Monday, May 11, 2020

Asia Times: Investors’ risk appetite surge as more countries start to ease restrictions

Tags
  • Dollar
  • Gold
  • Euro
  • Stocks
  • NonFarm Payrolls
  • Oil

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Market Recap: Investors’ risk appetite surge as more countries start to ease restrictions

Stocks in the US advanced on Friday as the number of unemployed workers in the US rose less-than-expected. Change in NonFarm payrolls declined at a record high rate of 20.5 million in April, slightly less than economists’ predictions for a 22 million decline. Energy stocks led gains in the S&P500, with the S&P500 sector surging 4.34% as the shale oil industry start to show signs of recovery.

Indexes Daily Change (%) Net Change Closing Price
Dow Jones +1.91% +455.43 24,331.32
S&P500 +1.69% +48.61 2,929.80
Nasdaq +1.58% +141.66 9,121.32
*Source: Bloomberg

Major US indices ended the week strong. The Nasdaq gained 6% over the week, while the small cap index, Russell 2000 spiked 5.49%. S&P500 and Dow's gains on the week were pale in comparison to smaller cap indices, as investors start to shift back into higher risk positions amid the global easing of Covid-19-related restrictions. In contrast, Asian and European stocks performed mostly mixed thanks to a weak start to the week.

The FTSE100 gained over the week thanks to optimism for lockdown restrictions in the UK to ease. The index gained 3% over the week, with most of its gains on Thursday after British Prime Minister Boris Johnson signalled that he would lift Covid-19 restrictions to help ease pressure on the British economy. The FTSE100 is now trading 0.59% higher MTD to as a result.

Indexes Weekly Change (%) Net Change Closing Price
Dow Jones +2.56% +607.63 24,331.32
S&P500 +3.50% +99.09 2,929.80
Nasdaq +6.00% +516.37 9,121.32
FTSE100 +3.00% +172.92 5,935.98
Euro Stoxx -0.68% -19.82 2,908.11
CSI300 +1.30% +51.04 3,963.62
Nikkei +2.85% +559.74 20,179.09
KOSPI -0.09% -1.74 1,945.82
ASX200 +2.77% +145.19 5,391.08
Hang Seng -1.68% -413.42 24,230.17
Straits Times -1.23% -32.35 2,591.88
*Source: Bloomberg

The New Zealand and Australian dollar led gains among major currencies as investors speculate that the two economies are in the best position in an economic standpoint as both countries start to reopen its economy. Australia's biggest state, New South Wales is set to ease its lockdown on May 15th. Among the list of allowances includes restaurants and cafes opening to 10 patrons at a time and the permitting of outdoor gatherings of up to 10 people.

Sterling rose against the dollar as well, as the UK signalled that the country would start to ease restrictions this week. British Prime Minister Boris Johnson encouraged workers to return to work if they are unable to work from home. Johnson also announced a number of restrictions that would be lifted, including allowing people to exercise and drive to other destinations from Wednesday, May 13th. There were also a number of new restrictions for the new normal in the UK, which included asking people returning to work to avoid public transport where possible. The easing of restrictions should somewhat help the UK's economy, but it may introduce more risk than intended as a large portion of workers are set to be able to start work as soon as today. The outlook for the sterling may still tilt towards the upside however, as traders will likely be upbeat about workers being allowed to return to their jobs on Monday.

The dollar fell as risk in financial markets eased. Unemployment in April being better-than-expected (rising to 14.7% instead of the 16% economists forecasted) also likely contributed to the greenback’s retreat. At this point, financial markets are likely starting to ignore economic data that reflects the impact of the Covid-19 pandemic in favour of the optimism that comes with the easing of Covid-19-related restrictions. The outlook for the week for the greenback looks likely to continue to weaken as a result. Risk-on positions are starting to lead the financial markets as evident from gains in small cap stocks over larger-cap ones as well as the advancement of global economic activity-related currencies such as AUD and NZD.

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Safe haven assets were down across the board on Friday. Gold fell while the yen weakened against the greenback. US Treasuries fell across the board as well, pushing yields higher. Benchmark 10-year yields rose 4.2bps to 0.68%.

Safe Haven Assets Daily Change (bps) Net Change Closing Price
Gold -0.78% -13.36 1,702.70
Silver +0.88% +0.14 15.23
JPY -0.35% -0.37 106.65
*Source: Bloomberg
US Treasury yields Daily Change (%) Yield (%)
2-Year +1.8 0.16%
10-Year +4.2 0.68%
30-Year +5.4 1.38%
*Source: Bloomberg

Oil futures rose another 5% for both WTI and Brent active contracts as the consequences of the oversupply starts to dampen demand for oil and natural gas exploration. Production limits and pickup in demand is continuing to lift oil prices as well. Brent is now trading back above US$30.97 per barrel, while WTI crude oil futures inch closer towards US$25 per barrel. Oil prices should continue on the same uptrend this week, although at possibly a slower rate as positive news for oil should mostly only come in the form of more restrictions being lifted across the world. Risks also largely remain the same, which is the possibility of a second wave of the virus as more lockdowns ease across the world.

Oil Futures Daily Change (%) Net Change Closing Price
Brent Crude +5.13% +1.51 30.97
WTI Crude +5.05% +1.19 24.74
*Source: Bloomberg

Asian stocks look likely to trade mostly positive on Monday morning. The Nikkei, KOSPI and ASX200 were each trading higher in the first hour of the trading week. The ASX200 will probably get a boost from New South Wales reopening up. The financial market has likely already priced in a recovery and is likely to continue to move forward with optimism as Covid-19 infections start to peak across many countries. Economic data from China will be the focus of the week for Asia, with what should a rebound in retail sales and industrial production in April. The Reserve Bank of New Zealand (RBNZ) will decide on monetary policy tomorrow at 10am (GMT +8), and may increase its quantitative program to help deal with surging bond issuances.

Futures tracking US major indices were trading lower but close to flat on Monday morning. Smaller cap equities should be the highlight of the week if risk continues to ease in the form of peaking Covid-19 infections and easing of lockdowns across the world. Economic data should continue to take the back seat in comparison as the main driver of the financial markets. Riskier positions are also likely to benefit more as compared to low risk assets and large cap stocks. The S&P500 is now less than 15% down since its all-time high in February, while the small cap S&P500 is still close to -25% in the same period. Downside risks to this strategy would come in the form of a possible second wave of the virus, as well as over optimism in the financial markets, since reports and economic data signals that the impact on smaller businesses may be worse-than-expected despite strong fiscal and monetary stimulus from the US government and central bank.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei Index +1.02% +206.27 20,385.36 8:14:35 AM
KOSPI Index +0.42% +8.10 1,953.92 8:34:30 AM
ASX200 Index +1.06% +57.32 5,448.40 8:34:14 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures -0.08% -20.00 24,267.00 6:52:38 AM
S&P500 Futures -0.12% -3.50 2,925.00 6:52:38 AM
Nasdaq Futures -0.09% -8.75 9,209.00 6:52:38 AM
*Source: Bloomberg

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

  • Under Armour (6.55pm)
  • Mariott International (7pm)

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

  • New Zealand May Business Confidence (ANZ) (P) (9am)