The Dow Jones futures are trading higher to kick start the week. Traders are focused on the third-quarter earnings season, and the hope is that it will set a more positive tone for the coronavirus stock market rally. Partial lockdown due to coronavirus around the world has kept investors on edge. There are serious concerns about the path of economic recovery for the global economy. However, there is also hope that stock earnings will improve during the second half of this year, and this should spur more buying of stocks.
Wall Street’s giants, JP Morgan, Bank of America, Wells Fargo, Goldman Sachs, BNY Mellon, and Citigroup, will kick the third-quarter earnings season this week.
In terms of the week ahead, on Wednesday, we have the Bank of Japan coming out with its monetary policy decision, and we will also get the crude inventory data as well. Thursday marks the week’s most prominent event; we will hear from the European Central Bank about its monetary policy. The Euro and European indices, like the Dax index, are likely to experience higher volatility.
The Dow futures, along with the S&P 500 futures, are still very vulnerable due to the escalating tension between the US and China. The Trump administration is still targeting Chinese companies such as Tiktok and WeChat.
Peter Navarro, who serves as a Director of Trade and Manufacturing Policy, made it clear that selling of TikTok to an American buyer doesn’t solve the issue. The biggest fear among traders is the Chinese retaliation.
Specifically, a significant cause for concern is the fear that Beijing will decide to initiate a similar process and start targeting American companies.
The global stock market started the week with substantial gains. The Shanghai index outperformed all the other Asian indices. It jumped higher by 2.06%. The Japanese Nikkei held the second spot and advanced 2.06%. The Korean Kospi soared by 1.70%
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Oil Prices: OPEC+ May Reduce Its Supply Cut
The oil production cut that the OPEC+ put in place during the coronavirus peak is likely to be tapered off gradually next month. The cartel’s observing committee is expected to meet midweek, and it will decide on its future supply strategy.
The hope is that the cartel will not open the taps up straight away but will gradually increase the supply. However, some speculators are still hoping for an extension of the current period. The more realistic approach is tapering of current reduction in oil supply from 9.6 million b/d to something near 7 million b/d.
The price of oil, WTI, and Brent, is likely to be highly volatile this week, and it is prone to several rumors that are currently circulating in the market.
Dow Jones and S&P 500 Futures Today
The Dow futures are trading higher today by 100 points as traders continue to bet on more favorable monetary and fiscal policies. The belief is that these measures will keep the coronavirus stock market rally going.
The Dow Jones industrial average index shows that the Dow price is once again challenging its 50-week moving average on a weekly chart. Traders will be looking at this battle very closely, and the outcome of this will determine the future path for the index.
If this moves above this average, it will be likely that the bull run may pick up some serious momentum. But if it fails to break above this critical moving average, bulls may begin to start losing their hopes for another upward move.
Stock Market Rally
The S&P 500 index has gained more support from a bigger audience. The coronavirus stock market’s confirmation rally comes from the fact that the economic surprise index for the US economic data has started to perform much better than anticipated.
The S&P 500 stocks increased on Friday by 1.05%. The financial sector led the gains for the index, 397 shares closed with gains, while 107 declined. The S&P 500 index is trading at a price to earnings ratio of 22.4 on a trailing basis, and this shows that investors may continue to buy as the stocks are still cheap.
The S&P 500 index’s strength is finally picking up the pace once again as the S&P 500′ stocks outpaced the NASDAQ index for the first time since June on Friday. The chart below shows a positive spread between the S&P 500 daily percentage gain against the Nasdaq composite index daily percentage since June.
The Dow Jones industrial average gained 1.44% on Friday. 27 stocks of the DJIA index soared, and 3 fell. Microsoft was the biggest decliner, while Goldman Sachs led the gains.
The NASDAQ composite, the tech-savvy index, increased in value by 0.66%.
Florida came out with grim news on Sunday. It posted the most significant one-day spike in coronavirus cases since the pandemic hit the US. Florida reported over 15,000 new cases, while states like Texas and Carolina also echoed an increase in Covid-19.
However, there is some hope that the US is gaining some control over the virus. The coronavirus condition has become a lot more stable in New York, and the amount of new coronavirus cases in the US has reduced by 1.7%.
Trump has also started to encourage Americans to wear masks by showing an example and wearing a mask himself. Previously, Trump has defied all attempts of this sort of encouragement. The hope is that mandatory wearing of masks may control the spread of coronavirus and in so doing eventually help to strengthen the economic recovery.
Trump and Tariffs
The US has imposed 25% tariffs, worth nearly $1.3 billion, on French products. Wine and cheese have been spared from this list. The Trump administration tariffs are the result of France taxing the US giants that include names like Amazon, Facebook, and Google. There are some hopes that there could be a reversal on tariffs because the collection is delayed by 180 days. This is because France hasn’t begun the tax levies process yet.
Trump also made it clear last week that the prospects of the phase-two China trade deal are damaged. A lot of this is due to Covid-19 and the new security law in Hong Kong. The escalating tensions between Beijing and Washington, together with lower odds of phase 2 trade deal, do not support the chances of a global economic recovery.