Monday, May 4, 2020

Asia Times: Equities dive as US President Donald Trump sparks fear of reviving the US-China Trade War

  • China
  • Dollar
  • Yen
  • Stocks
  • Oil


Market Recap: Equities dive as US President Donald Trump sparks fear of reviving the US-China Trade War

Wall Street stocks extended losses on Friday, dragged down by fear that the US-China trade war could be revived. The equities selloff was sparked after US President Donald Trump threatened to impose new tariffs on China, saying that the trade deal with China is now secondary in importance to the coronavirus outbreak. A Reuters report said that White House officials were considering a range of options against China, although these talks were still in preliminary stages and that no concrete plans have been made or reached Trump yet, citing its source from two anonymous US officials.

Amazon's better-than-expected revenue for Q1 last Thursday failed to lift investor sentiment after Amazon CEO Jeff Bezos told shareholders that they may want "to take a seat" as he expected costs to continue to increase in the next quarter to keep its logistics operations running during the Covid-19 pandemic. His outlook likely surprised markets, as investors were expecting the e-commerce giant to largely benefit from stay-at-home orders across multiple states in the US, and countries across the world. The statement highlighted that investors may have discounted the costs for essential companies to continue to operate during this period as workers salary and storage spaces are likely to put pressure on the bottom line of companies that are allowed to operate during the pandemic. Its shares dived 7.60% on Friday as a result.

Apple was another big tech company that should increase concern among investors on the outlook for 2020. Apple beat analysts’ estimates for revenue for the quarter, but its outlook for the rest of the year was the highlight of its quarterly earnings. Apple CEO Tim Cook indicated that the company suffered the most during late March and early April before seeing some pickup in late April, expecting the fall in demand to last for an extended period of time. The company also pulled its forecasts, the first time in a decade, highlighting its uncertainty of the market in the near future. Apple's shares dropped 1.61% on Friday as a result. The company will likely continue to be affected by lockdowns, especially if it is eased incrementally since retail stores are unlikely to be the priority for most countries, and since factories are unlikely to return to full capacity in the short-term. The supply chain disruption could cause delays to future products which would potentially delay revenue growth as well. The silver lining is that Apple's expansion in to services over the last few years (11.3% of total revenue in FY2016 to 17.8% of total revenue in FY 2019) is likely to help support revenue growth and profit margins, while its position as market leader is likely to help curb losses from retail stores as customers shift to online purchases. It's new iPhone SE will probably help to increase its market share in the middle-budget smartphone market segment as well.

Indexes Daily Change (%) Net Change Closing Price
Dow Jones -2.55% -622.03 23,723.69
S&P500 -2.81% -81.72 2,830.71
Nasdaq -3.20% -284.60 8,604.95
*Source: Bloomberg

Stocks in the US slid to end the week slightly lower, reversing all gains made earlier in the week, when news that Gilead's antiviral drug showed positive data on treating Covid-19 pushed stocks higher. The rest of the world ended last week with higher, as easing lockdowns across multiple countries helped lift stock prices as economies starts to reopen in phases.

Indexes Weekly Change (%) Net Change Closing Price
Dow Jones -0.22% -51.58 23,723.69
S&P500 -0.21% -6.03 2,830.71
Nasdaq -0.34% -29.57 8,604.95
FTSE100 +0.19% +10.83 5,763.06
Euro Stoxx +4.23% +118.86 2,927.93
CSI300 +3.04% +115.61 3,912.58
Nikkei +1.86% +357.35 19,619.35
KOSPI +3.10% +58.55 1,947.56
ASX200 +0.06% +3.27 5,245.89
Hang Seng +3.41% +812.26 24,643.59
Straits Times +4.21% +106.07 2,624.23
*Source: Bloomberg

In the forex market the dollar gained for the first time on Friday after five straight sessions of losses, as the prospect of a US-China trade war during this period of high uncertainty increased risk-aversion in the market. The Canadian dollar led gains among major currencies, as volatility started to ease in energy markets as the OPEC+ production limit deal started to come into full effect on Friday. The Australian dollar suffered the most, with the New Zealand dollar close behind as a result of its high correlation to the Chinese economy.

While ISM's manufacturing PMI report for April was better-than-expected, its new orders sub index was the highlight of the report as investors are likely to digest more forward-looking numbers amid the high uncertainty environment. New orders for the manufacturing sector fell 15.1 points to 27.1, from 42.2 in March, the largest drop since 1951.


Safe haven assets advanced on Friday thanks to fear for escalation in the tension between the US and China. Gold, yen and US Treasuries all rose. Benchmark 10-year yields lost 2.8bps to close Friday’s trading session at 0.61%.

Safe Haven Assets Daily Change (bps) Net Change Closing Price
Gold +0.83% +13.92 1,700.42
Silver +0.05% +0.01 14.75
JPY +0.25% +0.27 106.91
*Source: Bloomberg
US Treasury yields Daily Change (%) Yield (%)
2-Year -0.6 0.19%
10-Year -2.8 0.61%
30-Year -3.6 1.25%
*Source: Bloomberg

Oil markets were mixed, as speculation continues to dominate the futures market. WTI crude oil futures gained 4.99% on Friday, moving closer towards US$20 per barrel. Brent on the other hand was mostly flat on the Friday, only falling 0.15%. But oil was trading lower on Monday morning, possibly dampened by the outlook for the airline industry after Berkshire Hathaway said on Saturday during its annual meeting that it had sold all of its stake in the airline industry. CEO Warren Buffett said during the meeting that the outlook for the airline industry is highly uncertain and will probably go through change amid the Covid-19 pandemic. WTI and Brent oil futures retreated 7.33% and 3.06% on Monday morning as of 8.53am (GMT +8), signalling that speculators could be less certain of the velocity of a recovery in demand for energy. Over the week, futures will likely experience more volatility, although it is unlikely to hit levels seen the past few weeks as brokers and funds are more prepared for large swings in the futures market as a result of the time sensitivity of contracts. While the outlook for supply and demand should see some improvement for physical oil, oil future valuations may be detached from underlying physical oil valuations as a result of high levels of speculation in both the futures and ETF market.

Oil Futures Daily Change (%) Net Change Closing Price
Brent Crude -0.15% -0.04 26.44
WTI Crude +4.99% +0.94 19.78
*Source: Bloomberg

In Asia, stocks look likely to track losses in the US on Monday. Japan's Tokyo Stock Exchange will remain closed until Wednesday, but with risk of tensions between US and China increasing, the strengthening of the Japanese yen will likely put pressure on Japanese stocks when the exchange reopens on Thursday. Both the KOSPI and ASX200 were trading lower in the early hours of Monday's trading session. Stocks in Hong Kong and Singapore may experience sharp drops today, since both stock markets were closed late last week for its respective bank holidays. Futures tracking US major indices were more than 1% lower on Monday morning as of 9.05am (GMT +8) as investors digest Buffett's outlook for stocks in the US.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
KOSPI Index -2.13% -41.48 1,906.08 9:07:30 AM
ASX200 Index -0.75% -39.39 5,206.50 9:07:15 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures -1.48% -350.00 23,272.00 9:05:18 AM
S&P500 Futures -1.49% -42.00 2,779.75 9:05:21 AM
Nasdaq Futures -1.54% -134.00 8,584.00 9:05:21 AM
*Source: Bloomberg

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

  • Shake Shack (5am +1)

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

  • Germany Apr Manufacturing PMI (Markit) (F) (3.55pm)
  • US Mar Factory Orders (10pm)