Dow crumbled on viral outbreak rumor in China; Gold gained

·         But respiratory illness viral outbreaks may be a regular phenomenon in China and all other winter-heavy countries

·         Wall Street was also affected by a series of suspected terrorist activities on US soil ahead of Thump’s inauguration

Wall Street Futures stumbled from Santa Claus rally high in the last two trading sessions of the year (2024) on Trump and Fed policy uncertainty and also profit booking after an impressive rally, led by techs on AI optimism. Over the past few days, the U.S. stock market has experienced a downward trend, concluding 2024 on a weaker note. The market's recent downturn may be also attributed to factors such as year-end profit-taking, stretched valuation, and year-end positioning amid thinner liquidity. Although the market is now still expecting three rate cuts of @25 bps cumulating 75 bps in 2025 (March + June September), the Fed may cut only two times cumulating 50 bps (June + December).

Heavyweight Boeing also dragged Dow Future after its airplane (737-800) suffered another lethal accident in South Korea. On 29th December, Jeju Air Flight 2216, a Boeing 737-800, crashed at Muan International Airport in South Korea, resulting in 179 fatalities and two survivors out of 181 passengers on board. The aircraft was en route from Bangkok to Muan. The plane attempted a belly landing after its landing gear failed to deploy, skidded off the runway, and collided with a concrete wall, leading to a catastrophic explosion. The aircraft crash-landed without deploying its landing gear and collided with a concrete barrier at the tail end of the runway, igniting a fireball upon impact.

On early Thursday (2nd Jan 25), Wall Street Futures recovered amid some short covering after the last two trading days' sharp selling but soon stumbled on fading hopes of a Fed rate cut in March’25 after softer than expected US jobless claims. Then China-savvy Dow Future further slid on reports of another viral epidemic/outbreak in China; Gold, BTC got some risk aversion boost, while tech-heavy NQ-100 was less affected as techs are the only option in any pandemic/epidemic lockdown to keep the economy running even from WFH mode.

Various reports and social media posts suggest that China may be experiencing a new epidemic of respiratory illness involving multiple viruses, including Influenza A, human metapneumovirus (HMPV), Mycoplasma pneumoniae, and COVID-19. These claims are accompanied by videos depicting overwhelmed hospitals and assertions of a declared state of emergency. However, there is no concrete evidence to support these allegations. Neither Chinese health officials nor the World Health Organization (WHO) have confirmed any such epidemic or state of emergency in China.

In response to an anticipated increase in respiratory diseases during the winter, China's National Disease Control and Prevention Administration has initiated a pilot monitoring system for pneumonia of unknown origin. This proactive measure aims to enhance preparedness and response capabilities, building upon lessons learned from the COVID-19 pandemic. The system is designed to establish procedures for laboratories to report cases and for agencies to verify and manage them efficiently.

Data from mid-December indicates a rise in acute respiratory infections in China, with pathogens such as rhinovirus and human metapneumovirus becoming more prevalent, particularly among children under 14 in Northern provinces. Health experts advise caution in the use of antiviral drugs for human metapneumovirus, noting the absence of a vaccine and the similarity of its symptoms to those of the common cold.

It's important to note that the spread of multiple respiratory viruses during the winter season is not uncommon and does not necessarily indicate a new epidemic. The current situation appears to be a seasonal increase in respiratory illnesses, and there is no verified information suggesting that China is concealing/fighting a new epidemic.

·         The outbreak of HMPV: The human metapneumovirus is reportedly spreading rapidly across China, causing flu and COVID-19-like symptoms. This virus is particularly affecting children and the elderly.

·         Social Media Claims: Numerous social media posts depict crowded hospitals and allege that hospitals and crematories are overwhelmed. Some posts claim that a state of emergency has been declared, although this has not been officially confirmed.

·         Monitoring System: In response to rising viral infections, China's disease control authority is implementing a monitoring system for pneumonia of unknown origin, which aims to better manage respiratory diseases during the winter months, which is normal.

·         Lack of Official Confirmation: Neither the Chinese health authorities nor the World Health Organization (WHO) has confirmed the existence of an epidemic or a state of emergency. Reports suggesting such an emergency appear to be based largely on unverified social media claims.

·         Evidence from Health Officials: Chinese health officials have indicated that while respiratory infections are rising, they expect the overall number of cases this year to be smaller than last year. They are taking steps to improve preparedness compared to the initial COVID-19 outbreak.

In summary, While there is a notable increase in respiratory illnesses in China, claims regarding a new epidemic and overwhelmed healthcare facilities largely stem from social media speculation without any confirmation from official sources. Monitoring efforts are underway, but as of now, there is no confirmed state of emergency or epidemic declaration by health authorities. These types of winter season respiratory illness or pneumonia/flu-related outbreaks are very common in China, the US, Europe and other cold weather-heavy countries. But after the COVID fiasco, the market does not want to take any risk and thus reacts in excess even to social media rumors.

