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S&P 500 May Eye Higher Levels on Upbeat Earnings, Stimulus Hopes

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S&P 500 FUNDAMENTAL FORECAST: BULLISH

  • The S&P 500 index may weather through near-term headwinds and aim for higher levels
  • So far in the earnings season, over 80% of the index’s constituents have beaten estimates
  • US election and slower recovery are the key risks amid a second viral wave

S&P 500 Index Outlook:

The S&P 500 index retreated from a six-week high since the start of the earnings season, in which big American banks delivered strong Q3 results. US banks were benefiting from lower loan-loss provisions and higher trading income amid improved market conditions. More than 80% of the S&P 500 companies, which have released results so far, have smashed analysts’ forecasts. This may set an upbeat tone for the rest of the earnings season.

This week, around 17% of the S&P 500 companies will unfold their Q3 results, include Procter & Gamble, Netflix, Abbott, Coca-Cola, AT&T, American Airlines, Intel and American Express.

The second US fiscal stimulus package remains a key focus too. As investors count down for the US presidential election, the likelihood for a program to be approved before 3rd November appears to be thin. This assumption, however, may not totally deter investors from risk-taking as recent polls point to a strong lead for Joe Biden over Donald Trump, which may pave the way for a Democratic-led relief package that markets seem to favor. A ‘blue wave’ election outcome could mean Democrats in charge of the White House, Senate and House, removing hurdles to pass substantial fiscal support for the US economy.

S&P 500 Index vs. Trailing 12 month EPS (2015-2020)

S&P 500 May Eye Higher Levels on Upbeat Earnings, Stimulus Hopes

Source: Bloomberg, DailyFX

Some near-term headwinds include election risks and a ‘second wave’ of coronavirus in parts of the world, which could dampen a fragile recovery. US jobs data has shown early signs of weakness with an unexpected rise in the jobless claims number last week. Chinese CPI and PPI readings both fell short of expectations, underscoring weaker demand for factory output from the world’s second-largest economy.

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Markit Manufacturing PMIs also pointed to a mixed recovery across the Asia-Pacific, the EU and the US in the recent months (chart below). Taiwan registered a strong PMI readings of 55.2 in September, whereas Indonesia’s figure has swung back to 47.2 from 49.7. The European Union and the United States extended their expansionary trajectory, with both manufacturing PMIs scoring above 53.0.

Manufacturing PMIs across Asia-Pacific, EU and US – Past 12 months

S&P 500 May Eye Higher Levels on Upbeat Earnings, Stimulus Hopes

Source: Bloomberg, DailyFX

Back to US markets, the recent selloff in equities appeared to be another healthy correction in a bull run and there seemed to be a lack of evidence of systemic risk. In the medium term, the US economy may ride a slow but steady recovery from the Covid-19 pandemic with support from comprehensive fiscal aid, vaccines and an accommodative monetary environment.

The S&P 500 index is trading at around 27.0 times price-to-earnings (P/E) ratio, which is above its five-year average of 20.3 (chart below). A mean-reversion move is possible without a significant pullback in stock prices, if earnings continue to improve alongside a broader economic recovery. The Fed’s commitment to keep interest rate unchanged before at least 2023 with unlimited QE may help to contain potentially emerging credit risks and boost equity market with ample liquidity.

S&P 500 Index vs. Price to Earnings ratio (P/E)

S&P 500 May Eye Higher Levels on Upbeat Earnings, Stimulus Hopes

Source: Bloomberg, DailyFX

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Hong Kong Connect Opens China’s ETF Market to Global Investors By Bloomberg

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© Reuters. Hong Kong Connect Opens China’s ETF Market to Global Investors

(Bloomberg) — China’s fast-growing $157 billion market for exchange-traded funds will be directly accessible to overseas investors from Friday, at least four years since the plan was first hatched.

Four so-called “feeder” ETFs will begin trading in Shenzhen and Hong Kong, the first batch in a project aimed at connecting the two markets. The Shenzhen funds will track the China Enterprises Index and the S&P New China Sectors Index, while the Hong Kong-listed ETFs will follow the benchmark CSI 300 Index and a gauge of China’s 5G companies.

The investment vehicles, popular with retail traders around the world because they’re among the cheapest way to trade an index, will collect capital locally and settle trades across the border. Some 900 million yuan ($135 million) of funds has been gathered in a pre-sale of the ICBC CSOP S&P New China Sectors ETF, said Melody He, managing director at provider CSOP Asset Management Ltd.

Regulators in Hong Kong have been mulling broadening trading links with mainland China to include ETFs since at least 2016. The plan was delayed partly due to complex clearing and settlement issues. At $40 billion, Hong Kong’s ETF market is smaller than the mainland’s even though its first fund was launched five years before China’s in 1999. ETFs in China nearly doubled in value in the first half of this year.

“This is the very start of ETF connectivity,” said Bloomberg Intelligence analyst Sharnie Wong.

While there are ETFs in Hong Kong, London or New York following China’s onshore equity market, the tracking error can be as high as 15%, partly due to limits on foreign ownership. The feeder ETFs can better replicate mainland benchmarks because their providers are local and won’t be subject to caps. Overseas investors are currently permitted to own no more than 30% in yuan-denominated shares.

