Monday, June 1, 2020

Asia Times: US equities reversed losses on Friday after Trump’s press conference failed to spark concern on the US-China phase one agreement

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  • China
  • Dollar
  • Gold
  • Yen
  • Stocks
  • Oil

06012020a

Market Recap: US equities reversed losses on Friday after Trump’s press conference failed to spark concern on the US-China phase one agreement

Wall Street stocks managed to end last Friday's trading session mostly in the green after US-China tensions escalated less-than-expected. US President Donald Trump spoke little to undermine the phase one trade agreement between the US and China at his press conference on Friday, a major investor concern leading to his speech that saw the S&P500 dipping back below 3,000 for a brief moment during Friday's trading session. Instead, Trump signalled that the US will be looking to put more pressure on Chinese firms listed in the US to comply with US accounting and disclosure rules. The S&P500 managed to reverse losses towards the end of the session as a result, inching 0.58% to close the week 3.01% higher and the month of May 4.53% higher.

Twitter lost another 1.99% on Friday, extending losses from earlier in the week after the social media company's decision to fact-check Trump's tweet on mail-in ballots, which led to Trump signing an executive order targeting censorship by social media sites. The executive order targets companies granted liability protection through Section 230 of the Communications Decency Act which prevents social media companies from being legally liable for content posted by users of the platform. Facebook was less impacted by the news after CEO Mark Zuckerberg expressed his thoughts that Facebook or other internet platforms in general should not be arbiters of truth.

In sector news, the healthcare and technology sectors rose the most among S&P500 sectors on Friday, signalling that investors could be hedging some risk with a possible shift back towards lower-risk sectors. In contrast, financial stocks led losses. But risk aversion may rise through this week as protestors and the police continued to clash over the weekend in multiple states in the US following the death of George Floyd. The economic impact of the demonstrations is starting to become more tangible, with multiple retailers such as Target and Apple opting to extend retail closures. Amazon also said that it has decided to adjust routes and scale back deliveries in a number of states to ensure the safety of its teams. In addition, the demonstrations are also starting to renew fears that cases of the Covid-19 pandemic will start to rise again as crowds gather in multiple states.

Indexes Daily Change (%) Net Change Closing Price
Dow Jones -0.07% -17.53 25,383.11
S&P500 +0.48% +14.58 3,044.31
Nasdaq +1.29% +120.88 9,489.87
*Source: Bloomberg

Despite equities falling late last week as US-China tensions escalated, most major indices around the world rose for the second week in a row. The Euro Stoxx index led gains after the EU showed some progress on additional financial aid for members of the bloc that were being badly affected by the Covid-19 pandemic. The Hang Seng index however, only inched slightly higher, as investor sentiment was likely impacted by increasing unrest ahead of Chinese lawmakers’ approval of a national security law for Hong Kong.

Indexes Weekly Change (%) Net Change Closing Price
Dow Jones +3.75% +917.95 25,383.11
S&P500 +3.01% +88.86 3,044.31
Nasdaq +1.77% +165.29 9,489.87
FTSE100 +1.39% +83.32 6,076.60
Euro Stoxx +4.98% +144.73 3,050.20
CSI300 +1.12% +42.96 3,867.02
Nikkei +7.31% +1,489.73 21,877.89
KOSPI +3.02% +59.47 2,029.60
ASX200 +4.71% +258.66 5,755.69
Hang Seng +0.14% +31.33 22,961.47
Straits Times +0.44% +10.92 2,510.75
*Source: Bloomberg

The greenback extended losses on Friday against most major currencies as risk sentiment eased slightly after Trump had no remarks on the phase one trade deal with China in his press conference on Friday. The Australian dollar rose 0.45% as a result of its reliance on US and China's economy. The Japanese yen fell the most, possibly from short covers from earlier in the day as traders hedged against possible retaliatory measures from Trump.

The Australian and Canadian dollars as well as the euro will likely be the focus of the week as the Reserve Bank of Australia (RBA), Bank of Canada (BoC) and the European Central Bank (ECB) are set to decide on monetary policy this week. The RBA looks likely to keep monetary policy on hold as the Australian economy starts to reopen mostly ahead of other countries. Economists are also mostly expecting the BoC to keep policy unchanged as well at Governor Stephen Poloz's final monetary policy meeting before Tiff Macklem takes over as Governor in July. There may be changes to its asset purchase program however. As for the ECB, an increase in asset purchases for its Pandemic Emergency Purchase Program may be possible, while an interest rate cut deeper into negative rates will probably not be seen.

The greenback has several drivers this week as well, with ISM's manufacturing PMI and employment data set to release. Employment in the US will likely continue to be a cause of concern for economists as unemployment figures remains at extreme levels. May's employment data may see some improvement with US states reopening, but unemployment is likely to continue to remain at high levels, as signalled by jobless claims benefits.

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Safe haven assets were mostly mixed on Friday. Gold gained while the yen weakened against the dollar. US Treasuries rose across the board as well, resulting the in benchmark 10-year yields falling 3.7bps to 0.65%.

Safe Haven Assets Daily Change (bps) Net Change Closing Price
Gold +0.69% +11.94 1,730.27
Silver +2.85% +0.49 17.27
JPY -0.17% -0.18 107.83
*Source: Bloomberg
US Treasury yields Daily Change (%) Yield (%)
2-Year -1.0 0.16%
10-Year -3.7 0.65%
30-Year -4.6 1.41%
*Source: Bloomberg

Oil futures surged on Friday near the end of the trading session as risk aversion eased after Trump's press conference. As a result, crude oil futures ended the month strongly, with Brent and WTI crude oil futures rising 33.66% and 62.43% higher from the start of May. OPEC+ may be the focus of the week for oil again, as the cartel is reportedly considering shifting its meeting planned for June 9th to June 4th. A report from Bloomberg citing a delegate saying that the bloc is considering a short extension to current cuts may be able to rally crude oil prices today again. However, earlier reports last week that Russia was looking to ease output limits may ease bullish sentiment on oil this week as traders could possibly remain cautious ahead of the OPEC+ meeting. Both Brent and WTI Crude oil futures were trading slightly more than 1% lower on Monday morning.

Oil Futures Daily Change (%) Net Change Closing Price
Brent Crude +5.02% +1.81 37.84
WTI Crude +5.28% +1.78 35.49
*Source: Bloomberg

In Asia, most major indices may be set to track US gains from Friday. But the increasing number of demonstrations in the US may put some downside pressure on stocks in Asia as well as retailers and companies in the US start to announce possible extension of closures despite lockdown restrictions easing. The Nikkei and KOSPI were 0.80% and 1.03% higher respectively in the first hour of the trading session while the ASX200 was 0.27% lower. Futures tracking major indices in the US were trading lower as well as of 8.43am (GMT +8).

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei Index +0.80% +175.78 22,011.29 8:31:25 AM
KOSPI Index +1.03% +20.85 2,051.09 8:51:20 AM
ASX200 Index -0.27% -15.49 5,742.50 8:51:15 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures -0.74% -60.00 25,309.00 8:43:52 AM
S&P500 Futures -0.30% -9.25 3,031.50 8:43:53 AM
Nasdaq Futures -0.29% -27.75 9,529.25 8:43:53 AM
*Source: Bloomberg

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

  • China May Manufacturing PMI (Caixin) (9.45am)
  • Germany/Eurozone May Manufacturing PMI (Markit) (F) (4pm)
  • Canada May Manufacturing PMI (Markit) (F) (4.30pm)
  • US May Manufacturing PMI (ISM) (10pm)