Wall Street Futures were also under stress due to increasing terrorist activities on US soil ahead of Trump's inauguration and intensifying the anti-immigrant narrative by Trump supporters (extreme right). On January 1, 2025, New Year's Day, an apparent terrorist incident occurred in New Orleans' French Quarter, where a man drove a pickup truck into a crowd on Bourbon Street, resulting in multiple fatalities and injuries. The driver, identified as Shamsud-Din Jabbar, a 42-year-old U.S. Army veteran from Texas, was killed in a shootout with police following the attack. An ISIS flag was found on his truck, leading the FBI to investigate the incident as an act of terrorism.

The attack resulted in at least 14 deaths and numerous injuries. Jabbar had posted videos on social media expressing a desire to kill and claiming inspiration from ISIS just hours before the attack. Authorities are investigating his background, including his recent conversion to Islam and any potential connections to the terrorist organization ISIS. The FBI has stated that Jabbar acted alone in this attack, and there is no known link between this incident and a separate vehicle explosion in Las Vegas that occurred on the same day. The suspect also opened fire on pedestrians and police officers during the incident. Jabbar used a pickup truck to plow into pedestrians, targeting a three-block stretch on Bourbon Street. After crashing the vehicle, he exited armed with an assault rifle and began firing at police and bystanders.

Meanwhile, in another horrific incident late Wednesday, a Tesla Cybertruck caught fire following an explosion that was heard close to the main entrance of Trump Tower in Las Vegas. The man inside the Tesla Cybertruck had suffered a gunshot wound to the head before the blast, The US FBI said on Thursday it now believes Jabbar acted alone and there is no further danger to the citizens of New Orleans. It confirmed there is currently no link between the attack and the Cybertruck explosion outside the Trump Tower in Las Vegas but that the investigation is still in the early stages.

Market Impact:

Early Thursday, Wall Street Futures recovered on hopes of an imminent Gaza war ceasefire after a Top Hamas official claims ‘good chance talks will succeed’ as delegations head to Qatar. Netanyahu released from hospital after prostate surgery and okays sending Israeli team to hostage talks. Netanyahu authorized a working level delegation from the Mossad, Shin Bet and IDF to continue with negotiations in Doha,” according to a statement from Netanyahu’s office. Israeli officials have expressed pessimism in recent days that talks were stuck amid a refusal by Hamas to issue a list of names of live hostages it could release. Hamas now seeking a 7-day temporary ceasefire to count actual hostages still live, but Israel may not agree.

On Thursday, Wall Street closed lower in a volatile first trading session of the New Year, extending the slump from late 2024 into January. The S&P 500 and Nasdaq-100 each dropped 0.2%, while the China-savvy DJ-30 slid 152 points amid a rumor of a viral outbreak in China, while tech-heavy NQ-100 was stable as any lockdown would be positive for techs (as we have seen during COVID). Wall Street was dragged by consumer discretionary, materials, real estate, consumer staples, industrials, financials, and techs, while boosted by energy (higher oil), utilities, communication services, and healthcare to some extent. Scrip-wise, Wall Street was dragged by Boeing, Nike, Apple, Salesforce and P&G, while boosted by Nvidia, Chevron, McDonald’s, Verizon, and 3M. Tesla slid after reporting a decline in annual deliveries and news of a Cybertruck explosion in Las Vegas. Apple tumbled on subdued China sales.

Weekly-Technical trading levels: DJ-30, NQ-100, SPX-500, and Gold

Looking ahead, whatever the fundamental narrative, technically Dow Future (CMP: 42850) now has to sustain over 42300-42600 for any rebound to 43300/43500-43800/44000 and further 44400/44600- 45000/45500 and further 45800/46000-46200/46400 and 46800/47000-47500/48000 in the coming days; otherwise sustaining below 42250, DJ-30 may further fall to 41800/41500-40500/40400 in the coming days.

Similarly, NQ-100 Future (21350) has to sustain over 21200 for a recovery to 21500/21700-21800/22250 and further 22500/22700-23000/23300 in the coming days; otherwise, sustaining below 21150-21000, NQ-100 may further fall to 20800/20650-20450/20250 and 20000/19800-19650/19150 in the coming days.

Technically, SPX-500 (CMP: 5950), now has to sustain over 5900 for any further rally to 6000/6050-6100/6150 and 6200/63990-6350/6500 in the coming days; otherwise, sustaining below 5850, SPX-500 may further fall to 5775 and 5675/5600-5550/5500 in the coming days.

Also, technically Gold (CMP: 2630) has to sustain over 2665-2685 for a recovery to 2700-2725 and further 2735/2750-2775/2795 and 2815 in the coming days; otherwise sustaining below 2650-2640 may again fall to 2605/2600 and 2590/2565 and further fall to 2550/2500-2470/2450 in the coming days (depending upon Fed rate cuts, Gaza/Ukraine war trajectory); Gold surged almost 75% in the last one year since Gaza war started back in October’23. Now it may retrace to $2500-2400 levels if Trump indeed can mediate both the Gaza and Ukraine war ceasefire by early 2025.