Tuesday, May 12, 2020

Asia Times: Rising rate of new Covid-19 cases in South Korea and Germany prompts caution in financial markets

Tags
  • Dollar
  • Gold
  • Yen
  • Pound
  • Stocks
  • Oil

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Market Recap: Rising rate of new Covid-19 cases in South Korea and Germany prompts caution in financial markets

Tech stocks led the US market in gains last night, as investor caution start to set in thanks to Germany and South Korea experiencing a new surge of Covid-19 infections. Both Germany and South Korea saw a rise in its respective rate of new Covid-19 infections after easing lockdown restrictions. This mostly dampened investor sentiment as the possibility that a second wave of infections in countries that ease lockdown restrictions became more plausible.

The S&P500 managed to eke out some gains, with the healthcare and technology sector leading gains in the index. The energy sector slumped despite Saudi Arabia's announcement that the Kingdom will increase its production cut for crude oil in an attempt to further stabilise crude oil prices, as demand woes outweighed the positive news for supply. The Nasdaq inched higher as bullish sentiment on technology was sustained while the DJIA fell as Boeing, American Express and Caterpillar weighed on the index.

Yesterday's corporate earnings reports further highlighted the economic damage resulting from the Covid-19 pandemic. Shale oil driller Chesapeake Energy Corp's stock plummeted after the company announced that bankruptcy is one of the options being considered as the industry suffers from low crude oil prices and low demand for energy.

Marriott International missed analysts estimates as its bookings dived. The company's Q1 adjusted earnings per share plunged to US$0.26/share from US$1.41/share in Q1 2019. The hotel operator suggested that April was its worse month as global lockdowns caused lodging bookings to come to a halt, although demand was seen to have stabilised at low levels throughout the world with the exception of China. Occupancy for its hotels in China remained low but saw improvements as the country started to lift its Covid-19 restrictions. The company also said that the Covid-19 pandemic will continue to have a material impact to its financial results. Marriott’s earnings report highlighted the damage being done to the tourism industry and suggests that while the worst may have been seen in April, demand is likely to continue to remain at near bottom even as lockdowns are eased since consumers will probably hold on travel spending as a result of caution of the virus. The outlook for the travel industry is hence a probable slow recovery, and the focus will likely be liquidity and debt serviceability.

Indexes Daily Change (%) Net Change Closing Price
Dow Jones -0.45% -109.33 24,221.99
S&P500 +0.02% +0.52 2,930.32
Nasdaq +0.78% +71.02 9,192.34
*Source: Bloomberg

The dollar advanced against all major currencies on Monday amid higher risk aversion resulting from increased possibility of a second wave of Covid-19 infections. Fed officials downplaying the possibility of negative rates in the US likely also helped drive the greenback higher. The Japanese yen weakened the most against major currencies after China's central bank said in its quarterly monetary policy report that it would pay more attention to economic growth and jobs, while maintaining an appropriate level of liquidity in the Chinese economy.

Sterling fell as much as 1% against the dollar on Monday after British Prime Minister Boris Johnson's decision to lift restrictions in the UK caused more confusion than before. Johnson's speech on Sunday and Monday seemed more vague than specific, with proposals such as allowing workers who could not work from home to contact their employers about returning to work, and avoiding public transport. The UK government's written plan also seemed more of an advisory, which possibly dampened sentiment as people may have been expecting a more concrete plan from the UK.

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Safe haven assets fell across the board on Monday, with the exception of the dollar. Gold inched lower to close below 1,700. US Treasuries fell, pushing 10-year yields 2.7bps higher to 0.71%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold -0.28% -4.77 1,697.93
Silver +0.06% +0.01 15.28
JPY -0.95% -1.01 107.66
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year +1.8 0.17%
10-Year +2.7 0.71%
30-Year +3.3 1.42%
*Source: Bloomberg

Oil futures fell on Monday despite additional cuts from oil producing countries. Saudi Arabia, Kuwait and UAE pledged to cut additional crude oil output on top of the OPEC+ agreement that took effect on May 1st to help stabilise oil prices. Saudi Arabia will cut a million barrels per day, while the UAE and Kuwait will cut 100,000 and 80,000 barrels per day respectively. But while oil futures initially jumped on the additional cuts, fear of another decline in demand resulting from a potential second wave of Covid-19 infections dampened oil prices, causing both Brent and WTI crude oil futures to close Monday lower. The crude oil stockpile report in the US which will release later this week may provide some upside for oil, as it is likely that we will see inventories start to decline. Downside risks for oil remain largely the same. As possibility for new clusters of the Covid-19 virus in countries lifting restrictions grow, oil's recovery will likely be delayed.

Oil Futures Daily Change (%) Net Change Closing Price
Brent Crude -4.33% -1.34 29.63
WTI Crude -2.43% -0.60 24.14
*Source: Bloomberg

Asia's stock markets look likely to suffer today, as investor optimism for economies reopening fades. The Nikkei only fell slightly, likely seeing some support from the weaker yen. The KOSPI and ASX200 neared a 1% drop in the first hour of Tuesday's trading session. Futures tracking major indices in the US were down as well, signalling that we may see equities in the US continue to drop when the US stock market opens later today.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei Index -0.07% -13.84 20,376.82 8:25:10 AM
KOSPI Index -0.80% -15.41 1,919.99 8:45:10 AM
ASX200 Index -0.96% -52.62 5,408.60 8:44:45 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures -0.59% -143.00 23,981.00 8:35:17 AM
S&P500 Futures -0.61% -17.75 2,904.75 8:35:18 AM
Nasdaq Futures -0.35% -32.50 9,246.00 8:35:18 AM
*Source: Bloomberg

Companies reporting earnings for the day ahead include (all timings in GMT +8 where available):

  • Luckin Coffee
  • Saudi Aramco
  • Toyota Motor Corp (12pm)
  • Deutsche Post (3.30pm)
  • Sony Corp (2pm)
  • Tencent (8pm)

Economic releases for the day ahead include (all timings in GMT +8):

  • China Apr Inflation Rate (CPI) (9.30am)
  • Japan Mar Leading Index (P) (1pm)
  • US Apr Inflation Rate (CPI) (8.30pm)