Market Outlook

The fears of the China-US relation deterioration turned on the “risk off” mode. Even though some of the economic figures were positive to the stock markets, the three major Wall Street indexes edged lower on Thursday. ZFX analyst Jacob Leung said that, market sentiment changed to bearish. Some of the investors believe that the worst has passed, while some of them are still doubtful.

The FOMC minutes of April meeting showed that members were worried about the economic outlook of the US as the coronavirus created an “extraordinary amount of uncertainty and considerable risks to economic activity in the medium term”. Rate would not be raised until the economy is back on the track. Furthermore, all members agreed that the Fed will use full range of tools to support the US economy.

On Wednesday European session, investors are cautious as the market doubted the good news from the coronavirus vaccine development. According to the STAT News report, several experts said that Moderna, a Biotech company in the US, did not provide enough information to assess the effectiveness of the Covid-19 vaccine.

A big positive news drove the market move on Monday. Moderna, a Biotech company in the US, reported that the result of the phase 1 human trial for its coronavirus vaccine candidate was positive, which lifted the market sentiment. The Wall Street three major indexes soared, of which the Dow jumped nearly 4%, closed 911 points higher. The greenback lost against major currencies under such risk appetite condition. The gold price, after hitting its highest since October 2012, also retreated sharply from $1765 to $1727.

ZFX analyst Jacob Leung said that gold market was benefited due to the rising tension between China and the US. However, the “risk off” mode seems has no effect on the stock market. There may be some reason behind. It may be due to the rally of oil prices, Fed's policies or the hopes on further stimulus policies, which all are supportive to the financial markets, no matter these were just short term or sentiment oriented only.

US President Trump has warned in an interview that he could “cut off the whole relationship” with China, further escalating the tension between China and the US. He said that he is very disappointed with China in handling the spread of the coronavirus. In addition, he also pointed out that he may examine those Chinese companies listed on the US stock exchange, regarding US accounting regulations. The market is worried and in fact the negative factors are more obvious in the market, once the rumor of the M&A fade out, it is likely to end this short-term move.

Fed Chairman Powell said that the economic outlook of US was highly uncertain and subject to significant downside risks. He believed that more stimulus measures are needed to ease the economic downturn from the global pandemic. His pessimistic speech hit the market sentiment. In addition, he pointed out that the Fed was not considering negative interest rates as one of the tools. The tension between China and the United States has now become a key concern, triggering risk aversion. The Federal Retirement Thrift Investment Board (FRTIB) announced that it will postpone its investment in some Chinese companies which including in the MSCI. The market believes that it was a decision under the instruction by Trump. Furthermore, Trump said on Twitter that “dealing with China is a very expensive thing to do” which was clearly not favorable to China-US relation.

Market sentiment became cautious on Tuesday. The Volatility Index (VIX) bounced back and all three Wall Street indexes dropped, of which the Dow lost more than 450 points. Investors are worried the second wave of coronavirus infections, especially after the reopening of the US economy. White House health advisor Fauci warned that the outbreak in the US has not yet under controlled, and the situation may deteriorate if the economy restarts too soon.

The market is concerning the rising tension between China and the US, triggering risk aversion. Earlier, US President Trump said that he is having “a very hard time with China”. He also said that he hasn’t decided how to deal with the trade relationship, showing doubt of the implementation of the phase 1 trade agreement. On the other hand on Monday, Global Times quoted source from Chinese officials, saying that “more hawkish voices have emerged”, calling for renegotiation. As dissatisfaction with the phase 1 agreement has been growing in Beijing, some voices even suggested to invalidate the agreement.

The Nonfarm Payrolls last Friday showed 20.5 million job cuts in April, the biggest drop in history since 1939. However, the figures are still better than the expectations of 21.5 million job cuts. The unemployment rate skyrocketed to 14.7%, the highest level since the Great Depression, which was still lower than market expectations of 16%.