Morning Minutes 10/2/2020

Morning Minutes

Stocks Fall as Trump COVID Diagnosis Outweighs Positive Economic News

October 2, 2020

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
ccieszynski@siawm.com
+1 (647) 282-4428

Stocks and commodities have taken a sharp turn downward overnight following the announcement that US President Donald Trump and US First Lady Melania Trump have tested positive for coronavirus and have gone into quarantine. At this time the President is continuing with his duties but the announcement has lobbed a monkey wrench into an already uncertain and volatile political environment which not only includes the US election campaign and upcoming debates, but also ongoing EU-UK trade talks and the ongoing special summit debating what to do about Turkey and Belarus.

Dow futures have been trading down about 350-400 points through the morning so far, or about 1.3% while NASDAQ futures are down about 2.1%. In Europe today, the FTSE is down 0.8% while the Dax is down 1.3%. Commodity action has been mixed with WTI and Brent crude oil both falling 3.5% but copper climbing 1.5%. As the day progresses and the weekend approaches, we may get a better idea of whether this news sparks a rush for the exits among investors, if investors are prepared to step in an provide support, or if we see a mixed reaction depending on the sector. So far, gold and silver are steady to slightly lower suggesting there hasn’t been a panic swing into capital havens as of yet.

Prior to the Trump announcement, stocks had been responding favourably to a series of positive economic announcements over the last few days. Yesterday US construction spending (1.4% vs street 0.8%, previous revised upward to 0.7% from 0.1%) and Canadian manufacturing PMI (56.0 vs street 54.1) beat expectations. US ISM manufacturing PMI (55.4 vs street 56.3) fell short but remained well above 50 and the leading ISM new orders component (60.2 vs street 54.5) came in strong again.

Today’s US nonfarm payrolls report was mixed. Headline payrolls (661K vs street 850K) for September were disappointing but most of the shortfall can be accounted for by the 118K upward revision to August payrolls to 1,489K. The US unemployment rate came in better than expected (7.9% vs street 8.2% and previous 8.4%). US factory orders are due at 10:00 am EDT with the street expecting a 1.0% increase. US index futures have been flat to slightly lower in the first few minutes after the announcement, suggesting that investors are more focused on the implications of President Trump’s health news today.

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