Friday, June 19, 2020

Asia Times: S&P500 closes flat as worse-than-expected unemployment data renew concerns for an extended period of record high unemployment

Tags
  • Dollar
  • Gold
  • Yen
  • Pound
  • Stocks
  • Oil
  • Bank of England

06192020a

Market RecapS&P500 closes flat as worse-than-expected unemployment data renew concerns for an extended period of record high unemployment

Stocks in the US closed Thursday's trading session mixed as optimism in financial markets continues to fade after weekly unemployment figures fell less than expected, inciting fears that the high levels of unemployment might be here to stay. Initial jobless claims inched only slightly lower for the week ended June 12th to 1.508 million from 1.542 million the week before. Continuing claims for the week ended June 5th fell to 20.544 million from 20.929 million the week before. Both claimant counts fell less than expected, signalling to traders that companies may not be recovering as fast as expected despite the reopening of the US economy in May. Conflicting news on US-China trade relations may have also added some slight downward pressure on stocks on Thursday, after US President Donald Trump tweeted that a complete decoupling from China remains an option for the US while US Secretary State Michael Pompeo tweeted earlier that day that China recommitted to its obligations set out in the phase one trade deal during a meeting on Wednesday.

In sector news, energy stocks led gains among S&P500 sectors tracking gains in oil prices after OPEC+'s meeting concluded with a commitment from Iraq for compensatory cuts. The more defensive consumer staples and technology sectors gained the most aside from the energy sector, while the real estate and industrials sectors fell the most. The shift towards safer sectors is likely thanks to more news on spikes in Covid-19 cases around the world, in particular in several states in the US. The impact of the news of new clusters is however likely much lower as compared to in March and April, since the likelihood of another nationwide lockdown is likely to be low. The health care sector underperforming in the basket of S&P500 sectors signal that market sentiment is similar.

Indexes Daily Change (%) Net Change Closing Price
Dow -0.15% -39.51 26,080.10
S&P500 +0.06% +1.85 3,115.34
Nasdaq +0.33% +32.52 9,943.05
*Source: Bloomberg

The dollar advanced against all other currencies except the Japanese yen, as fears that unemployment in the US may remain at high levels for an extended period of time grew. The Australian and New Zealand dollar were among the worst performers against the dollar on Thursday, signalling that sentiment is shifting to risk aversion again since traders are likely using the two currencies as a proxy for positioning for a global economic recovery.

Sterling fell more than 1% against the greenback on Thursday after the Bank of England's (BoE) Monetary Policy Committee (MPC) voted 8-1 in favour of a 100-billion-pound expansion to its asset purchase program. The MPC also voted unanimously to keep rates on hold at 0.1% with no mention of negative rates in the meeting minutes. The BoE's outlook for the British economy was slightly more optimistic, now expecting output to fall less than initially expected in Q2 2020. Labour market woes were however similar to the previous meeting, which should have been expected since the UK government's furlough scheme is set to ease through the following months and shift the pressure back on to employers. The central bank also said that it expects to complete its asset purchase program at the end of the year, which signals that a slowdown in the current pace is highly likely while additional boosts to quantitative easing is unlikely. The increase in its asset purchase program target and its positive outlook likely put some downward pressure on sterling, as traders adjust to expect less stimulus from the central bank in the near future.

06192020b

Safe havens were mixed on Thursday as traders weigh between riskier and lower risk assets. Gold fell while the Japanese yen strengthened against both the dollar and euro. US Treasuries rose across the board as well. Benchmark 10-year yields ended the trading day 3.0bps lower at 0.71% as a result.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold -0.23% -4.02 1,722.93
Silver -0.70% -0.12 17.38
USD/JPY -0.04% -0.04 106.97
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -0.2bps 0.19%
10-Year -3.0bps 0.71%
30-Year -4.8bps 1.48%
*Source: Bloomberg

Oil futures advanced on Thursday as optimism for crude oil supply to narrow rose after Iraq submitted plans for compensatory output cuts during OPEC+’s meeting. While no extension of cuts resulted from the bloc's meeting, which should have been widely expected since the coalition had just agreed to extend a 9.6 million barrels per day production limit to the end of July just earlier this month, compensatory cuts from Iraq likely surprised oil traders since compliance issues has become growingly important in its latest agreement. In addition, a press conference that was scheduled to take place after the meeting was postponed to June 22nd, as OPEC+ leaders wait on plans from other members with overproduced volumes for the months of May and June to compensate. The outlook for oil as a result skewed towards the upside on Thursday on the premise of a slightly greater reduction in supply in the next coming months. While the outlook for oil prices looks to be slightly more promising than before, downside risks that are continually growing should be taken note of. More news of spikes in Covid-19 infections should continue to put some slight downward pressure on oil prices. Risk of non-compliance of OPEC+ members is still present, since it is increasingly evident that the OPEC+ agreement is placing a greater emphasis on compliance for all of its members. Hence, while oil prices is still likely to recover, it will likely be at a slower pace with increasing downside risk.

Oil Futures Daily Change (%) Net Change Closing Price
Brent +1.97% +0.80 41.51
WTI +2.32% +0.88 38.84
*Source: Bloomberg

Stocks in Asia were mixed on Friday morning, but the outlook for the day looks slightly tilted to the upside after two straight days of losses. The Nikkei and ASX200 were both trading higher in the first hour of the trading day while the KOSPI looks set to extend into another day of losses, possibly as a result of conflicting news on US-China trade tensions as well as South Korea-North Korea relations. Futures tracking major indices in the US were trading slightly higher as of 8.35am (GMT +8), signalling a possible easing in risk aversion for both the US and Asia on Friday.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei +0.29% +65.90 22,421.36 8:25:40 AM
KOSPI -0.87% -18.41 2,115.07 8:45:40 AM
ASX200 +0.63% +37.53 5,974.00 8:45:14 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.18% +48.00 25,947.00 8:35:41 AM
US Futures +0.17% +5.25 3,103.25 8:35:42 AM
Nasdaq Futures +0.18% +18.25 10,002.25 8:35:40 AM
*Source: Bloomberg

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

  • UK May Retail Sales (2pm)