Stock market contagion spreads

About the only storm that doesn’t appear to be getting stronger is Hurricane Beta, which made landfall in the United States as a tropical storm and not a hurricane. It still made its presence felt though, as the hurricane premium built into oil prices was laid bare, and crude prices fell.

Elsewhere, the forecast continued to be cloudy with the atmospheric pressure falling, hinting at stormier times ahead. A vicious combination of swirling winds is threatening to lift the rooves of various asset classes. In no particular order, the storm is made up of dimming hopes of any follow-on US fiscal stimulus before or after the presidential election. A potential US constitutional crisis is brewing over the appointment of a new Supreme Court judge. The leaking of papers implicating global banks in an astonishing amount of “suspicious transactions,” a story that just keeps on giving, torpedoed bank stocks yesterday. Ructions within the new-economy sector as Nikola’s founder stepped down, with Nikola’s share price rolling downhill faster than one of its trucks.

Geopolitics is never far away, and the China Global Times Editor stated overnight that Beijing wouldn’t approve ByteDance’s TikTok deal. Given the level of press freedom in China, one assumes that by default, the editor’s comments wouldn’t have been made unless it was the actual government stance.

Notably, the Covid-19 noise is increasing in the UK and Europ0e as summer partying has left case numbers surging, threatening more widespread lockdowns yet again. I have stated previously, that one of the dangers to the global recovery, would be the imposition again of national level lockdowns in major developed economies. That risk appears to be rising, unfortunately.

Dollar rises, US stock markets fall

US stock markets fell again overnight, although a late recovery flattered to deceive. In currency markets, the US dollar surged, leaving a number of G-10 pro-cyclical currencies precariously perched. Gold and silver collapsed intra-day as stock markets headed south before staging an end of session comeback with equities. Oil collapsed as Beta became a storm in a teacup and Libya resumed oil exports. Iron ore and copper fell, although they still remain near their 2020 highs.

With a light data calendar this week, the headline-mill has the potential to keep grinding markets down. Of the rogues’ gallery described above, I would rate the TikTok deal, European lockdowns and the US Supreme Court appointment as the most significant risk points short-term driving volatility.

The rise in the US dollar index overnight and the fall in US treasury yields hints that there is more than a little safe-haven positioning going on now. Japan is on holiday today, with the rest of Asia likely to be left to the tender mercies of directional flows through US equity index futures once again. Markets will be much more susceptible to negative headlines in Asia today then has been the case in previous weeks. The FOMO “sell-everything” correction could have more to go.