Let the correction continue. After just 20 minutes flirting in the green yesterday the S&P 500 nosedived into the red. It closed the day off by 2.37%, the TSX was off by 2.02% and the NASDAQ fell by 3.02%. That’s the thing about momentum, it’s a double-edged sword. it leads to the upside and to the downside. The tumultuous market continues this morning with carry over selling in Asia, Europe and right back to North America.
The markets are finally coming to the realization that Washington is deadlocked and there is little hope for a new coronavirus relief package. Political tensions remain high as last night President Trump on Wednesday wouldn’t commit to a peaceful transfer of power after the November vote.
Dollars continue to be bid, weighing heavily on gold which has fallen back down to $1860/oz. For anyone who missed out on this trade earlier in the year and maintains a bullish long-term view it may soon be worth your attention. The shiny yellow metal is off by 11% from its highs and is back testing its 100-day moving average.
Loonies are lower following Trudeau’s Throne Speech yesterday. Wage subsidies will continue until next summer as Canada ‘bets the farm’ on big spending. A sign that the economy remains on fragile ground. Deficits are of little concern as the focus remained on economic support for small and medium sized companies. BNN has a quick take on various industry reactions.
It’s been a banner year for bond issuance. 2020 has now eclipsed the prior annual sales record of $329.6B USD set in 2012. So much for the deleveraging trend over the past few years. Companies are at the trough and reaping the benefits of the Fed’s accommodative policies. Though credit spreads remain relatively contained, there are signs of market jitters. Earlier this week the largest high-yield ETF saw outflows of $1.06 billion. This would rank as the third largest outflow day ever for the ETF. So far this week the fund has shed over $2.23 billion, the second worst week since the end of February.
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HSBC shares plummeted amidst repeated missteps and waning investor interests. Sell-side analysts have also adopted a bearish posture on the name as of late. Penn National Gaming, meanwhile, fell premarket after announced a new equity offering of 14mm shares. The stock has rallied +170% this year, and was most recently downgraded to neutral from outperform by Macquarie. Peter Thiel and Richard Li are joining the SPAC hype; the entity in question, Bridgetown, will seek to target tech, financial services, and / or media companies in Southeast Asia. Elsewhere, Kanye is hoping to get a seat on Gap’s board of directors; the music star has threatened to withhold their joint product release (Yeezy Gap) until his demand is met.
Oil futures edged lower again this morning as economic uncertainty and second wave fears take hold of demand concerns; at the time of writing, NYM WTI Crude futures were down -20 bps to US$39.87/bbl while ICE Brent Crude futures were down -10 bps to US$41.74/bbl. On the supply side, another port opened in Libya and is poised to resume operations in less than a week. Elsewhere, market participants observed the largest reduction in diesel stockpiles since the pandemic hit, offering a flicker of hope to a market beleaguered by one of the largest gluts in decades. On the demand side, Japanese refiners went on a buying spree last week, aiding spot prices in many Middle Eastern crude grades. Still, the sustainability of said purchasing pace may be unsustainable and were characterized by being “unusually large”. In other commodities news, gold’s selloff continued overnight as funds continued to unwind their holdings in the yellow metal; at the time of writing, the spot price for gold was down -20 bps to US$1,859.26/oz. Silver continued to selloff as well amidst a resurgence in the U.S. dollar and escalating concerns about growth.
Fixed income and economics
It’s Thursday so that means weekly initial jobless claims are taking centre stage on the data front. Ordinarily, this is a release that gets pushed to the back burner. But it goes without saying that we certainly are not living in “normal” times any longer. This is as much evident as the headline print which saw 870K Americans file for first-time jobless benefits with the government last week. That was above the 840K consensus, higher than the 866K revision prior, and again calls into question whether the recovery in the nation’s labor market has hit a rut. Continuing claims, which lag by seven days, clocked in at 12.58MM total people still requiring unemployment assistance and about 300K more than expected. Much has been speculated about the validity of the data since the BLS started changing the way it tabulates the overall figures, but it’ll be interesting to see what transpires over the next three months. Between now and the next eight weeks, Bloomberg has noted that seasonal factors have traditionally called for jobless claims to decline by an average of 29K filings due to the advent of part-time hiring due to the Halloween and Christmas holiday periods. But this historical calendar effect is flying the in the face of a just-abolished CARES benefit program for both workers and employers. Do Americans actually try to go back to work now that they aren’t receiving government aid? Does that help lower the overall number of filings? Are they even any jobs to go back to, especially if the advent of cooler temperatures hasten the need to re-shut certain pockets of the economy? It is looking increasingly likely that we won’t see a new Federal assistance package between now and the election, so brace yourself for lots of uncertainly in the labor market for the world’s largest economy. Market reaction sees equity futures extending their losses and Treasuries edging up slightly post-release.
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