US recovery not evident in Asia

Big-tech earnings boost Wall Street

Asia is looking past the big-tech bounce on Wall Street overnight, with regional markets universally in the red. Record daily cases of Covid-19 in the US, lockdowns in Europe and Tuesday’s US election have Asia in risk-reduction mode, with US equity index futures also giving back some of their overnight gains.

Overnight the FAANGsTa’s lifted US markets, with the S&P 500 rising 1.20%, the Nasdaq jumping 1.64%, while the Dow Jones added 0.52%. All three indices are slightly lower in Asian futures trading this morning.

The Nikkei 225 is 0.70% lower, with the Kospi falling 1.0%. In China, the Shanghai Composite and CSI 300 have lost 0.30%, with Hong Kong 0.15% lower. Taiwan is down 0.40% with Singapore and Malaysia 0.65%. Even the ever-effervescent Australians could not bring themselves to follow Wall Street in their usual slavish fashion, as the ASX 200 and All Ordinaries are down 0.30%.

In the US, Advance GDP for the third quarter outperformed overnight, jumping 33.1 per cent. This reversed the Q2 fall of 31.4%, completely messing up the y-axis of the GDP growth chart for a generation to come. The post-lockdown reopening dividened was clear in the numbers, but I note that GDP will still finish 2020 lower by 3-4%. Pantheon Macroeconomics is stating that the Q3 number would have needed to be around 53% to get back to zero for the year. In other words, even with the huge lift in Q3, the US economy has not yet reached its pre-corona levels.

Asia’s performance today, while not overtly negative, is still a warning that sentiment remains negative. European stock markets will almost certainly follow Asia’s lead, and it is hard to see Wall Street bucking the trend now that the quarterly big-tech results have passed. Markets will remain vulnerable to more bad news on the Covid-19 front from the US and Europe, while the nuances of the US election will leave equities to follow other asset classes into the hunkering-down mode.

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