Morning Markets Brief 9-9-2020

Summary and Price Action Rundown

Global risk assets are attempting to stabilize after a sharp three-day countertrend selloff in high-flying tech stocks spilled over into broader market sentiment. S&P 500 futures indicate a 0.5% higher open after the index sank 2.8% yesterday for a three-session decline of 7.0%, reducing its year-to-date upside to 3.1% and falling further below last Wednesday’s record high. The tech-heavy Nasdaq is set to regain 1.3% at the open after underperforming again yesterday, sinking 4.1% to take its losses since last Wednesday to 10.9%, though its year-to-date gains remain robust at 20.9%. Equities in the EU are also rebounding moderately but Asian stocks were lower overnight. A broad dollar index is hovering slightly above it recent 28-month low, while longer-dated Treasury yields are also steady, with the 10-year yield at 0.67%. Brent crude prices are holding near $40 per barrel after yesterday’s steep plunge.

Equities Set to Rebound Despite Negative Vaccine News

After headlines early yesterday evening indicated that AstraZeneca has halted its phase three vaccine trial, US stock futures initially dropped but are moving higher this morning, led by tech shares. Yesterday, after US stock markets had closed, news that a potentially severe reaction in a vaccine trial participant led AstraZeneca to pause its final phase testing program, which is targeting a pool of roughly 50,000 participants around the world. Details of the ill participant’s condition were scarce, but experts note that such occurrences are relatively common in experimental drug trials and the illness probably has no direct link to the vaccine. AstraZeneca is in the process of assessing the situation and its trial safety protocols. Shares of the drug giant are only down 1.4% in London, while the stock prices of Moderna and Pfizer, two of AstraZeneca’s main competitors in the race to develop a vaccine, are 4.8% and 1.3%, respectively, in US pre-market trading. This comes amid overt political pressure in the US for a vaccine to be ready by the US election, which spurred the CEO’s of leading biotech companies to issue a letter yesterday that set forth a joint pledge not to cut corners in the vaccine development process in order to beat its competitors to market.

Congress Faces a Challenging September

With the House and Senate soon to be back in session, the stalled pandemic relief bill and another government funding measure needed to prevent a shutdown after September 30th top a daunting legislative to-do list. As Congress gets set to resume after its month-long recess, both sides prepare for an inevitable showdown over the fate of the deadlocked stimulus package, which economists generally believe is needed to counteract the ongoing economic fallout from coronavirus lockdowns. Senate Majority Leader McConnell, who has been in private discussions with fellow Republicans in an attempt to strike an accord over the stimulus, has stated he will announce the new GOP bill and move towards a vote this week in an attempt to provide a contrast to the Democrats’ HEROES Act proposal. Currently, sources are reporting the new Republican bill would feature about half the original $1 trillion previously sought before the recess, which Democratic leaders have already characterized as inadequate. Expected provisions include aid for schools and small businesses, funding for the USPS, and $300/week jobless benefits, halving the $600/week benefits that expired in July. Pelosi and Mnuchin have come to an informal agreement on a continuing resolution separate from the stimulus to prevent the government from shutting down through December, stoking hopes that compromise there could spill over into stimulus negotiations, but the current gap in acceptable package size appears no smaller than before the August recess.

Additional Themes

US-China Issues Feature on the Campaign Trail – With President Trump making his “tough on China” stance a key election issue and accusing Joe Biden of being soft on Beijing, reports indicate that Biden will seek to respond today. In a campaign speech in Michigan, Biden is expected to announce his plan to impose a 10% tax levy on companies that offshore operations, while offering a 10% tax credit to companies that create jobs in the US. Over the holiday weekend, President Trump again mused about “decoupling” the US and Chinese economies, emphasizing that he is focused on boosting US manufacturing jobs to “end our reliance on China once and for all.”

Wall Street Ponders US Election Risk – As partisan passions run high and unrest continues in some major US cities, with the ongoing pandemic as a grim backdrop, investment strategists are increasingly focused on managing the potential turmoil related to a disorderly election process and outcome. Some, like Morgan Stanley, are focused specifically on the potential for a drawn out vote counting process, replete with legal challenges, which would extend the volatility around the US election, which is usually fleeting, into a multi-week condition.