Hong Kong’s Extradition Bill Withdrawal and the S&P 500

Based on a September 4 CNBC report, Hong Kong plans to withdraw its controversial extradition bill that was the focus of mass protests. The bill aimed to empower China to extradite any person in Hong Kong for a judicial trial in mainland China. This event could also impact the US-China trade deal.

Since June, the extradition bill has been behind the mass social unrest in Hong Kong. Moreover, diplomatic relations between the US and China deteriorated during this period.

In July, China accused the US of causing the ongoing unrest in Hong Kong. In August, President Trump abruptly imposed tariffs on Chinese goods, derailing the trade talks. China retaliated by imposing tariffs on American goods.

August was the second-worst month of the year for the S&P 500 Index (SPY), as cyclical sectors ended in the red and defensives rose. The chaos among investors led to the inversion of the yield curve.

Stocks to watch

With a possible resolution of the Hong Kong crisis, investor confidence might rise in the stock prices of Chinese e-commerce companies Alibaba Group Holding (BABA) and JD.com (JD). Last month, BABA and JD stock rose 1.1% and 2%, respectively.

The Hong Kong crisis is also significant as it relates to the US-China trade war. Apple (AAPL) stock ended the day up 1.65%—the tech giant has considerable exposure to China. The tech-heavy Nasdaq 100 Index (QQQ) ended the day up 1.44%. On September 3, the Nasdaq 100 Index fell nearly 1.1%

Oil could rise

Today at 7:09 AM EDT, US crude oil prices rose almost 1%. This rise in oil prices could push energy stocks up. Last month, the Energy Select Sector SPDR ETF (XLE) declined the most among the sector-specific SPDR ETFs.

Among the energy stocks, Chesapeake Energy (CHK), Denbury Resources (DNR), and Whiting Petroleum (WLL) could be worth watching. Generally, CHK has a high correlation with crude oil prices. DNR operates with a production mix of 97.8% in crude oil, based on its latest quarterly filings. WLL operates with a production mix of over 80% in oil price–linked commodities.

Gold might decline

In today’s trading, gold active futures fell around 0.6% below their previous closing level. However, the pause in gold’s rise could be temporary. Due to global recession fears, gold might see an additional upside. Gold miner stocks such as Barrick Gold and Newmont Goldcorp could be under pressure going forward.

Because political uncertainty in Britain could rise in the coming days, volatility in the pound sterling is also high.

First published here: Hong Kong’s Extradition Bill Withdrawal and the S&P 500