Overview: New actions to contain the virus are being taken in the US and Europe, but investors are looking past it and taking equities and risk assets, in general, higher to start the new week. MSCI Asia Pacific recouped most of last week’s 0.7% loss with gains of move than 1% in Japan, Hong Kong, South Korea, and Australia. Coming fiscal support helped lift the Australian market by more than 2.5%. Europe’s Dow Jones Stoxx 600 is up for a third consecutive session and is nearing the 200-day moving average that has checked the benchmark over the last three months. US shares are trading with a clear upside bias. Meanwhile, yields are edging higher, and the US benchmark 10-year yield is near 71 bp, while European yields are also slightly firmer. The dollar is under some pressure, falling against all the major currencies, but the Japanese yen and most emerging market currencies are also gaining against the greenback. The JP Morgan Emerging Market Currency Index is higher for the fifth session but remains below the 20-day moving average. Gold has straddled the $1900-level, while oil stabilizes after sliding last week. November WTI is within yesterday’s ranges. 

Asia Pacific 

Japan’s service and composite PMI were revised from the initial estimate, but both remain below 50. The service PMI was revised to 46.9 from 45.6 after 45.0 in August. The composite PMI is now at 46.6 from 45.5 flash reading and 45.2 in August. The government has indicated it will have a third supplemental budget. Elsewhere of note, South Korea’s manufacturing PMI rose to 49.8 from 48.5, and Taiwan’s rose to 55.2 from 52.2.

Tomorrow’s Reserve Bank of Australia meeting will be followed the following day by the release of the government’s budget. Imagine if US Treasury Secretary Mnuchin was a member

Key Takeaways:

  • Flat market early after Monday’s rally as caution shows up ahead of tonight’s debate
  • Fed speakers in focus as five prepare to deliver remarks today
  • Micron earnings after close could put focus on semiconductor industry

After the week started with a bang, what kind of follow-up might be in store? Maybe one where the market just drifts around looking for direction, in part because of trepidation ahead of tonight’s presidential debate.

The cautious mood seems to be reflected in pre-market trading, where major indices were barely changed ahead of the open. Besides the debate, focus could turn toward Fed policy, with no fewer than five Fed officials scheduled to deliver remarks spread out across the day. Investors also await any stimulus-related developments in Washington, D.C.

Another thing awaited is a look into the semiconductor industry, with Micron (MU) expected to report after the close. Memory chip prices are likely to be under scrutiny when the company unveils results, according to MarketWatch. Prices for those have been under pressure lately following a rush to buy chips by Chinese telecommunications-equipment company Huawei earlier this year.

Technical factors could also come into play today, as the S&P 500 Index (SPX) starts Tuesday just below its 50-day moving average (near 3350) after bouncing off its 100-day moving average late last week down near 3210. A close above the 50-day average, if it happens, could potentially provide more upward traction (see chart below). The 50-day had been holding as key long-term support before it got breached recently, so bullish investors would probably like to see it back above that level as a sign of possible strength.

About tonight’s debate: It would probably take a major “win” or “loss” by one or the other candidate to really steer the market