Wednesday, May 13, 2020

Asia Times: Equities suffer as warnings from US health officials add to worries for a second wave of Covid-19 infections

Tags
  • Dollar
  • Gold
  • Yen
  • Stocks
  • Oil
  • Reserve Bank of New Zealand

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Market Recap: Equities suffer as warnings from US health officials add to worries for a second wave of Covid-19 infections

US stocks plunged after a warning from Director of National Institute of Allergy and Infectious Diseases, Anthony Fauci, against prematurely reopening cities and states in the US. Fauci warned lawmakers on Tuesday that lifting Covid-19 restrictions too early and not aligning with the guidelines outlined by the US government could result in a surge of new cases of the virus, which could potentially lead to more deaths and further delay an economic recovery in the US. The comments from Fauci added to pessimism in the market following signs of new Covid-19 clusters in South Korea, Germany and China earlier this week, pushing the S&P500 and Nasdaq lower by more than 2%, while the DJIA retreated 1.89%.

In company news, Saudi Aramco reported a 25% decline in net profit for the quarter ended on March 31st, as lower oil prices and the Covid-19 crisis affected the oil giant's bottom line. The company also announced that it will payout dividends of US$18.75 million for the quarter, which would leave it on track to meet its full-year dividend target, in contrast to industry peers such as Exxon Corp, who has frozen its dividend payout for the first time in 13 years. Its shares ended Tuesday's trading session 1.29% higher as a result.

Toyota's earnings report on Tuesday rattled investors, adding to expectations that there will likely not be a sharp rebound in the near future for the auto industry. The world's largest automaker highlighted that it expects operating profit to plunge 79.5% and revenue to drop 19.8% in FY2021. Its forward guidance also noted that while the global automobile market is expected gradually recover after bottoming out during April and June of 2020, a return to the same level as before the virus would likely only be at the end of 2020 or in the first half of 2021. Car sales was also expected to drop 19.8% for FY2021. The automaker's stock dropped 1.97% on Tuesday as a result.

Indexes Daily Change (%) Net Change Closing Price
Dow Jones -1.89% -457.21 23,764.78
S&P500 -2.05% -60.20 2,870.12
Nasdaq -2.06% -189.79 9,002.55
*Source: Bloomberg

The dollar was mixed against the basket of G10 currencies on Tuesday as investors weigh in on US President Donald Trump's call for negative interest rates. Trump tweeted on Tuesday calling on the Fed to slash interest rates into negative territory, a strategy that Fed officials have mostly dismissed. Dallas Fed President Robert Kaplan, St Louis Chief James Bullard and Minneapolis' Neal Kashkari echoed the thoughts of other colleagues’ earlier during the week that negative rates are not on the agenda for the central bank. Fed Chairman Jerome Powell will be speaking on current economic issues later today at a web conference and he will likely weigh in on the topic as well. But it looks more likely that Powell will reiterate his colleagues at the central bank and dampen expectations for the possibility of negative rates in the US.

We should see higher volatility for the New Zealand dollar today as the Reserve Bank of New Zealand (RBNZ) is set to announce its decision on monetary policy later in the morning today. The central bank looks likely to expand its quantitative easing program to support the New Zealand government's fiscal stimulus policies in light of the Covid-19 pandemic but keep interest rates on hold since there are some signs of recovery in the exports and business confidence data sets.

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Safe haven assets rose across the board as equities fell, signalling that some investors may have shifted positions to safer assets as risk and uncertainty for another surge of new cases of Covid-19 in the US increases. Gold climbed back above 1,700 while the yen strengthened against the dollar. US Treasuries rose across the board, pulling benchmark 10-year yields 4.5bps down to 0.67%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +0.28% +4.77 1,702.70
Silver -0.27% -0.04 15.34
JPY +0.48% +0.52 107.14
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -1.6 0.16%
10-Year -4.5 0.67%
30-Year -4.6 1.37%
*Source: Bloomberg

Oil futures advanced on Tuesday after a sharp drop on Monday as the oversupply of crude oil starts to ease. Oil prices gained as the US Energy Information Administration (EIA) revised its forecast for average oil production down 70,000 barrels per day to 11.69mn barrels per day through December. Bloomberg's report citing people familiar with crude oil inventories in the US saying that crude oil supplies at Cushing dropped by 2.26mn barrels last week likely also helped the US WTI benchmark rise more than 6%. If confirmed by the official dataset by EIA that will be released later today at 10.30pm (GMT +8) then there may be more upside for oil prices.

Oil Futures Daily Change (%) Net Change Closing Price
Brent Crude +1.18% +0.35 29.98
WTI Crude +6.79% +1.64 25.78
*Source: Bloomberg

Asia looks set to track losses in the US as investor optimism starts to fade. The Nikkei, KOSPI and ASX200 were all lower in the first hour of Wednesday's trading session. Futures tracking major indices in the US were trading lower as well, signalling that equities may be on another downtrend in the short-term.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei Index -1.46% -296.97 20,067.84 8:25:55 AM
KOSPI Index -0.55% -10.51 1,911.35 8:45:50 AM
ASX200 Index -1.25% -67.65 5,335.40 8:45:45 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures -0.40% -95.00 23,477.00 8:36:00 AM
S&P500 Futures -0.52% -14.75 2,837.50 8:36:04 AM
Nasdaq Futures -0.48% -43.25 9,035.00 8:36:03 AM
*Source: Bloomberg

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

  • Sony Corp (2pm)
  • Tencent Holdings (8pm)
  • Cisco Systems (4.30am +1)

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

  • RBNZ Monetary Policy Decision (10am)
  • RBNZ Governor Orr's Speech on Monetary Policy (11am)
  • UK Mar Manufacturing/Industrial Production (P) (2pm)
  • UK Q1 GDP (P) (2pm)
  • Fed Chairman Jerome Powell Discusses Current Economic Issues (9pm)