Friday, May 15, 2020

Asia Times: Wall Street recovers from two-day rout as investors brush off fundamental economic concerns

Tags
  • China
  • Dollar
  • Gold
  • Stocks
  • Oil

05152020a

Market Recap: Wall Street recovers from two-day rout as investors brush off fundamental economic concerns

Stocks in the US advanced on Thursday, recovering from a two-day selloff despite worse-than-expected unemployment figures. All three major indices in the US closed in the green mostly thanks to financial sector stocks, which surged after Fed Chair Jerome Powell mostly dismissing the possibility for negative rates in the US on Wednesday. The S&P500 financials sector sub-index rose 2.64% on Thursday. Hopes for additional fiscal stimulus from the US government likely also contributed to gains after Senate Majority Leader Mitch McConnell acknowledged Powell's call for more fiscal support in the US.

Wall Street also brushed off earlier losses after comments from US President Donald Trump suggested that tension between the US and China is escalating. Trump reiterated that he does not want to renegotiate the trade deal with China on Fox News and further said that information on China and the virus "is not good". The comments and worse-than-expected jobless claims data pushed the S&P500 to as low as 2766.64 earlier in the trading session before rebounding later in the day.

Indexes Daily Change (%) Net Change Closing Price
Dow Jones +1.62% +377.37 23,625.34
S&P500 +1.15% +32.50 2,852.50
Nasdaq +0.91% +80.56 8,943.72
*Source: Bloomberg

In the forex market, the dollar was mixed against the basket of major currencies on Thursday as commodity-related currencies led gains. The recovery in oil markets helped the Canadian dollar recover 0.36%, while the Dollar Index rose 0.22%, mostly as a result of the dollar rising against the euro and Japanese yen. Initial jobless claims declining less-than-expected to 2.98mn (economists estimated a decline to 2.5mn) for the week ending May 8th likely also helped lift demand for the greenback’s safe haven properties as the data could imply that there could be another wave of retrenchment in the country.

The New Zealand and Australia dollar saw some gains on Thursday, possibly reflecting traders’ optimism on China’s industrial production and retail sales data for April that’s set to be released later at 10am (GMT +8). Both datasets will almost definitely improve from figures in March as the country's factories reopen after largely remaining close as a result of the Covid-19 lockdown. Manufacturing PMI figures from both the National Bureau of Statistics of China (NBS) and Caixin signalled that China's manufacturing sector has returned to expansionary territory. This suggests that industrial production is likely to grow year-on-year as well, possibly above estimates as a higher proportion of Chinese workers were back to their jobs in April compared to March, and as factories continue to work through backlogs from earlier in the year. Retail sales will likely recover as well although will probably continue to decline in growth year-on-year as Covid-19 concerns will likely still dampen consumer spending. As a result, there may be more upside for the aussie and kiwi later this morning as well.

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Safe haven assets were mixed on Thursday, as investors weigh between the optimism on additional fiscal stimulus in the US as well as pessimism stemming from both a potential second wave of new Covid-19 infections and US-China tensions. Gold rose while the Japanese yen weakened against both the dollar and euro. US Treasuries rose across the board. Benchmark 10-year yields were 3.1bps lower at 0.62% as a result.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +0.82% +14.02 1,730.30
Silver +1.87% +0.29 15.45
JPY -0.21% -0.22 107.25
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -1.2 0.15%
10-Year -3.1 0.62%
30-Year -5.4 1.29%
*Source: Bloomberg

Oil surged on Thursday after data showed that OPEC+ cut exports by 5.96mn barrels per day for the first 14 days of May compared to the average for the entire month of April. A report from Bloomberg suggesting Saudi Aramco will decrease sales of oil to the US and EU likely also helped oil prices recover, although the oil producer has not officially said so. The active WTI crude oil future contract is now trading at a five-week high. As expected, supply side data should provide some upside for oil futures, but oil futures should be expected to be more sensitive towards demand data, which could potentially be better-than-expected as the world starts to reopen its economy, suggesting that oil prices still have some upside in the short-term. The dampened outlook for travel-related industries may pose some headwinds for oil however, as airlines are unlikely to recover to full capacity anytime soon.

Oil Futures Daily Change (%) Net Change Closing Price
Brent Crude +6.65% +1.94 31.13
WTI Crude +8.98% +2.27 27.56
*Source: Bloomberg

Asia may show some signs of recovery today as seen in the US on Thursday. The Nikkei, KOSPI and ASX200 were in the green in the first hour of the trading session. Futures tracking major indices in the US were trading higher as well, as of 8.15am (GMT +8). Potential downside risks will still stem from a possible second wave of new Covid-19 infections as economies start to reopen.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei Index +1.28% +254.60 20,169.38 8:05:25 AM
KOSPI Index +0.20% +3.85 1,928.81 8:25:20 AM
ASX200 Index +1.08% +57.38 5,386.10 8:25:14 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.34% +79.00 23,613.00 8:15:35 AM
S&P500 Futures +0.27% +7.75 2,854.75 8:15:39 AM
Nasdaq Futures +0.37% +33.50 9,113.00 8:15:37 AM
*Source: Bloomberg

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

  • Roya Caribbean Cruises
  • JD.com (7.30pm)

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

  • China Apr Industrial Production (10am)
  • China Apr Retail Sales (10am)
  • Germany Q1 GDP (P) (2pm)
  • Eurozone Q1 GDP (P) (5pm)
  • US Apr Retail Sales (8.30pm)
  • US Apr Industrial Production (9.15pm)
  • US May Consumer Sentiment (U. of Mich) (P) (10pm)