Tuesday, June 9, 2020

Asia Times: Energy stocks lead gains in the US, pushing the S&P500 back to trade positive year-to-date

Tags
  • Dollar
  • Gold
  • Yen
  • Stocks
  • Oil

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Market Recap:Energy stocks lead gains in the US, pushing the S&P500 back to trade positive year-to-date

Stocks in the US climbed on Monday as investors’ optimism shows little sign of slowing. Investors sentiment continued to be upbeat on the potential upside that reopening the economy brings, fueled further by last week's surprising growth in NonFarm payrolls in the US. Top gainers in the S&P500 index included cruise liners, airlines and energy companies. Notable companies were Norwegian Cruise Liners, Marathon Oil Corp and Boeing, whose stocks rose 19.75%, 15.16% and 12.20%. The S&P500 has now gained five out of the last six sessions, while the Dow has gained in all six.

Energy stocks rose the most among S&P500 sectors, rising 4.32% while the materials and technology sectors inched only slightly higher. The gains in energy sector stocks were likely a result of expectations for a recovery in crude oil prices, which will provide some upside for the lower margin US shale oil producers. The shift away from technology stocks was also another sign that risk appetite in the US has consistently been growing over the past week, with investors moving away from sectors that are expected to be less affected by the pandemic to sectors that are suffering heavy losses due to it.

In company news, Tesla's stock made new record highs on Monday after China reported a rise in car sales for the first time this year. According to the China Passenger Car Association (CPCA), retail sales in China for cars, SUVs and multiple-purpose vehicles increased 1.9% year-on-year in May, the first rise since June last year. CPCA's data also showed Tesla selling 11,095 Model 3 made-in Shanghai vehicles in May, almost triple that of the 3,635 units sold in April and up from 10,160 units sold in March. The news sent the company's shares up 7.26% to US$949.92 per share on Monday.

Indexes Daily Change (%) Net Change Closing Price
Dow Jones +1.70% +461.46 27,572.44
S&P500 +1.20% +38.46 3,232.39
Nasdaq +1.13% +110.66 9,924.75
*Source: Bloomberg

The dollar fell yet again, likely as optimism continues to dominate the financial market and as traders start to price in the pressure the unprecedented levels of stimulus should have on the currency. The Fed's decision to lower requirements of its small businesses lending program is also likely to put some downward pressure on the dollar. The Fed said that it would cut the program's minimum loan size in half to US$250,000 and increase the length of the repayment period from four to five years. The central bank also said that the program would begin shortly, and lenders will be able to extend loans to small and medium sized businesses soon after, and signalled that its decision to ease requirements for the loan program was to expand the reach of the program, to better help smaller business that were affected by the pandemic but unable to afford to take up too large of a loan.

The yen gained the most against the greenback, likely as a result of possible hedging against the euro as protests in the US starts to show some spill over effects, most notably in countries in Europe. Commodity-related currencies were close behind the yen, with the New Zealand dollar leading the group in gains against the dollar.

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A slight shift towards lower risk assets were also seen among traditional safe haven assets, likely a result of some profit taking and some slight risk aversion in the market due to surging equity prices. Gold inched higher on Monday. Longer-term US Treasuries rose as well, although shorter-termed ones fell. Benchmark 10-year yields were 2bps lower as a result.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +0.80% +13.47 1,698.53
Silver +2.06% +0.36 17.33
JPY +1.06% +1.16 108.43
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year +2.0 0.23%
10-Year -2.0 0.88%
30-Year -2.4 1.64%
*Source: Bloomberg

Crude oil prices dipped despite OPEC+'s agreement to extend production limits over the weekend as a result of renewed supply and compliance concerns. Saudi Energy Minister Prince Abdulaziz bin Salman said that on Monday during a press conference that "the voluntary cuts served their purpose and we are moving on", signalling that Saudi Arabia's voluntary cuts of about 1.2 million barrels per day may not be continued in June. In addition, the restarting of a second oil field in Libya also weighed on oil prices on Monday. Compliance may be the focus of OPEC+ members moving forward, since the new agreement has included an additional requirement, for countries that were unable to meet the specified output limits to compensate over the next months. The additional requirement signals that the deal is becoming more reliant on compliance, subsequently increasing the risk of the agreement falling apart in future.

Oil Futures Daily Change (%) Net Change Closing Price
Brent Crude -3.55% -1.50 40.80
WTI Crude -3.44% -1.36 38.19
*Source: Bloomberg

Asian stocks look likely to track gains in the US on Tuesday, with the exception of the Japanese stock market. The Nikkei started the day lower, likely as a result of the surge in value of the Japanese yen. The stronger yen will probably to continue to weigh on Japanese stocks despite rising optimism in the market. While better-than-expected wages in Japan for April might have supported stock prices in the country, wages still declined at its fastest pace since December and may instead cause a quicker shift away from risky assets in the country. The KOSPI and ASX200 in contrast were trading higher in the first hour of Tuesday's trading session, as both indices benefit from optimism for a recovery in the US economy. Futures tracking major indices in the US were mixed on Tuesday morning as of 8.35am (GMT +8), as we may possibly start to see some easing to the strong risk-on sentiment in equities markets.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei Index -0.21% -49.48 23,139.32 8:25:40 AM
KOSPI Index +0.36% +7.90 2,189.73 8:45:40 AM
ASX200 Index +2.45% +146.99 6,141.80 8:45:14 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.13% +35.00 27,544.00 8:35:19 AM
S&P500 Futures -0.08% -2.50 3,223.00 8:35:26 AM
Nasdaq Futures +0.02% +1.50 9,881.25 8:35:26 AM
*Source: Bloomberg

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

  • Switzerland May Unemployment Rate (1.45pm)
  • Eurozone Q1 Employment Change (F) (5pm)
  • Eurozone Q1 GDP (F) (5pm)