US equities rebounded mildly last night as investors reassessed the likelihood of Trump’s impeachment following Wednesday’s panic selling.
Doubts remain over how things will progress in the White House but sentiment has recovered overnight on strong earnings. The US dollar index rebounded 0.48% to the 97.8 area after touching a five-month low a day ago. Gold and silver retraced 1% and 1.9% respectively, along with the volatility index.
The NASDAQ jumped 0.73% last night as corporate earnings remained upbeat, with Walmart earnings topping the street’s estimates and Alibaba’s headline revenue jumping 60% year on year. Strong earnings from Chinese technology giants – namely JD.com (ADR), Tencent (700 HK) and Weibo Corp (ADR) – sent stocks higher, albeit against a backdrop of rising political uncertainty.
Over in South America, Brazilian stocks plunged nearly 9% on the escalating political scandal centred around President Michel Temer. The Brazilian Real dived over 7% to 3.375 from 3.142 against the US dollar last night. According to JPMorgan, the heavy selling was a reflection of concerns from investors that the much-needed reforms will be unable to pass. Many investors were positioned in Brazil with reform approvals as the base case until, as of yesterday, we started seeing positions unwinding.
The crash in Brazilian equities and currencies is a lesson to Wall Street, which is facing a similar but probably less severe situation. Too lofty expectations have been priced in to ‘Trumponomics’, and a reduction of those expectations will impact the markets in a significant, negative way.