisis to other markets, but will most likely not extend a lifeline to Evergrande itself. Bondholders, both domestic and foreign, stand to lose the most in such a scenario.
As of 11.36 p.m. EST, the Nikkei dropped 0.95% and the Hang Seng index, in Hong Kong, decreased 2.12%. The ASX 200 index jumped 0.86%. China’s exchanges are shut down for the majority of this week due to holidays, and will restart on Friday. The markets in South Korea are also closed on Monday due to a holiday.