Unlike other major stock markets in the U.S. or Japan, China — the world’s second largest — isn’t overrun by ETFs. Individual investors haven’t caught on to the products even though costs can be a lot lower than with mutual funds, partly due to little demand for individual stock research.

China ETFs Give Retail Investors Access to Soaring Tech, Ant

ETFs can be traded in real time and in the U.S. are growing increasingly complex and diverse since the first one came about in 1993. China’s first ETF was launched by China Asset Management Co. in 2004. They only started to gain traction in China after MSCI Inc. added yuan-denominated shares to its benchmarks in 2018.

Cross-border trading of ETFs between Hong Kong and mainland China will take time to grow, said Wong, adding that the experience of the stock connect scheme launched in 2014 between both sides could be instructive.

“It could take six years for northbound trading to contribute 5% to mainland China’s ETF turnover, assuming participation of international investors in ETFs is similar to that of A-shares,” she said.

“It may take only two years for southbound trading to contribute 5% to Hong Kong’s ETF turnover, if mainland investors appetite for Hong Kong listed ETFs is similar to that of stocks.”

©2020 Bloomberg L.P.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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Europe’s Economy Risks New Contraction From Virus Curbs By Bloomberg

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© Reuters Europe’s Economy Risks New Contraction From Virus Curbs

(Bloomberg) — The resurgence of the coronavirus has knocked Europe’s economic recovery back a step and raised the possibility of another contraction.

IHS Markit’s monthly measure of business activity fell to a four-month low of 49.4 in October from 50.4 in September. Within the report is a clear, divergent trend of manufacturing strength being offset by damage to services from the second wave of the pandemic.

New government curbs as well as consumer fears of the virus are driving the two-speed economy. In Paris and eight other major French cities, authorities introduced a curfew this month that’s hitting restaurants and bars particularly hard. In Germany, a Bavarian district imposed a two-week lockdown after infections climbed above a rate that triggers an automatic tightening of restrictions.

While the weakness is largely limited to services, the fallout on jobs and spillovers to the rest of the economy will worry policy makers. The deteriorating outlook strengthens the case for the European Central Bank to pump more monetary stimulus into the economy, and governments may have to extend expensive aid programs.

IHS Markit warned that the euro-area economy could shrink again this quarter. Its report said employment fell again in October, confidence deteriorated and orders declined.

“While the overall downturn remains only modest, and far slighter than seen during the second quarter, the prospect of a slide back into recession will exert greater pressure on the ECB to add more stimulus and for national governments to help cushion the impact of Covid-19 containment measures,” said Chris Williamson, chief business economist at IHS Markit.

 

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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Dollar Edges Higher After Presidential Debate By Investing.com

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© Reuters.

By Peter Nurse

Investing.com – The dollar posted small gains in early European trade Friday, following the final presidential debate between U.S. President Donald Trump and Joe Biden before the Nov. 3 election.

At 2:55 AM ET (0655 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 93.082, bouncing back from the seven-week low seen earlier in the week. However, it remains 0.6% lower for the week.

Elsewhere, was down 0.2% at 1.1793, fell 0.2% to 1.3054, while was down 0.1% at 104.72.

The final debate between the two presidential candidates took place in Nashville, Tennessee late Thursday and was more restrained than the chaotic first debate, with the debate centering more on policy rather than personal attacks.

That said, “people are just closing out longs ahead of the election just in case Biden isn’t [elected] … we’re coming into that eye of the storm now where it takes a bit of a brave soul to put on new positions ahead of the election,” Pepperstone head of research Chris Weston told Reuters.

Traders are also keeping an eye on negotiations between House of Representatives Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin over the potential for a new substantive coronavirus relief bill, with Pelosi expressing optimism that a consensus could be reached.

“Market players will take their cue from U.S. political developments as well as the sustained acceleration in Covid-19 cases around the globe as the fall ushers in a new wave of infections as predicted by experts,” said analysts at ING, in a research note.

Elsewhere, was largely flat at 6.6843, with the yuan holding onto gains against the greenback as Wang Chunying, spokeswoman for China’s State Administration of Foreign Exchange, told a news conference that the yuan has been more stable than expected. This comes despite the Chinese currency reaching its highest level against the dollar in 27 months on Wednesday.

The Chinese currency could see sharp gains if Joe Biden wins November’s U.S. presidential election, according to Citigroup (NYSE:) strategists. Chinese exporters would expect a more predictable U.S.-China trade relationship in that circumstance, and will start selling their dollar cash piles to buy yuan, the strategists wrote in a note dated Thursday.

Additionally, rose 0.2% to 7.9478, the day after Turkey’s central bank raised the upper bound of its interest-rate corridor but unexpectedly left its benchmark rate on hold.

The central bank surprised investors last month with a 200-basis-point increase and has since tightened policy further by restricting funding at the benchmark rate, forcing banks to borrow using costlier options. 

But this hasn’t stopped the currency’s decline, with the lira falling another 2% against the dollar since the September rate decision.

“Exchange rate developments are likely to remain as one of the key determinants of CBT policy in the period ahead given ongoing geopolitical issues and US elections-related sensitivities,” ING added.

 

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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